UG vs GmbH: a comparison of legal forms

Choosing the appropriate legal form is a crucial step for the success and legal security of your company. Especially for founders in Germany, the question often arises: Should I establish an UG (entrepreneurial company) or a GmbH (private limited company)?

Both types of companies are capital companies with limited liability and protect your personal assets. Their differences lie mainly in the minimum share capital requirements, formation costs and creditworthiness.

In this article, we compare the two types of corporations, UG and GmbH, from a legal, financial, and operational perspective.

The private limited company (GmbH) is one of the most popular and widely used legal forms for companies in Germany. Legally, it is a corporation with its own legal personality. This means that the GmbH acts as an independent legal entity: it can acquire property, enter into contracts, and sue or be sued in court.

Legal сlassification

The GmbH is governed by the Act on Limited Liability Companies and belongs to the group of capital companies. Its shareholders are generally only liable with their deposited capital, not with their personal assets. This provides a limitation of liability, which is particularly attractive for many businesses.

Minimum capital and liability

To establish a GmbH, a minimum share capital of €25,000 is required. At least €12,500 of this amount must be deposited when registering the company in the commercial register. The shareholders’ liability is limited to this capital, thereby restricting personal risk towards creditors.

Advantages of a GmbH

High reputation and trust: The minimum capital makes the GmbH a solid and trusted legal form among banks, investors, and business partners.

Clear limitation of liability: Shareholders are liable only up to their investment and cannot be made personally liable for debts.

Flexible company structure: A GmbH can be founded by one or several shareholders and offers diverse structuring options in its articles of association.

Legal and tax clarity: As an independent legal entity, the GmbH is subject to clear statutory and tax regulations, providing certainty.

The entrepreneurial company (UG), often referred to as the mini-GmbH, is a special form of the private limited company (GmbH) and belongs to the capital companies with limited liability. The UG was introduced in 2008 primarily to offer founders with low starting capital an easy and cost-effective way to start a business.

Definition and characteristics

The UG is an independent legal entity which, similar to the GmbH, limits the liability of its shareholders. This means the shareholders' liability is restricted to the company's assets, protecting their personal assets. The formation requires notarisation and registration in the commercial register.

Minimum capital 

The significant advantage of the UG is the lower minimum share capital, which can start as low as €1. This low capital requirement makes the UG particularly attractive for startups and small businesses that do not yet have the financial means to meet the full GmbH's minimum share capital of 25,000 euros. However, there is a legal obligation to retain at least 25% of the annual surplus as reserves within the company until the share capital of €25,000 is reached.

Why is the UG often called a "mini-GmbH"?

Since the UG is subject to the same legal regulations as the GmbH but differs in the lower minimum capital requirement, it is often called a mini-GmbH. This name highlights the similarities in limited liability and structure but also points to the lower capital requirement.

When choosing between an entrepreneurial company (UG) and a private limited company (GmbH), several factors play a crucial role. The following outlines the main differences in terms of minimum capital, formation costs, creditworthiness, liability risks, contributions in kind, reserve requirements, and administrative and accounting efforts.

Minimum capital and formation costs

The GmbH requires a minimum share capital of €25,000, of which at least €12,500 must be deposited at the time of formation. The UG can be established with a share capital as low as €1, which significantly reduces formation costs and simplifies the formation process.

Creditworthiness and image

With its higher share capital, the GmbH enjoys better creditworthiness and a stronger reputation among banks, business partners, and investors. The UG is sometimes seen as less creditworthy, which can affect financing and business relationships.

Liability risks 

Both entities offer limited liability confined to the company's assets.

However, intentional or grossly negligent conduct can lead to personal liability being imposed on shareholders, for example, in case of delayed insolvency filing or tax evasion.

Contributions in kind

The GmbH allows contributions in kind, such as real estate, machinery, or vehicles as capital. The UG does not allow this; the entire share capital must be deposited as cash into the business’s bank account.

Reserve requirements for the UG

The UG is obliged to retain at least 25% of its annual surplus as reserves until the share capital reaches €25,000. This rule is designed to strengthen the company’s equity base and enable the UG to be converted into a GmbH at a later stage.

Administrative effort and accounting

Both company forms are required to keep double-entry bookkeeping and prepare annual financial statements. The administrative burden is generally comparable, though the UG may be somewhat easier to handle due to its lower capital requirements.

Choosing the right legal form largely depends on individual circumstances, goals, and financial capabilities. Both the entrepreneurial company (UG) and private limited company (GmbH) offer advantages that can weigh differently depending on the maturity and ambitions of the business.

UG: for founders with limited start-up capital

For founders with limited capital, the UG is often the preferred choice. With a minimum share capital as low as €1, the UG can be founded relatively easily. It allows young entrepreneurs to enter the business world with a limited liability company structure that protects their personal assets. The reserve obligation also ensures steady capital accumulation so that the UG can be converted into a GmbH in the long term.

GmbH: for larger businesses and investors

Companies that require higher creditworthiness to appeal to banks and business partners, or plan larger investments should establish a GmbH. The €25,000 minimum capital conveys professionalism and makes credit approval and negotiations with investors easier.

From UG to GmbH

A unique strength of the UG lies in its potential to convert into a GmbH. Once the UG has accumulated sufficient profits as reserves and reached the share capital of €25,000, the shareholders can convert the UG into a GmbH. This step combines the advantages of both legal forms: the cost-effective entry via the UG and the later benefits of the GmbH in terms of reputation and creditworthiness.

A suitable business bank account makes day-to-day operations easier — from paying in the share capital to ongoing bookkeeping. It simplifies payment processing, and builds trust with business partners and banks. For UGs and GmbHs, a separate business account is not only recommended but also legally required.

Key features:

• dedicated German IBAN for legal capital deposit and transactions
• virtual + physical corporate Visa cards for efficient expense management
• individual access rights and limits for team members or external providers 
• options for multiple accounts and sub-accounts to manage diverse projects or stakeholders
• seamless integration with accounting and payment software
• instant SEPA transfers
• cashback and interest options 
• flexible pricing tiers adapted to the scale and growth stage

Popular neobanks

Vivid Money

• Free Start - €0/month: perfect for newly registered companies wanting to test essential banking functions free of charge
• Basic - from €7/month: for small teams that also want to do business internationally
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• Enterprise/ Enterprise+ - from €79/€249: ideal for larger organisations that want 1% cashback on every payment

Open your Vivid business account quickly and easily online – without in-person appointments or paperwork. Detailed information and a direct comparison of the various Vivid business accounts can be found here.

Finom

• Smart – €19/month 
• Pro – €119/month 
• Grow – €249/month 

Qonto

• Essentials – from €49/month
• Business – from €99/month
• Enterprise – from €199/ month

Revolut

• Basic - approx. €12 per month
• Grow - approx. €36 per month
• Scale - approx. €108 per month

Prices and conditions are current as of 23 September 2025 and may change. Please check providers’ websites for the latest details.

Criteria for choosing the right business account

When deciding on a business account, founders and entrepreneurs should consider the following aspects:

• Costs and fees: monthly account charges and additional service fees
• User-friendliness: intuitive operation and digital access via app or web portal
• Customer support: availability and quality of service, ideally with personal advice
• Security: SSL encryption, two-factor authentication, data protection standards
• Integration: compatibility with accounting software and other financial tools
• Additional features: services such as Visa cards, access limitations for team members, or support with tax filings

Considering these criteria will help you find a business account that optimally fits the needs of your UG or GmbH and makes daily financial management significantly easier.

Whether UG or GmbH makes more sense mainly depends on how much capital is available, how quickly the business is expected to grow, and what kind of external partnerships you envision.

Summary of the main differences:

• UG allows a cost-effective entry (minimum share capital is €1), but obliged to retain 25% of its annual profit as reserves
• GmbH requires a minimum capital of 25,000 euros, better creditworthiness and reputation is higher
• GmbH offers more flexibility in profit distribution, permits contributions in kind
• UG can only be founded with cash contributions
• Both companies limit private liability, except cases of violations of duties

Recommendation for founders

If you want to start with limited capital or do not yet have significant financial reserves, the UG is an attractive and pragmatic legal form. Once your company has stabilised and capital has sufficiently grown, it is advisable to convert to a GmbH to benefit from its advantages regarding creditworthiness and reputation.

Use of professional advice

Especially when it comes to growth, financing, or multiple shareholders, tax or legal advice can help you avoid costly changes later on. This way, you ensure that your choice fits your business idea and individual situation perfectly.

Please note: The legal information, prices, and conditions provided apply to the German market as of September 2025. As this may change over time, make sure to check the latest information.