Form a GmbH in Germany

GmbH or UG? The choice that comes before formation

Anyone setting up a limited-liability company in Germany faces one decision at the outset that shapes everything else: GmbH or UG (haftungsbeschränkt). Both shield your personal assets, both are notarised and entered in the commercial register (Handelsregister, section B / HRB) — the difference is the share capital and the signal it sends. The GmbH requires €25,000 in share capital, of which at least €12,500 must be paid in at formation; the UG can start from €1 but must then retain 25% of its annual profit each year until it reaches €25,000. The third corporation, the AG, only becomes relevant close to the capital markets and stays the exception here.

The GmbH: the default when credibility matters

With over 1.2 million registered companies, the GmbH is by far the most common corporation in Germany — and that ubiquity is precisely its practical value: banks, suppliers and business partners recognise the form and treat it accordingly. Liability is limited to the company's assets, which is why it is usually the first choice both for the Mittelstand and for the German subsidiary of an international group.

Feature	Details
Share Capital	€25,000 (min. €12,500 at formation)
Shareholders	1 to unlimited
Liability	Limited to company assets
Shares	Transfer requires notarization
Bodies	Managing Director + Shareholders' Meeting
Formation	Notarization required
Commercial Register	Entry in HRB mandatory

UG (haftungsbeschränkt) - Entrepreneurial Company

Introduced in 2008, the UG is a special form of GmbH with reduced share capital. It is particularly suitable for startups and founders with limited initial capital.

Feature	Details
Share Capital	From €1 (typical: €1,000-5,000)
Mandatory Reserves	25% of annual profit until €25,000
Company Name	Must include "UG (haftungsbeschränkt)"
Contributions in Kind	Not permitted, cash only
Conversion	To GmbH when reaching €25,000

AG - Aktiengesellschaft (Stock Corporation)

The AG is intended for larger companies, especially those planning an IPO or seeking to raise equity on capital markets.

Feature	Details
Share Capital	€50,000 (min. 25% paid in)
Shareholders	From 1 (at formation)
Bodies	Board + Supervisory Board + General Meeting
Shares	Freely transferable (registered or bearer)
Stock Exchange	Listing possible

GmbH Formation Process

Step 1: Preparation

• Choose company name (check availability with IHK)
• Determine share capital (min. €25,000)
• Define business purpose
• Draft articles of association (or use template protocol)
• Appoint managing director(s)

Step 2: Notarization

• Notarization of articles of association
• Appointment of managing director
• Creation of shareholder list
• Notary files documents with commercial register

Step 3: Capital Contribution

• Open business account (GmbH i.G.)
• Deposit at least €12,500 (half of share capital)
• Bank certificate confirming deposit

Step 4: Commercial Register Entry

• Review by registry court
• Entry in Commercial Register Section B (HRB)
• Upon entry: GmbH has full legal capacity

Step 5: Post-Formation

• Trade registration with local authority
• Tax registration questionnaire for tax office
• Registration with IHK/HWK (automatic)
• Registration with employers' liability insurance if applicable
• Apply for VAT ID if needed

Formation Costs Comparison

Item	GmbH	UG	AG
Notary Fees	€500-1,000	€300-500	€2,000-5,000
Commercial Register	~€150	~€150	~€300
Trade Registration	€15-65	€15-65	€15-65
Legal Fees (optional)	€500-2,000	€300-1,000	€2,000-10,000
Minimum Capital	€25,000	€1	€50,000
To be paid at formation	€12,500	€1	€12,500

Tax Aspects

German corporations are subject to the following taxes:

Tax Type	Rate	Note
Corporate Tax	15%	Uniform nationwide; 15% until 2027, then 14% (2028) falling to 10% (2032)
Solidarity Surcharge	5.5% on corp. tax	= 0.825% effective
Trade Tax	7-17%	Depends on municipality; minimum multiplier 280% from 2027
Effective Total Burden	~30%	Typical in major cities

Advantages of a GmbH in Germany

• Limited Liability: Personal assets of shareholders are protected
• Credibility: High acceptance with banks, customers, and suppliers
• Flexibility: Free design of articles of association
• Largest EU Market: Access to 83 million consumers
• Tax Benefits: 95% dividend exemption for holding structures
• EU Freedom of Establishment: Europe-wide business activity possible
• Succession Planning: Simple transfer of shares

GmbH vs. UG - The Right Choice

Choose a GmbH if:

• You have sufficient starting capital (€25,000)
• Maximum credibility is important (banks, investors, B2B)
• You want to contribute assets in kind
• International activity is planned

Choose a UG if:

• Starting capital is limited
• You want to test a business idea
• The company should become a GmbH later
• Low formation costs are a priority