Before German company registration the members need to decide about the company form. There are two company forms in Germany:
Regarding these two company forms (GmbH Registration in Germany vs UG Registration) it is important to know that the difference is necessary to be looked for only within the amount of the share capital, because both of them are limited liability companies according to commercial law, i.e. the members are responsible for the company’s mistakes only to the extent of the share capital and not to that of their personal assets.
The GmbH is a German acronym and
represents the abbreviation of the German Limited Liability Company [Germ. Gesellschaft mit beschränkter Haftung] and is a
recognized company form within the German commercial environment and it
is highly respected Europe–wide because its minimal share
capital amounts to 25,000-, EURO. This means that in case of prejudice
or any kind of asset prejudice the company may be made accountable only
to the extent of this amount. GmbH-formation is a marvelous choice for
all those that plan to enter a contractual relationship with bigger
companies and enterprises, because the contracting parties would
consider a GmbH as more recognized compared to a smaller, less share
In the case of establishing a GmbH one does not necessarily need to contribute with capital in money to the company’s basic share capital, the company’s asset may be represented by the so called contribution, i.e. movable or immovable asset objects that can be introduced into the company ulterior to the official assessment.
For the company’s debts the company itself is responsible to the extent of its share capital. By determination of the members’ or managers’ intentional and premeditated economic felonies, they will be made responsible according to civil law. This means that the judging court of law may oblige the members to compensate the injured parties out of their own assets. Imprisonment may also be the punishment for those whose culpability is proven.
Observation: The amount of 25,000,- EURO at GmbH Incorporation, does not necessarily have to be paid into the share capital account during GmbH founding. This aspect may be solved via a lawyer’s statement where the manager declares the existence of the amount and its placing in the petty cash.
The UG [Germ. Unternehmensgesellschaft] may be called the little brother of the GmbH, it is also a limited liability company, but its share capital is a minimum of 1,- EURO. This does not mean that the founders need to only pay this amount into the bank account! On the contrary! It is advisable to pay more, approximately 500-1,000 EURO into the company’s capital account, in order for the Registry Court to consider it an earnest and sincere company and incidentally not to deny its registration application. This company form exists for some years already because in the past not many entrepreneurs could afford to found themselves a 25,000,- EURO GmbH.
Thus, the German commercial law
introduced milder regulations as regards the extent of the share
capital, deciding the minimum amount in 1,- EURO, with the condition
that the company by its year-end profit distribution would leave a
minimum of a 25% within the company’s bank account and
recapitalize it to 25,000,- EURO within five years.
In case the company reaches the 25,000,- EURO share capital, the company leaders obligatory need to decide via a general assembly regarding the future company form. This means they ought to decide whether they would take on the GmbH for the future or whether they would continuously choose to function as an UG. In such cases it is advisable to change to the form of GmbH, because it proves a higher reputation and is able to gain acknowledgement within the business sphere. The stock deposit of the UG may only be money, the founding member may not participate with contribution during company founding. If you need Information about How to establish a german Branch Office, Click Here!