Legal form in Kürz: What should be considered in a GmbH or UG?

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The company is the most frequently used legal form within the corporations. It promises high legal certainty to business partners and therefore enjoys high confidence. However, the effort involved in the foundation is also correspondingly high.

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What do you have to consider for a GmH?

A GmbH is in Germany probably the most common form of legal form - and it has it all.

  1. Establishment / Formal requirements: The establishment of a limited liability company can be carried out by one or several partners. The share capital of the GmbH must be at least EUR 25.000 and can be provided by cash or contributions in kind (for example by transferring a company). If several shareholders are present, at least 50% of the reported share capital must be invested in the cash formation of the company.
  2. Social contract: It must be completed before a notary and sent to the relevant commercial register (Division B) for registration. For this purpose - in addition to the actual capital allocation - additional costs, which must be planned accordingly.
  3. Management: The company has to appoint at least one managing director. This leads the company's business and represents the company externally. If several managing directors have been appointed, the type and scope of the power of representation can be regulated accordingly. If a shareholder is to be appointed as managing director, then a corresponding employment contract between the managing director and the company must also be concluded in this case.
  4. Liability risks: The liability for creditors of the GmbH is basically limited to the assets of the company. If the share capital has not been fully paid in, the shareholders may not owe the balance due to the Company, however, to the creditors of the Company. A so-called permeation into the private assets of the shareholder or shareholder is therefore only considered in exceptional cases. However, under certain circumstances, the managing director may be held personally liable for tax arrears and social security contributions of the GmbH.
  5. In order to avoid liability risks, business operations should only start after the entry in the commercial register. Until then, in addition to the company that is not yet legally competent, the affected shareholders are directly and unrestrictedly liable for any debts of the company.
  6. Costs / Formalities: As a rule, the running costs of a limited liability company are somewhat higher than for a private company. This is mainly related to the provisions of the German Commercial Code regarding the preparation of the annual financial statements.
  7. Thus, the GmbH is required to prepare a balance sheet and an appendix to the annual financial statements. In addition, for a certain size of the company, there may still be obligations to prepare a management report and to audit the annual financial statements by an auditor. A copy of the annual financial statements must be deposited with the relevant commercial register for public inspection.
  8. Regarding the formalities, particular attention must be paid to the numerous formal requirements of corporate and commercial law as well as tax law. As a matter of principle, corresponding contracts or resolutions of the shareholders' meeting must be submitted for each payment of the limited liability company to the shareholder or managing director. If this is not the case, the tax office will be disqualified with the corresponding adverse consequences for the shareholder.
  9. Taxation: As a legal entity, the GmbH is subject to corporation and trade tax. Even with a "freelance" GmbH, trade tax is due by law, but this cannot be offset against the personal income tax of the partner.
  10. The managing partners paid by the company reduce the taxable profit of the company and represent income from non-self-employment with the managing director. This also applies to the managing director.
  11. Profit distributions, however, do not change the balance sheet result of the GmbH. Rather, income from capital assets is available to the shareholder who, at 50%, is subject to the dividend amount of the individual income tax (so-called half-income method). The same applies in the case of the so-called hidden profit distribution. This is always accepted by the tax office if excessive remuneration (for example, for the management) is paid to the shareholder or the formal requirements (in particular the written form) have not been met. Then the profit of the limited liability company is increased by this amount and the shareholder must additionally tax corresponding income from capital assets.
  12. Financing: As a rule, in addition to the collateral of the company, personal guarantees of the shareholders are required by the financing banks, especially when a company is founded. In this respect, the limitation of liability of the legal form no longer applies.
  13. In addition to bank loans, however, a limited liability company can also be financed through the provision of private loans from the shareholders, which should be concluded at normal market conditions.

The Mini-GmbH

The UG limited liability, popularly also called mini-GmbH or 1-Euro-GmbH, is a variant of the GmbH, which mainly founders of smaller Companies to make life easier. She became 1. November 2008 launched and is not its own legal form, but merely a variant of the normal GmbH.

The big difference is that the UG can initially be established with limited liability capital - with a minimum of one euro. Many pet owners choose but amounts to about 1000 Euro.

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Which capital is useful?

In contrast to the GmbH, the UG does not allow contributions in kind, but rather you must pay the share capital directly and in full as a cash contribution. However, the disadvantage of such a small capital stock is obvious: the lower the capital, the lower the creditworthiness of the company.

If the shareholders can raise 25.000 euros or 12.500 euros (half of the statutory minimum share capital), it is generally better not to set up a limited liability company but a “normal” GmbH.

What do you have to consider?

As a compensation for the small tribe contribution, you must not distribute profits completely, but must accumulate at least 25 per cent of the annual surplus as a reserve. If the accumulated reserve together with the original share capital reaches the sum of 25.000 Euro, you can (but need not!) Convert UG to a normal limited liability company.

However, this does not happen automatically, on the contrary, the shareholders have to make a capital increase decision and change the company name in GmbH. However, for the capital increase, an auditor must confirm the audit of the balance sheet, which can lead to considerable costs.

All other regulations correspond to those of normal GmbH!

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  1. karin

    Thanks for the great contribution about the different legal forms. I have always asked myself what to consider when starting a business. I didn't know that there was also a simpler version of the GmbH. Thanks!

    • Simone Janson

      Hello Karin, thank you for your comment!

  2. Simone Janson

    Gruendersite-News: Legal form in brief: What needs to be considered at a GmbH?

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