Company Formation
How to Open a UG in Germany (the Mini-GmbH)
Open a UG (haftungsbeschränkt) from €1, but with strings: full cash pay-in, 25% profit reserve, mandatory suffix. The honest §5a guide. English firm.
The UG is Germany's entry-level "mini-GmbH", famous for the headline that you can start one with just €1. That headline is true, but it is not the whole story. This guide gives you the honest €1 reality: what § 5a GmbHG actually obliges you to do, what you have to set aside every year, what the mandatory name suffix does to your reputation, and how and when you upgrade to a full GmbH.
If you have not yet settled on the UG, the wider company formation in Germany overview and the German company types comparison will help. If you have, read on, because the strings attached to the €1 figure are the part most guides leave out.
What is a UG (haftungsbeschränkt)?
UG stands for Unternehmergesellschaft, literally "entrepreneurial company". The mandatory addition "(haftungsbeschränkt)" means "(with limited liability)". Put together, the full legal designation is "Unternehmergesellschaft (haftungsbeschränkt)".
The key point is what the UG is not: it is not a separate legal form. It is a sub-form of the GmbH, created under § 5a GmbHG specifically to let founders start with less than the €25,000 GmbH minimum capital. Official guidance describes it as "a start-up version of the GmbH" with a minimum capital of less than €25,000 (gtai.de). That is why it is nicknamed the "mini-GmbH".
Because the UG is a GmbH under special rules, everything that is not governed by § 5a works exactly as it does for a full GmbH: notarisation, the bank account, the Handelsregister, the trade office, the tax office, the transparency register, one-person formation, and the managing-director rules. The whole of this page is therefore about what § 5a changes, and we cross-link the shared mechanics to the GmbH formation walkthrough.
UG vs GmbH: the §5a rules
Five rules that separate the mini-GmbH from a full GmbH.
| UG | GmbH | |
|---|---|---|
| Minimum capital | From €1 | €25,000 |
| Pay-in before registration | Full stated capital | €12,500 (half) |
| Contributions in kind | Not possible (cash only) | Allowed |
| Statutory profit reserve | 25% until €25,000 | None |
| Name suffix | UG (haftungsbeschränkt) | GmbH |
Can you really start a UG with €1?
Yes, literally. Under § 5a(1) GmbHG, a UG can be formed with share capital below the €25,000 GmbH minimum, all the way down to €1. The "1-euro GmbH" label is accurate.
But the €1 figure is a floor, not a recommendation, and two facts make it impractical:
- The full stated capital must be paid in before registration (§ 5a(2) GmbHG). With €1 of capital you pay in €1, which is fine in itself, but it leaves the company with nothing.
- €1 cannot even pay the notary. Formation involves notary and Handelsregister fees, and a company with €1 of capital can be insolvent before it ever trades.
The honest version: set your stated capital high enough to cover formation costs and early operating expenses. In practice founders commonly start with a few hundred to a few thousand euros, not €1.
Think of the €1 as proof that the floor is genuinely low, not as a sensible starting capital.
The five §5a rules that make a UG different
Everything distinctive about a UG sits in § 5a GmbHG. These five rules are what separate it from a full GmbH, and the table below puts the contrast in one place.
| Item | UG (haftungsbeschränkt) | GmbH | Source |
|---|---|---|---|
| Minimum capital | From €1 | €25,000 | § 5a(1) / § 5(1) GmbHG |
| Pay-in before registration | Full stated capital | €12,500 (half), ≥25% per share | § 5a(2) / § 7(2) GmbHG |
| Contributions in kind | Not possible (cash only) | Allowed | § 5a(2) GmbHG |
| Statutory profit reserve | 25% of annual surplus until €25,000 | None | § 5a(3) GmbHG |
| Name suffix | "UG (haftungsbeschränkt)" mandatory | "GmbH" | § 5a(1) GmbHG |
| Conversion to GmbH | Deliberate act, not automatic | n/a | § 5a(5) GmbHG |
Capital below €25,000, down to €1 (§5a(1))
A UG may be formed with share capital that falls short of the €25,000 GmbH minimum, down to €1 (§ 5a(1) GmbHG). This is the single concession that defines the form: the GmbH's capital floor is lifted so that founders with little starting capital can still incorporate with limited liability. Everything else in § 5a is a counterweight to that concession.
Full pay-in before registration; cash only, no in-kind (§5a(2))
Here is the first and sharpest trade-off. For a UG, the application to register the company may not be filed until the full amount of the share capital has been deposited (§ 5a(2) GmbHG). There is no "half now" option. On top of that, contributions in kind are not possible: a UG's capital must be cash.
Contrast this with a full GmbH, where only €12,500 (half the minimum) is needed before registration, and where in-kind contributions are permitted. So while the UG's floor is lower, the pay-in discipline is stricter: whatever capital you state, you fund all of it, in cash, before you can register. Founders who want to contribute assets rather than cash should look at a GmbH instead.
The mandatory 25% profit reserve (§5a(3)), max 75% distributable
A UG cannot freely pay out all of its profit. Each year, its annual financial statements must include a statutory reserve of one quarter of the annual surplus minus any losses carried forward from the previous year (§ 5a(3) GmbHG). This continues until the reserve plus the share capital together reach €25,000.
The practical effect: until the build-up is complete, at most 75% of annual profit is distributable. The reserve is forced retained earnings, designed to grow the UG towards proper GmbH capitalisation over time. It is mandatory and ongoing, so do not plan around distributing the full profit of a young UG.
The mandatory "haftungsbeschränkt" name suffix (§5a(1))
A UG's name must carry "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" in full (§ 5a(1) GmbHG). The "(haftungsbeschränkt)" part is load-bearing and signals to third parties that this is a low-capital limited-liability vehicle.
Warning: abbreviating to "UG" alone, without "(haftungsbeschränkt)", is not permitted, and using the shortened form on contracts or letterhead can expose the managing director to personal liability. Always use the full designation.
Reaching €25,000 ends §5a, but conversion is a deliberate act (§5a(5))
This is the rule most competitors get wrong. § 5a(5) GmbHG provides that if the company increases its share capital so that it equals or exceeds the § 5(1) GmbH minimum, then subsections (1) to (4) no longer apply, and the business name may be retained.
The trap is the word "increases". Reaching €25,000 in accumulated reserves does not automatically flip the UG into a GmbH. The founders must take deliberate action: resolve a capital increase to at least €25,000 (the accumulated reserve can fund it), notarise the resolution and the amended articles, and file the increase. The § 5a regime ends only on Handelsregister entry of the increase, which is constitutive. Until you do this, the company stays a UG no matter how large its reserves grow.
How a UG is formed
The formation path for a UG is the same as for a GmbH. In condensed form:
- Notary. The articles must be notarised, and the notary files the Handelsregister application.
- Bank account & pay-in. Open a German business account for the UG in formation and pay in the full stated capital (cash only).
- Handelsregister. The notary submits the registration application; the entry is constitutive.
- Gewerbeanmeldung. Notify the local trade office before trading begins.
- Finanzamt. File the tax questionnaire via ELSTER; receive the tax number and, on request, the VAT ID.
- Transparenzregister. Report the beneficial owner(s).
A few UG-relevant notes: the Musterprotokoll is available for a reduced notary fee, on the same limits as the GmbH (up to three shareholders, one managing director, standard rules, cash). Online / video formation has been available since 1 August 2022 for both the GmbH and its UG sub-form (cash contributions). And a non-resident or single person can form a UG and serve as sole managing director, provided the company has a German business address.
For the full depth on each of these steps, see the GmbH formation walkthrough; the mechanics are identical.
Upgrading a UG to a full GmbH
When the time comes to become a full GmbH, remember it is a deliberate act, not an automatic switch (§ 5a(5) GmbHG):
- Resolve a capital increase to at least €25,000. The accumulated statutory reserve can be used to fund all or part of it.
- Notarise the capital-increase resolution and the amended articles.
- File the increase with the Handelsregister.
The § 5a regime, including the 25% reserve obligation and the suffix requirement, ends only when the Handelsregister enters the increase. From that point the company is a full GmbH and may use the "GmbH" name. The accumulated reserve you were forced to build is exactly what makes the upgrade affordable.
The credibility trade-off
Limited liability with €1 of capital sounds ideal, but the market notices. Banks, suppliers, and lenders may treat a low-capital UG as undercapitalised, and respond with personal guarantees, advance payment, or stricter terms. The "(haftungsbeschränkt)" suffix advertises exactly this profile.
If credibility with counterparties matters from day one, consider starting the UG with meaningful capital well above the €1 floor, or forming a full GmbH instead. For a structured look at that decision, see GmbH vs UG: which to choose.
UG formation costs & timeline
A UG's formation costs are shared with the GmbH. The Handelsregister first entry is €225 (since 1 June 2025), plus notary fees and the Gewerbeanmeldung (typically around €20–60). The defining UG difference is the pay-in: you must fund the full stated capital in cash before registration, not half. Timelines are comparable to a GmbH, commonly a few weeks. For the full breakdown, see UG and GmbH formation costs.
Frequently asked questions
Yes. Capital can be below the €25,000 GmbH minimum, down to €1 (§ 5a(1) GmbHG). But the full stated capital must be paid in before registration, and €1 will not even cover formation costs, so it is not realistic.
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