Every day, we get enquiries by foreign entrepreneurs who want to establish a German business entity. The most commonly used form is the German limited liability company (Gesellschaft mit beschränkter Haftung, in brief GmbH), which will in most cases be the natural choice for serious business projects. However, some clients have heard or googled that there is the possibility to start with a so called “Unternehmergesellschaft haftungsbeschränkt” (“UG”), which is commonly referred to in Germany as “Mini-GmbH”. This is still relatively new to German corporate law. It was introduced in 2008 by German legislation as a reaction to the fact that more and more foreign company forms (UK Limited, Dutch BV etc.) were used to establish German based new businesses. The idea was to create an option for German entrepreneurs to establish a limited liability company without having to use foreign company forms. So far so good. So this option does now exist since 2008.
Do we recommend to use it? The clear answer is no!
We usually strongly discourage our clients from establishing a Mini-GmbH, because in German business life such a Mini-GmbH is simply not being taken seriously. Every business partner, bank and client will immediately assume that the company (and its shareholder) does not have any money. The traditional concept of the German GmbH is that the shareholder must at least come up with 12,500 Euros minimum cash share capital. This is meant as a “test of seriousness”. German law wants to achieve that the company form GmbH is only being used by shareholders that do have and are willing to use enough funding to start a business without being out of cash from day one.
A common misunderstanding in that regard is that the share capital of a German GmbH will be locked somewhere as a kind of unaccessable deposit. This is wrong. The share capital can of course be spent by the GmbH management for business purposes. It cannot, however, be paid back to the shareholders because the whole idea of the minimum share capital is to provide a solid financial basis for the new GmbH.
If you wish to be regarded as a trustworthy business we therefore do recommend to establish a “real” GmbH. Especially since the Mini-GmbH is only an interim stage anyway. It is not a seperate legal form but only a slightly different way to start the establishment of a GmbH. The formation procedure is identical whether you chose a Mini-GmbH or a real GmbH. Why, because legally it is the same company form: According to German law every Mini-GmbH is supposed to “grow up” to become a real GmbH eventually. Therefore, the shareholders of a Mini-GmbH are not allowed to receive any dividends until the full share capital of 25,000 EUR has been accrued. This leads to more complicated accounting. Furthermore, a Mini-GmbH is under more scrutiny from the tax authorities.
In short: A serious businessman would not consider the Mini-GmbH to be a relevant option.
See here for more information on how to establish a company or register a business in Germany.
The law firm Graf & Partners (Germany) provides corporate and business law advice since 2003 and has a network of professionals in the areas tax, IT, marketing and business consulting. Please contact German corporate solicitor Bernhard Schmeilzl at +49 941 785 3053.