A short guide to Mini GmbH Germany: What you need to know

Introducing the German Mini-GmbH

Thanks to a legal reform passed in 2008, it is now easier to found a new company in Germany, or shift sole proprietorship to a corporation. The new law both makes the process of doing so, simply, and also less expensive.

The mini-GmbH

Shortened to the ‘mini GmbH’ the law reform is more properly called the Unternehmergesellschaft of UG.It can be set up with just a Euro of capital, or any other financial sum up to the maximum of 25,000 Euros, which is required to set up a regular corporation.This low investment is attractive for global investors who are keen to invest in Germany and grow their business across Europe.

As part of the mini-GmbH arrangement, 25pc of its annual profits must be transferred to the corporation’s capital reserves fund, until a total of 25,000 Euros has accrued. At this point, the corporation can transfer its legal status to a regular GmbH.A body with mini-GmbH status has legal status much akin to a corporation, with a management board, a reuqirement to pay corporation taxes, the ability to sue and be sued, and the right to own assets and acquire property.Under the law, the corporation’s name must include the UG abbreviation, or the full word ‘Unternehmergesellschaft’ which translates into ‘Business Corporation’.

Advantages of the mini-GmbH

This type of set-up is advantageous because it is relatively low cost and also attracts less bureaucy. No lawyers are required to set up complex individual protocols – instead these are standardised and simplified as far as possible by the law, which requires minimal information other than:

• The company purpose
• The names of the management board, and;
• A shareholder list

The notary will confirm that the signatures are genuine, but this is the limit of their required involvement.

The requirements of the full UG

This is far more complex to administer, and costs significantly more. Those firms incorporated under the standard GmbH protocol are only allowed one single managing director and a maximum of three shareholders.The UG differs in other ways too. It can only accumulate its capital in cash, whereas a GmbH can accrue in-kind services or goods in its capital reserves.With a UG, the Managing Director must also have no prior record of any business related crimes.

Tax and legal considerations

It is important to note however that, even with the new simplified incorporation procedure, there are a range of legal and tax issues that must be factored in when contemplating a new business venture in an unknown market.

One example relates to the corporate name, which has to be compliant with strict regulations under Germany’s business laws. This name will be confirmed and listed in the Commercial Register, and if any question arises about it, the Industrie- und Handelskammer (IHK) will be asked to give their opinion on the name’s admissibility to the German courts.For taxes, the requirements are similar for both full GmbH corporations and mini GmbH companies. Both are required to be fully registered at their local taxation office and will use their assigned unique number when submitting returns and taxation documentation.

Good practices

It is also recommended to work with corporation experts who can advise on tax and legal regulations when considering a new incorporation. Investors will always benefit from accessing specialist advice from professional advisors and minimise the risk of personal and financial risk by doing so.

The consideration of sole ownership

Businesses are also able to operate under sole ownership arrangements, but corporations of both types discussed above offer key advantages in Germany. A primary advance regards limitation of liability to company assets for the founder – with a corporation, the founder’s assets can only be accessed if fraud has occurred.There is a possible disadvantage of the mini-GmbH structure which is the requirement to distribute one quarter of all profits to the capital reserve.

This may limit shareholder profit access, but it is one good reason to rapidly convert to the full GmbH status when possible.One other potential downside is that the company name inclusion of UG or Unternehmergesellschaft can flag up to external parties that the corporation’s managers may lack the necessary funds for the full GmbH status, and negatively affect the firm’s creditworthiness.As ever, professional advice is recommended before taking any decisions.

FAQs: Everything You Need to Know About Mini GmbH in Germany

1. What is a Mini GmbH in Germany?

A Mini GmbH, also known as an Unternehmergesellschaft (UG), is a type of limited liability company in Germany. It is designed for small businesses and startups with a lower capital requirement than a standard GmbH. It offers limited liability protection to its shareholders, similar to a GmbH, but can be founded with a minimum capital of just 1 Euro.

2. How do you set up a Mini GmbH in Germany?

To set up a Mini GmbH in Germany, you need to draft and notarize the articles of association, register the company with the local trade office (Gewerbeamt), and file for registration in the commercial register (Handelsregister). You must also open a business bank account and deposit the initial capital. Legal advice is often recommended to ensure compliance with all regulations.

3. What are the main advantages of a Mini GmbH in Germany?

The main advantages of a Mini GmbH include lower initial capital requirements, limited liability protection, and a simpler setup process compared to a standard GmbH. This makes it an attractive option for entrepreneurs and small business owners who want to limit their personal financial risk while establishing their business.

4. What are the differences between a Mini GmbH and a standard GmbH?

The key differences between a Mini GmbH (UG) and a standard GmbH are the initial capital requirements and the flexibility in capital contributions. A Mini GmbH requires a minimum capital of 1 Euro, while a standard GmbH requires a minimum of 25,000 Euros. Additionally, a Mini GmbH must allocate 25% of its annual profits to a legal reserve until it reaches the minimum capital required for a GmbH, at which point it can be converted into a standard GmbH.