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Both the GmbH (limited liability company) and the UG (limited liability company) are legal forms in Germany, each of which has its own pros and cons. The choice between these two depends on the individual needs, goals and circumstances of the company. Here are some of the key pros and cons of both legal forms:
Advantages and disadvantages of a GmbH:
Advantages:
Higher seriousness: A GmbH is often perceived as more serious and established, which can build trust with customers and business partners.
Higher financing options: Due to the higher share capital, GmbHs can often take out loans or attract investments more easily.
Limited Liability: The personal liability of shareholders is limited to their contributions, providing protection for personal property.
Long-term perspective: The GmbH can be a stable legal form for companies that are to exist in the long term.
Additional Opportunities: It's easier to add shareholders or sell shares to increase capital.
Cons:
Higher start-up costs: The start-up costs and the minimum share capital for a GmbH are higher than for a UG.
Higher running costs: The running costs and administrative requirements of a GmbH can be higher.
Tax burden: GmbHs may be subject to higher taxes, especially if profits are not reinvested.
Less flexibility in share capital: The amount of share capital in a GmbH is fixed and cannot be built up step by step.
Advantages and disadvantages of a UG (limited liability):
Advantages:
Lower formation costs: Forming a UG requires less seed capital compared to a GmbH.
Faster founding: The founding of a UG can be completed faster.
Entry opportunity: The UG enables entrepreneurs with limited capital to still set up a company.
Flexible share capital: The UG allows the share capital to be built up step by step.
Cons:
Less seriousness: The UG is sometimes seen as less serious because the minimum share capital is lower.
Limited Financing Capabilities: Limiting share capital may limit the ability to
borrow or attract investment.
Limited Protection of Personal Property: Although liability is limited, there is still a risk that personal property may be affected in a liability case.
Conversion to GmbH: As a UG grows and accumulates more capital, it may need to be converted to a GmbH, which may incur additional costs.
The choice between a GmbH and a UG depends on many factors, including the company's financial situation, business goals, liability considerations and long-term plans. It is recommended that you seek professional legal and tax advice in order to make the best decision for your unique situation.