UG (haftungsbeschränkt) (UG)

TL;DR

'Mini-GmbH' German form founded with as little as €1 capital but must retain 25% of profits annually until €25k, then convert to a full GmbH.

The UG (haftungsbeschränkt) — literally 'entrepreneurial company (with limited liability)' — was introduced in 2008 to give German founders an ultra-cheap entry point to limited-liability structure. It can be incorporated with as little as €1 of share capital and uses the Musterprotokoll (template founding deed), keeping notary costs around €300.

The trade-off: the UG must allocate 25% of its annual profit to a statutory reserve until that reserve plus existing share capital reaches €25,000, at which point it can convert to a full GmbH. Most German pre-seed founders incorporate as a UG, and venture investors routinely require conversion to a GmbH as a closing condition at Series A.

Worked example

Three Munich engineers found a UG with €1,000 share capital using the Musterprotokoll template (notary fee ~€300). Four years and €40k of retained profit later, they convert to a GmbH at Series A as a closing condition — the existing reserve plus a €5k investor cash injection brings share capital to the required €25k.

Common pitfalls

• Treating UG status as a permanent home — investors usually require conversion before a priced round.
• Ignoring the 25% reserve requirement and getting flagged on audit.
• Trying to issue real shares to employees in a UG — the tiny capital base and notary friction make VSOPs essentially mandatory.

When this shows up in a pitch deck

Pre-seed German decks state 'XYZ UG (haftungsbeschränkt), Berlin' on the Company slide; investors expect a GmbH conversion in the term sheet's closing conditions.

Related terms

• GmbH — Standard German limited-liability company: ≥€25k share capital (half paid in at incorporation), notarised formation. Default for German VC startups.
• AG (Aktiengesellschaft) — German stock-corporation form (€50k min capital, two-tier board) used for IPOs and large companies but considered too rigid for venture rounds.
• Notary Requirement (Germany) — German law requiring share allotments, transfers, and capital changes in a GmbH/UG to be witnessed by a notary, adding €1–5k per cap-table change.
• VSOPs (Virtual Stock Options) — Cash-settled phantom-share grants used by German GmbHs to give employees economic equity exposure without notarisation costs of issuing real shares.
• Pre-Seed — The earliest priced or convertible round, typically raised on an idea, prototype, or very early traction with $250K–$2M from angels and pre-seed funds.

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