The entrepreneurial company with limited liability (Unternehmergesellschaft (haftungsbeschränkt) – UG (haftungsbeschränkt)) is not a legal form in its own right, but only a subcategory of the limited liability company (Gesellschaft mit beschränkter Haftung – GmbH). Therefore, UG and GmbH basically have everything in common, unless the law provides otherwise. First and foremost, both companies have a separate legal personality and can therefore have rights and obligations in their own name. This means for example that a customer of the startup does not conclude a contract with the shareholders but directly with the GmbH or UG. In addition, both legal forms provide their respective shareholders with a liability shield: the liability of both legal forms is generally limited to the company's assets so that the respective shareholders are not liable for the GmbH's or UG's liabilities with their personal assets. The shareholders' liability is limited to their respective capital contributions.
The major difference can be summarized as follows: the GmbH requires a minimum share capital of EUR 25,000.00. It is sufficient for the incorporation if at least one quarter of its nominal amount is paid in on each share, but in total not less than EUR 12,500.00 (the remainder of the capital contributions then to be paid by the relevant shareholders at a later point in time, e.g., if the management – or, in the case of insolvency, the insolvency administrator – so demands).
The legislator introduced the UG in 2008 in order to enable the incorporation of a limited liability company with a lower share capital than the EUR 25,000.00 minimum share capital of the GmbH. The UG – therefore also known as "mini-GmbH" – is designed for entrepreneurs/small businesses with limited initial available capital. Accordingly, the UG theoretically "only" requires a minimum share capital of EUR 1.00. In practice, however, the share capital should be at least as high as the incorporation costs which usually the UG will bear (approx. EUR 900.00). Otherwise, the UG would already be overindebted upon incorporation. Unlike a GmbH, the share capital of a UG must be paid-in in full at the time of its incorporation. Contributions in kind are excluded.
The fact that there is no minimum share capital when founding a UG comes at a price though: put simply, a UG must save (allocate to retained earnings) a quarter of its profits until it has reached the minimum share capital of a GmbH of EUR 25,000.00. From this point on, the special regulations for UGs no longer apply to the company and it can change its name to a GmbH. Thus, every UG is virtually designed to become a GmbH at some point. Of course, the UG can also satisfy the requirements for a transformation into a GmbH other than by accumulating retained earnings, by instead having the shareholders increase the capital to at least EUR 25,000.00 from their own funds. This can for example happen when the startup is initially incorporated as a UG and then "upgraded" to a GmbH once it raises its first priced financing round.