The Unternehmergesellschaft is a popular starting point, but at some point the conversion to a GmbH is on the agenda. We explain the process and the advantages.
From UG to GmbH: A Natural Growth Step
The Unternehmergesellschaft (haftungsbeschränkt) was introduced in 2008 as Germany's answer to the English Limited. With a minimum share capital of just one euro, it enables a quick and cost-effective entry into self-employment with limited liability. However, many founders sooner or later aspire to convert into a full GmbH.
Why Conversion Makes Sense
External Perception and Reputation
The designation "UG (haftungsbeschränkt)" signals low share capital to business partners and customers. A GmbH enjoys a significantly higher reputation in commercial dealings and conveys solidity. This can be decisive, particularly for larger contracts or bank financing.
Obligation to Build Reserves
Pursuant to § 5a Abs. 3 GmbHG, the UG must allocate one quarter of its annual surplus to a statutory reserve. This mandatory retention of profits does not apply to the GmbH, allowing profits to be distributed freely.
Flexibility in Capital Structure
The GmbH offers greater flexibility in structuring its capital, for example through the possibility of contributions in kind, which is not available to the UG under § 5a Abs. 2 GmbHG.
The Conversion Process
Option 1: Capital Increase to 25,000 Euros
The simplest and most common route is a standard capital increase pursuant to §§ 55 ff. GmbHG. The process:
- Shareholders' resolution: The shareholders resolve to increase the share capital from the current level to at least 25,000 euros. A three-quarters majority is required (§ 53 Abs. 2 GmbHG).
- Notarial certification: The capital increase resolution and the subscription for the new shares must be notarially certified.
- Payment: The increased share capital must be paid in full.
- Amendment of articles: The company name is changed from "UG (haftungsbeschränkt)" to "GmbH".
- Commercial register filing: The changes are filed with the commercial register.
Option 2: Conversion via Reserves
If the UG has built up sufficient reserves over the years pursuant to § 5a Abs. 3 GmbHG, these can be converted into share capital. This so-called capital restructuring is effected by converting the reserve into share capital pursuant to § 57c GmbHG (capital increase from company funds).
A prerequisite is an audited annual financial statement demonstrating sufficient reserves. The audit must be performed by a certified public accountant or sworn auditor.
Costs of Conversion
The costs comprise:
- Notary fees: Approx. 500 to 1,200 euros (depending on share capital)
- Commercial register fees: Approx. 150 euros
- Audit costs (for Option 2): Approx. 1,000 to 2,500 euros for the auditor
- Advisory fees: Variable
Tax Aspects
The conversion itself generally does not trigger any tax liability, as it is merely a capital measure. It should be noted, however, that the dissolution of the statutory reserve (in Option 2) is not a tax-effective measure, since the reserve was already formed from post-tax profits.
Timeline and Planning
The conversion typically takes four to eight weeks from the resolution to entry in the commercial register. Careful planning and early involvement of a notary and tax adviser are recommended.
Conclusion
The conversion of a UG into a GmbH is a manageable process that places the company on a more solid footing. The right time has come when the share capital is available and the advantages of the GmbH designation outweigh the costs in commercial dealings.
