As mentioned above, one of the major changes introduced by the new GmbH legislation is the establishment of an Unternehmergesellschaft  (“UG”). The UG is not really a new kind of entity but rather a regular Limited Liability Company (“GmbH”) with a stated share capital of less than the  € 10.000 required for a regular GmbH.

In order to ensure the formation of a sufficient share capital, the founders must allocate 25% of the annual surplus (reduced by any deficits carried forward from the previous business year) to the capital reserves (Rücklage). Once the minimum share capital for a “regular” GmbH is reached, the company name (Firma) can be changed from “UG” to “GmbH”.

The main reason for the introduction of the UG is to increase the competitiveness of the GmbH. This is largely due to increased competition by limited liability companies from other jurisdictions – especially the UK - and their full recognition in Germany after numerous landmark decisions of the European Court of justice. These decisions led to an overwhelming increase in the formation of  UK private companies limited by shares and a new market for the “Limited” in Germany. If adopted, the UG is expected to cause a substantial decrease of “Limited” formations in Germany.