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Founding a UG in 5 steps

The UG ( Entrepreneurship Corporation ) is a limited liability company that is particularly ideal for entrepreneurs with little cash. Mini-GmbHs or “1-Euro-GmbHs” are common slang terms for the entrepreneurial corporation, which is a very popular legal structure, especially for beginning entrepreneurs.

With what kind of people can a UG be created?

A UG can be founded by an individual or a small group of persons working together. In this context, one can talk of a single UG or a group of UGs. The UG can be established by an individual, or a legal entity (such as another GmbH) can be used as a shareholder. Notaries, pharmacists, and auditors, for instance, are not allowed to work independently.

Also, if you don’t happen to be a German citizen, you can still establish a mini-GmbH in Germany.

If you want to start your own business, how much money would you need?

Your first question, “How much will it cost me to set up a UG?” is completely reasonable. Since the initial investment required to launch a UG varies, there is no one correct solution here, either. Unique expenses can be incurred for things like paperwork or licences.

The following are some of the expenses that must be taken into account:

Costs for the partnership agreement (written up by a lawyer or just a sample contract?) – Expenses are determined by the time and difficulty involved in the contract.
Fees for notarizing documents and performing other notarial acts (articles of association, registration with the commercial register)
Bank fees for starting an account
Payments for IHK donations
Opening balance sheet tax consultant fees

What are the pros and cons?

There are benefits and drawbacks to each type of legal structure. As a founder, you need to select a legal structure that is appropriate for your needs. We’ll walk you through the specific benefits and drawbacks of forming a business so you can make an informed decision on the legal structure of your future enterprise.

advantages

We’ll start with a written summary of the key benefits and drawbacks. In the end, everything will be laid out in a table for easy reference. The good things in life are where we begin. Is there anything special that a UG can do for you as a founder? We have compiled the most vital ones for your convenience.

Limitation of Liability

The limited liability company (UG) for entrepreneurs was established in 2008. It has essentially replaced its predecessor, the limited company, which had been the norm in Germany, and functions as a more compact alternative to the more traditional GmbH.

The primary benefit of the UG is the limiting of responsibility. Our corporation meets the requirements for existence as a separate entity. Therefore, save in a few specific cases, the entrepreneur’s personal assets are shielded from responsibility and only the company’s assets are at risk.

In only the most extreme of circumstances might a shareholder be held personally liable, such as the enactment of further guarantees from the shareholder. The UG has the benefit of limited liability and requires little in the way of initial funding.

share capital

This company structure is sometimes jokingly referred to as a “1-Euro-GmbH,” after its nominally required starting share capital of just one euro. For a starting capital of 12,5 euro, your options are the traditional GmbH or the UG. In most cases, if you establish a UG but subsequently amass sufficient cash, you will be able to convert it into a GmbH with no difficulty.

One of the main benefits of this legal form is the relatively modest starting capital required when establishing a corporation, which also helps to explain why the UG has gradually supplanted the limited company in Germany.

Organizational structure is irrelevant.

Establishing a UG is possible for any kind of commercial pursuit. Because of this, you may create virtually any kind of company you like. A UG is a great and easy method to start a business.

Founded as an individual

Can a UG only be formed by a small group of people? The good news is that the answer to this common query is a resounding “no”! Independently establishing a UG is also an option. The advantages of starting as an individual are identical to those of starting with a partner or partners.

Personnel costs

Personnel expenses are fully tax deductible for a business having a UG legal structure. As a result, there will be less money available to pay taxes on, as these expenses will cut into the profit.

Disadvantages

While there are many compelling arguments in favour of the UG’s current legal structure, there are also several caveats that must be taken into account.

Contributions to the capital must be made in cash.

Starting with the establishment of the business is the first step. Very little capital is required, but it must be brought in physically. Therefore, similar to a GmbH, in-kind contributions are prohibited. The costs and time commitments associated with establishing a corporation are similar to those of establishing a GmbH.

Reserve requirement

If the business eventually turns a profit, though, all of that money is not always ready for distribution right now. Instead, you should be steadily putting away money until you have the required EUR 25,000 in savings. As soon as this occurs, the UG changes its legal status to that of a GmbH.

If all goes well, the business will expand and mature to the point where it meets all the requirements to be classified as a traditional GmbH. In this context, we also take precautions to prevent any concealed profit distributions from undermining the creation of these reserves. Your advantage: as soon as the savings amount is reached, the gains can be paid out in full.

Tax on corporations and solidarity levy

In the case of a UG, the usual tax obligations of a corporation apply, including the payment of corporation tax and the solidarity surcharge.

Credit-worthiness

Finally, it’s worth noting that the UG’s standing in the market still lags behind that of a genuine GmbH. For the same reason that there is less money to go around, this is quite reasonable. Banks or any other type of lender will have reservations about a UG.

What do I need to begin my own UG?

Important criteria, quickly summarised:

capital sufficient to meet expenses
Reserve Funds Sufficient to Meet Requirements of Regulators
The steps needed to establish a UG are quite obvious. Obtaining the necessary share capital is the top priority. Generally speaking, the UG can function with a share capital of just one euro. In reality, however, this should be sufficient to pay for the first office equipment and personnel, as well as for any other start-up expenditures. It is important to factor the need to set aside 25% of annual revenues into your long-term financial strategy because this amount can significantly lower your liquidity in the beginning. If you plan to sell alcohol as part of your business, for example, you may need to register for a liquor licence in advance of launching your UG.

2. Explain the legal framework

A collaboration agreement should be the first step. The location of the company’s headquarters, its legal name, and the identities of all of its stockholders are all examples of such information. It’s also important to detail the business’s operations, which may be looked up in the commercial register. The contract should be drafted by legal counsel and reviewed by a notary public. This is connected with expenditures, but also offers security.

Alternative business structures include using a sample process for a partnership agreement. As long as there are no more than three shareholders and one managing director, you can avoid hiring a notary and attorney and save money. Don’t immediately assume that these legal considerations represent the best place to put your money aside.

3. Naming

There is a requirement to always put “Unternehmergesellschaft (limited liability)” at the end of a business name. When coming up with a name for your business, feel free to get creative, but remember to respect the legal rights of others. .

4. Open an account

Your business necessitates a company account. The notarial deed is typically required for the opening, so take caution. It is wise, then, to inquire in advance with your preferred financial institution about the precise paperwork needed and the earliest possible date on which you can open the account.

All you need is one euro to get going. There are a number of reasons why this is not a good idea. There are initial outlays for the business, such as the expense of a notary public. Thus, you must have access to direct funds in order to pay for the initial investment. Existing capital also always conveys a sense of safety and stability to the rest of the world.

Business licencing in Uganda

The business must be registered with the appropriate authorities. This entry is the responsibility of the managing director, who must also attest that he is qualified to serve in this capacity. The MD must also file a report with the IRS and get the company officially registered.

Can a UG also be formed online?

The full procedure for forming a UG cannot be accomplished at this time in an online environment. However, the notary appointment is still something you have to make in person and at the location where the signing will take place, so it is still a crucial step. However, there is a bill in the works that would legalise online notarization. A UG can be created digitally beginning in August 2022. Thereafter, a video chat serves as the platform for the notary appointment.

 

 

 

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