What is a Micro Limited Liability Company (Unternehmergesellschaft)? Micro Limited Liability Company (Unternehmergesellschaft) Review

background

The main purpose of the German government to introduce micro-limited liability companies is to replace the British non-listed company model (traditional companies) that was previously popular in Germany. A micro-limited liability company established under German law is not a new legal entity; on the contrary, it is a limited liability company similar to a limited liability company (GmbH). The difference between it and the GmbH is that a micro-limited liability company does not need to meet the 25,000 euro registered capital required by the law for a GmbH, but only 1 euro.

Under certain conditions, a micro LLC may be certified as a non-profit entity.

The micro-LLC form has generated a great deal of interest, especially among start-ups and other entrepreneurs. As of January 1, 2012, there were 64,371 such companies, including those that had converted from micro-LLCs to GmbHs and partnerships. Since then, micro-LLCs have largely replaced traditional corporate forms.

Company Establishment

The formation of a Micro GmbH is very similar to that of a GmbH.

Company Name

The company name must end with "Unternehmergesellschaft (Haftungsbeschränkt)" or the abbreviation "UG (haftungsbeschränkt)" (§ 5a GmbHG) to indicate that the company has limited liability; otherwise, the company has unlimited liability.

Share capital

The nominal amount of the company's shares as defined in the articles of association - the so-called "ordinary capital" - must be provided after the company is founded and before it is registered in the commercial register (§ 5a Abs. 2 GmbHG). The total share capital must be at least 1 euro. In practice, in order to prevent the company from facing the risk of bankruptcy at the beginning of its establishment, it is usually chosen that the minimum amount should not be less than 1,000 euros.

If the total share capital exceeds EUR 25,000, a GmbH is usually established instead of a micro GmbH (§ 5a para.1 p.1 GmbHG). In contrast to the GmbH, contributions in kind (fixed assets) are not permitted. The share capital must be paid in full in cash (§ 5a (2) GmbHG). If there is a capital of EUR 12,500, a micro (limited liability company) with a share capital of EUR 12,500 can be established, or a GmbH in the original sense with a share capital of at least EUR 12,500 (i.e. half of EUR 25,000) paid up. In the event of company insolvency, the difference between the two is that a GmbH needs to make up the minimum registered share capital of EUR 25,000, while a micro GmbH does not.

advantage

- Very flexible and can be used in many business models

- Shareholders can also serve as directors

- Very low starting capital, minimum capital of 1 Euro

- Limited liability

- After the share capital reaches 25,000 euros, it can be converted into a general limited liability company GmbH

- Can expand overseas offices

- UGs are taxed in the same way as a stock corporation (AG) or a limited liability company (GmbH)

shortcoming

- There is a savings obligation (25% of the annual profit must be set aside as a capital reserve and cannot be used for other purposes until the reserve reaches 25,000 euros), and profit distribution is restricted

- Start-up capital cannot be replaced by fixed assets and can only be paid in cash

- Complicated procedures such as registration, name change, double-entry bookkeeping, etc.

- Low equity and low credit

- Low initial capital, high risk of bankruptcy