Entrepreneur visa: Should I establish a UG or a GmbH?

In our consulting practice, we repeatedly see founders enthusiastically choosing the path of least resistance, only to later discover that a small initial saving can lead to massive problems with residency permits or in day-to-day operations . Often, the journey begins with the promise of the "1-euro GmbH," the Unternehmergesellschaft (haftungsbeschränkt) (UG) . But does this model deliver on its promises, or are you building your visa on shaky ground? We take a detailed look at the reality of the difference between the UG and the GmbH.

The illusion of a 1-euro startup

A widespread misconception, persistent in the startup scene, suggests that a UG (Unternehmergesellschaft, a type of limited liability company in Germany) can be founded with just one euro of share capital, thus saving a staggering 25,000 euros compared to a GmbH ( Gesellschaft mit beschränkter Haftung, a standard limited liability company in Germany). As a law firm, we must be very clear about this: While this is theoretically possible under the law, in practice, the one-euro company formation is a pure illusion. Anyone attempting to establish a company with just one euro overlooks the immediate incorporation costs . You should expect to pay around 500 euros for the notary, commercial register entry , and necessary publications alone. If the company only has one euro of capital, it would be effectively insolvent from the moment of its registration, unless the shareholders cover these costs personally. A company must have sufficient liquidity from the outset to survive its own financial inception. The supposed savings, therefore, evaporate within the first few days.

The underestimated potential of the GmbH and the truth about share capital

In direct comparison, the limited liability company (GmbH) initially seems daunting to many founders due to the required share capital of €25,000 . However, what many don't know, and what we often clarify in our consultations, is that you don't have to pay the full amount at the time of registration with the commercial register. In fact, according to the German Limited Liability Companies Act (GmbHG) , it is legally permissible to initially pay only half of the share capital, i.e., €12,500 . The remaining amount can be contributed later, once the company is already operational. Another crucial point that is often misunderstood is the use of this money. The share capital is not "dead capital" that must remain untouched in an escrow account until the company is liquidated. Quite the opposite: As soon as the company is registered in the commercial register, this money can and should be used . It is available for investments, rent, salaries, or purchasing goods. The capital thus works for your entrepreneurial success and simultaneously serves as a signal of trustworthiness to the immigration authorities.

The hidden shackles of the UG (limited liability company): mandatory reserves and conversion hurdles

Anyone who still opts for a UG (Unternehmergesellschaft, a type of limited liability company in Germany) must be aware of the long-term consequences, which are often buried in the fine print of the law. A UG is essentially a GmbH (Gesellschaft mit beschränkter Haftung, a German limited liability company) on probation. This means that the law requires you to "grow up." Specifically, you are legally obligated to allocate 25 percent of your annual profit to a reserve fund . This money is locked in for distribution until the share capital reaches the threshold of €25,000 and the UG can be converted into a GmbH. For you as an entrepreneur, this means a significant portion of your liquidity for personal living expenses or reinvestment will be deprived. Furthermore, the transition to a GmbH is by no means automatic. Once you have accumulated the €25,000, you will face another marathon of shareholder resolutions, notary appointments, and new entries in the commercial register. Often, an audited balance sheet is even required, which incurs further costs for a tax advisor. This is time and money that you would certainly prefer to invest elsewhere during the critical growth phase of your startup.

Conclusion: A question of strategy and perspective

In summary, the UG (Unternehmergesellschaft, a type of limited liability company in Germany) certainly has its place, especially for young founders with very limited resources who first need to demonstrate a proof of concept. However, for an entrepreneurship visa , which also considers the positive outlook for Germany as a business location, the company's public image plays a crucial role. The actual financial advantage of the UG compared to a GmbH (limited liability company) with half the initial capital contribution is not €25,000, but significantly lower, while the bureaucratic costs and limited flexibility of the UG are considerable drawbacks.

We therefore advise our clients not to choose the legal structure solely based on the lowest initial cost . A limited liability company (GmbH) exudes stability and seriousness – qualities that can open doors with banks as well as with authorities during the visa application process . It is essential to build the foundation for your company in such a way that it not only holds up today but also allows room for growth in the future.