gUG formation in Germany – setting up a German non profit Entrepreneurial company
Are you interested in forming a company whilst at the same time taking action for a charitable purpose? Is the requirement to have seven founders discouraging you from forming a Verein (association)?
As a law firm with years od experience in formation and supported clients, we are familiar with the requirements and special features of the gemeinnützige UG (non-profit entrepreneurial company), and can set up a company. Fast, legally secure and at a fixed price. The non-profit company articles of association are drawn up by a lawyer, individually tailored to your needs
Our website provides comprehensive answers to questions such as:
- “What is a gUG?”
- “How much does it cost to form a gUG?”
- “What’s the difference between this and a gemeinnütziger Verein (non-profit association)?”
We set up your gUG. You focus on business
Contents
Course of formation, information & packages
Online gUG formation
Andre Kraus, lawyer and founder of the KRAUS GHENDLER RUVINSKIJ law firm, is your contact in matters of company formation, trade mark law, reputation protection and corporate law.
Online gUG formation or in-person appointment
You can form a company directly online, book a free initial consultation online or send us a message
Free initial consultation
You will receive a comprehensive initial consultation for the formation of your gUG free of charge. During this meeting, we will clarify any open questions you may have and advise you on the most important basic issues in company formation, such as the right legal form or the costs and procedure involved in forming a company.
Forming your gUG
We start by forming your company. We will support you, from providing legal advice on forming a company, drafting tailored articles of association, arranging a notary appointment and entering your company in the commercial register, to registering a trademark, drawing up your application for tax and business registration, and handling your bookkeeping.
Overview of gUG formation in Germany
The gemeinnützige Unternehmergesellschaft (haftungsbeschränkt) – non-profit entrepreneurial company (limited liability) – is a sub-form of the UG (entrepreneurial company) created in 2013. It offers enormous tax advantages to companies with a non-profit, charitable or ecclesiastical corporate purpose. For example, gUGs are not subject to corporation tax or trade tax. The activity of a non-profit may be concentrated in a wide variety of areas, such as:
- the welfare of young people and the elderly,
- environmental protection and animal welfare, and
- the protection of consumers and monuments.
Founders often make use of the gUG, because it brings with it the following advantages:
- The option of formation as one-person UG.
- Effective corporate management by managing directors.
- Release from private liability for shareholders.
- Formation with only €1 seed capital.
The gUG is the optimal legal form for founders who want to start their business at low cost and operate on a non-profit basis, while at the same time limiting liability.
We form your gUG for you, leaving you free to focus on your business.
gUG formation: Our packages
What is a gemeinnützige Unternehmergesellschaft (gUG)?
The gemeinnützige UG (haftungsbeschränkt) was created in 2013. It is derived from the UG, which was introduced by a special regulation in 2008. The aim was to create a legal form that could replace the English limited company. This was in response to the demand from German entrepreneurs for a legal form with limited liability and lower requirements for the initial capital contribution than the €12,500 or €25,000 usual for a GmbH. A legal reform in 2013 created the gemeinnützige GmbH (non-profit limited company), which has the same legal status as the gemeinnützige UG.
Definition of the non-profit UG
A gemeinnützige UG is a limited liability corporation that is formed to pursue a non-profit purpose. Due to the increasing popularity of social entrepreneurship, the gUG (haftungsbeschränkt) plays an important role in Germany. More than 2.3 million people are now employed in the non-profit sector. A non-profit is defined above all by its charitable purpose, which must be documented and anchored in its statute.
As a legal form, it combines the advantages of a commercial organisation with the advantages of preferential treatment as a non-profit-making organisation, as in the law governing the Verein (association). The gUG benefits from tax breaks, does not have to pay trade and corporation tax, and has priority access to public resources.
Liability of the gUG (haftungsbeschränkt)
Since the gUG (haftungsbeschränkt) is a corporation, the liability arising from operating debts is limited to the company’s business assets. As founder or beneficiary of a gUG, you are not liable with your private assets.
Exceptions to the limitation of liability
In certain scenarios, the limitation of liability of the gUG can be lifted and transferred to individual persons:
Personal guarantees: If one of the shareholders is a guarantor for loans or other liabilities of the gUG, they will be liable with their private assets in the event of payment.
Culpable conduct by the managing director: The managing director may be held privately liable if they have committed a criminal offence in their role as managing director.
Managing director liability: A disregard of the other duties of a managing director may also lead to the managing director being privately liable.
Formation with €1 initial contribution
Unlike a gemeinnützige GmbH, the gUG can be formed with an initial contribution of €1. The value has more of a symbolic role for freedom regarding share capital, because practically no company can be formed with €1. Therefore, a higher initial contribution is needed. However, this can be chosen freely and is therefore significantly below the €12,500 or € 25,000 required in order to form a gGmbH.
The gUG (haftungsbeschränkt) has its own legal personhood
As a corporation, the gUG has its own legal personhood. It can act independently as a contractual partner, or be sued in court (Sections 13, 5a GmbHG (German Limited Liability Companies Act)). If, for example, employees are hired or company premises are rented, the contractual partner is not the managing director or the beneficiary, but the gUG itself.
Option of formation as a single person
A gUG may also be formed by an individual person. The gUG is particularly suitable for this purpose, because of the low share requirements for share capital.
Company name of your choice
Since the gUG is a corporation, it can choose its own company name. The only requirements are that it must not be misleading or already in use (Section 30(1) HGB (German Commercial Code)), and must be distinctive (Section 18(1) HGB). In addition, the corresponding abbreviation “gUG (haftungsbeschränkt)” or “gemeinnützige Unternehmergesellschaft (haftungsbeschränkt)” must be added.
Appointing the managing director
The managing director of the UG does not have to come from the circle of shareholders. It is therefore possible to appoint an external managing director.
Aims of gUG formation
Aims of gUG-formation are:
- Tax savings
- Combining the non-profit status and the advantages of a UG
- Legally secure formation
- Minimising formal overheads
gUG founding by a lawyer
✔ CHEAP✔ FAST✔ LEGALLY SECURE
Open questions? – Just call us:
(Mo. – So. from 9am to 22pm / NATIONWIDE – German landline)
Duration of gUG formation
1 - 2 days
Formation advice, articles of association
Legal formation advice and drawing up articles of association
1 - 3 days
Notarisation appointment
Arranging a notarisation appointment
1 - 3 days
1 - 2 days
Initial contribution
Opening business account, paying in the initial contribution
5 - 14 days
Commercial register
Entry into the commercial register
5 - 14 days
8 - 21 days
Total duration
Total duration- from Legal formation advice to entry into the commercial register
The minimum formation time of a gUG is 8 days from the first telephone call to the entry in the commercial register. On average, the formation of a gUG takes about 21 days – from the initial consultation to the registration of the UG in the commercial register.
Forming a gUG in 11 steps – step by step
Overview: Course of forming a gUG
- Free initial consultation
- Legal formation advice
- Checking the company name
- Drawing up the articles of association
- Checking non-profit status
- Notarisation meeting
- Eintragung in das Transparenzregister
- Opening the business account, paying in the initial contribution
- Entry into the commercial register
- Final consultation
- Tax and business registration
gUG founding by a lawyer
✔ CHEAP✔ FAST✔ LEGALLY SECURE
Open questions? – Just call us:
(Mo. – So. from 9am to 22pm / NATIONWIDE – German landline)
Process of forming a gUG
Step 1 – Free initial consultation
Before you take advantage of one of our start-up packages, you can get informed in our free initial consultation. One of our employees will clarify the most important and fundamental questions about forming a gUG. First of all, we clarify with you whether the gUG is suitable for your business project, and whether the principle of selflessness can be maintained. Following the consultation, you can independently decide on the appropriate legal form for you
Step 2 – Legal formation advice
If it turns out that the gUG is the best choice for your non-profit enterprise, we will be pleased to welcome you as a client of our law firm. An experienced lawyer will personally guide you through the entire formation process. First of all, the legal questions that determine the further course of the process are clarified in detail. Appropriate time should be allocated for the intensive consultation. Good preparation prevents later correction, which is very costly. Your lawyer will take sufficient time to cover all aspects that are legally relevant to and influence your formation. Due to the non-profit nature of the project, we will especially check the selflessness of your project, which is necessary to obtain later tax advantages. The following topics are discussed in the formation consultation:
- choosing the right legal form,
- exclusion of your personal liability,
- the selflessness of the company’s non-profit purpose,
- beneficiaries,
- share capital,
- shareholders,
- succession,
- distribution of profits,
- disposition of company shares, and
- management
Step 2 – Legal formation advice
Step 3 – Checking the company name
After the consultation, your company name will be checked. If it complies with the requirements of company law, formation can proceed.
Step 4 – Preparing the formation documents
Based on the findings of the intensive consultation, we prepare all the necessary documents for the formation. Since the gUG’s focus is on selflessness and its non-profit-making purpose, we devote particular attention to presenting this in the articles of association. In order for the status to be maintained in the long term, non-profit status must be enshrined in the statute.
In addition, we will work out the further details of the articles of association in your interest. To save time, a “standard record” is often used for formation (Annex to Section 2(1a) GmbHG). We adapt this to your personal preferences.
You decide on the form of the formation
Depending on your personal preferences, we prepare the necessary formation documents:
If you would like to introduce certain provisions for internal organisation, we will draw up tailored articles of association for you!
There are no risks – we adapt your standard record personally.
The fixed price remains the same – Our law firm offers formation at a fixed price, regardless of the complexity of the formation documents.
Articles of association: The gUG’s formation costs are tax deductible.
The formation expenses are only tax-deductible if the company is formed with a tailored statute. If it is formed with a standard record, the formation costs cannot exceed €300 in order to be deductible (para. 5 of the Annex to Section 2(1a)).
Preparing for a crisis or dispute
The articles of association for your gUG not only guarantee that your non-profit status is maintained, but also serve as a precaution in the event of a crisis or dispute. If important liability issues or succession are not adequately regulated, the company risks financial difficulties in the event of a crisis. If the relationship between shareholders deteriorates over time, clear distribution and responsibility rules can ensure that the stability of the gUG is maintained.
Further formation documents
In addition to the articles of association, further formation documents must be drawn up for your gUG. These include:
All relevant shareholder and company resolutions, and resolutions of the shareholder meeting.
List of shareholders and entry in the commercial register.
Step 4 – Preparing the formation documents
Step 5 – Checking non-profit status
We will send the prepared formation documents to the relevant tax office to check the non-profit status of your company. If we receive positive confirmation, formation will proceed, otherwise the articles of association will be amended according to the tax office’s suggestions.
Step 6 – Notarisation
Once all the formation documents have been drawn up, we will arrange a notarial recording appointment. The appointment will take place in your area in accordance with your schedule. We will forward the necessary documents.
Step 6 – Notarisation
Step 7 – Entry in the transparency register
As of 2019, companies must be entered in the federal transparency register under the Geldwäschegesetz (GwG; German Money Laundering Act) of 2017. This should make it possible to recognise the persons economically responsible for a company at a glance. The first and last names, dates of birth, places of residence and the nature and extent of the economic interest of the beneficial owners must be entered. Registration may be waived if this information can already be retrieved from the commercial register or another public register.
If necessary, your company will be entered in the transparency register after notarisation.
Step 8 – Opening the business account, paying in share capital
After notarisation, we open a business account for your gUG at a suitable bank of your choice. You pay in the share capital. We prepare the bank appointment for you and provide a power of attorney and a checklist.
Step 8 – Opening the business account, paying in share capital
Step 9 – Entering the gUG in the commercial register
Your gUG will then be entered in the commercial register (Section 7 GmbHG).
Step 10 – Final consultation
Experience has shown that many legal questions that were not previously apparent arise during the formation of a company. Therefore, we offer our clients a final consultation. This frequently involves discussing:
- tax obligations,
- commercial registration,
- legal requirements,
- business letters,
- legally admissible advertising,
- copyright,
- dubious bills and fraud prevention, and
- necessary insurance.
Step 10 – Final consultation
Step 11 – Tax and business registration
Based on the final consultation, we take care of tax and business registration for your gUG with the relevant authorities.
Transparency register
As of 2019, companies must be entered in the federal transparency register under the Geldwäschegesetz (GwG; German Money Laundering Act) of 2017. This should make it possible to recognise the persons economically responsible for a company at a glance. The first and last names, dates of birth, places of residence and the nature and extent of the economic interest of the beneficial owners must be entered. Registration may be waived if this information can already be retrieved from the commercial register or another public register
If necessary, your company will be entered in the transparency register after notarisation.
gUG founding by a lawyer
✔ CHEAP✔ FAST✔ LEGALLY SECURE
Open questions? – Just call us:
(Mo. – So. from 9am to 22pm / NATIONWIDE – German landline)
Questions and answers regarding the formation of a gUG
When forming a gUG, clients often have questions such as::
- “When is a gUG non-profit?”
- “How is the profit of a gUG distributed?” or
- “What is the difference between an UG and a gUG?”
Below you will find the most frequently asked questions and our answers regarding the formation of a gUG.
What exactly is the difference between a UG (haftungsbeschränkt) and a gUG?
The difference lies in the orientation of the purpose of the company. While the classic UG (haftungsbeschränkt) aims to maximise profits and skim off profits for personal enrichment, the gUG pursues a non-profit purpose. This must be firmly anchored in the articles of association.
This results in the following legal differences:
- The gUG may not pay out any profits to its shareholders.
- The salaries of the employees and the managing director must be in proportion to the services rendered, otherwise a hidden profit distribution is assumed.
- The company’s non-profit purpose must be firmly anchored in the articles of association.
- Due to its non-profit status, the gUG enjoys numerous tax exemptions.
- The gUG must designate a beneficiary who will receive the capital in the event of the company’s dissolution.
- The gUG must reinvest 75% of its income in the charitable purpose. Only 25% may be used to build up share capital.
What must be taken into account when naming the gUG?
As a commercial company to be registered, the gUG has a free choice of company name. It can therefore be in line with your marketing strategy or charitable values. Nevertheless, the requirements of commercial law must be met. The name:
- cannot be misleading,
- cannot be already in use (Section 30(1) HGB), and
- must be distinctive (Section 18(1) HGB).
In addition, the official abbreviation must be appended in business transactions. These are “gUG (haftungsbeschränkt)” or “gemeinnützige Unternehmergesellschaft (haftungsbeschränkt)”.
When is a gemeinnützige UG (haftungsbeschränkt) non-profit?
In order for your UG (haftungsbeschränkt) to be classified as non-profit, the non-profit purpose must first be anchored in the statute. In doing so, the requirements of the law of public utility according to Section 52 AO must be taken into account:
The business purpose of the company must be non-profit, charitable or ecclesiastical.
The business purpose must be pursued selflessly, directly and exclusively. All activities must serve to fulfil the purpose of the company. An example of failure to do this would be the payment of excessive wages.
Pursuing the business purpose must benefit the public good. It must not benefit only a limited group of people.
The articles of association must specify a beneficiary who will benefit from the share capital in the event of the company being dissolved.
How can the profit from a gUG be used?
In order to maintain the gUG’s non-profit status, the profits may only be used to pursue the non-profit purpose. The principles of directness and selflessness apply here. In this context, direct means that the profits may not be saved up, but must be used directly for the charitable purpose. Selfless means that the salaries for managing directors and employees must always be in a comprehensible relationship to the work performed.
Reserves can be formed under certain conditions
It is only possible for gemeinnützige UGs to form reserves under certain conditions. These must be legally enshrined in the company’s statute. Unlike the gGmbH, the gUG can generally save 25% of operating profits in order to build up share capital. Justifications may include the need to save for a larger investment. However, this investment must again serve the non-profit purpose.
Caution against hidden profit distributions
Hidden profit distributions violate the principle of selflessness and lead to a UG being deprived of its non-profit status, which causes it to lose tax exemptions. If, for example, salaries are paid that are not in proportion to the services rendered, a hidden profit distribution may be assumed.
Who is entitled to deduct input tax at the gUG?
The gemeinnützige UG benefits primarily from tax breaks. For example, no VAT is payable for income that can be assigned to the non-profit business purpose in the charitable area. However, no input tax can be deducted for expenditure in this area. It must be deducted as acquisition costs.
The gUG continues to be entitled to deduct input tax when operating in the business area. There are three categories:
- Asset management
- Special-purpose operations
- Other business operations
Income from special-purpose operations and asset management is only subject to the reduced tax rate of 7%.
19% VAT is normally payable on other business operations.
Input tax can therefore be deducted in those areas where VAT is incurred. These are all of the three sub-sectors of the business area mentioned above. Only for the charitable area can no input tax be deducted. It can be difficult to distinguish between special-purpose operations and the charitable area, and this should be done when drawing up the articles of association.
When is it worth forming a gUG?
Social entrepreneurship is also becoming increasingly important in Germany. Until non-profit corporations were introduced, the eingetragener Verein was the common legal form for a non-profit organisation.
What may be an enrichment for the classic association is a burden for economically oriented non-profit organisations: The long decision-making chains and strong co-determination rights for association members. Only by convening a general meeting can important decisions be made, which makes the association more sluggish than the gUG.
The gUG combines the advantageous components of commercial organisation with the useful benefits of the non-profit status. Thanks to the position of the managing director, decisions can be made more quickly, but the shareholder meeting can still exercise control rights over the parties involved. At the same time, the enormous tax breaks benefit the charitable purpose.
The gUG is therefore worthwhile if: You want to set up a non-profit organisation and prefer short decision-making chains and a commercial organisation, and want to take advantage of tax benefits.
Can an association be converted into a gemeinnützige UG?
Since the introduction of the regulations on non-profit corporations, the need for the Verein has been drastically reduced. Due to its commercial organisation and full-time management, the gemeinnützige UG has become attractive to many organisations.
Converting an association into a gemeinnützige UG is somewhat complicated but still possible. Especially when associations accumulate a larger amount of capital or want to operate commercially, the conversion tends to be worthwhile.
No complete rebuilding necessary
There is no need to completely re-form and abandon the structures of the Verein. Existing contracts can usually be taken over. However, a general meeting resolution for legal examination and conversion is required. If the latter has been drawn up in accordance with the provisions of the law on associations, the articles of association must be drafted for the gUG. It is important here that the charitable purpose is anchored. In addition, a beneficiary organisation must be designated to which the capital will be transferred on dissolution. If the articles of association are notarised, the general meeting of shareholders can be convened to appoint the managing director. The process is then completed.
How is the managing director of a gUG liable?
The business assets of the gUG shall be liable for any debts which arise in the course of pursuing the non-profit purpose. However, under certain circumstances, the managing director of a gUG (haftungsbeschränkt) may be held liable. For this, they must be responsible for personal misconduct.
Such conduct often takes place in the following areas:
- tax law and social security,
- in connection with insolvencies, and
- in the event of damage being caused in the context of a breach of their duty of care.
It should therefore be noted that any misconduct in breach of the duties of a managing director will result in the managing director being liable.
Your formation team
Andre Kraus
Specialist lawyer for insolvency law
Ahaliya Kapilan
Lawyer
Oksana Enns
Business law graduate
Sara Garcia Corraliza
Lawyer
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