The UG is designed as a stepping stone to a full limited liability company. Once the business is financially established, the owners can turn the UG into a GmbH and raise the company's standing with corporate clients.

The statutory reserve

The law requires every UG to transfer at least 25% of its annual net profit each year to a statutory reserve (gesetzliche Rücklage). This money cannot be paid out as dividends until the company's share capital reaches €25,000.

Two ways to reach €25,000 share capital

The first is converting the accumulated reserve into share capital (Kapitalerhöhung aus Gesellschaftsmitteln). The second is for the shareholders to pay the missing amount in cash into the company's bank account (Kapitalerhöhung gegen Bareinlagen).

An audited balance sheet for an increase from reserves

If the capital is increased from the company's reserves, the law requires the underlying balance sheet to be audited. The auditor confirms that there are no hidden losses and that the reserves are actually available.

Notarisation and the new name in the register

The shareholders' meeting adopts a notarised resolution to increase the capital and change the company name: the suffix “UG (haftungsbeschränkt)” is replaced by “GmbH”. The notary files the application electronically with the commercial register, after which the business continues as a GmbH with all its contracts and tax numbers unchanged.

What to check

  • Check the amount of accumulated reserves in the annual financial statements.
  • Agree with your tax adviser on the best way to increase the capital (cash or reserves).
  • Engage an auditor to confirm the balance sheet if the increase is funded from reserves.
  • Update the company details, letterheads and the Impressum on your website after the entry in the Handelsregister.

Example situation

The shareholders of a UG have built up €20,000 in reserves over three years, pay in another €5,000 and become a GmbH before a notary, opening the door to large tenders from car manufacturers.

Next step

Converting to a GmbH does not create a new legal entity but changes the form of the existing one; all contracts, licences and bank accounts remain fully valid.

Official information on this topic

Checklists and examples are organisational recommendations. Requirements depend on the procedure, the city and your situation; check them with the relevant office before you act. Please discuss legal and tax questions with an authorised professional.

This article was prepared with the help of AI. The example illustrates the approach and does not describe a client case.