At a glance
- Two families. Either you are personally liable with everything you own, or you are not. Everything else follows from that.
- For founders from abroad, the field narrows fast. In practice it is the GmbH, sometimes the UG, and for an existing foreign company the branch. The rest is theory.
- The capital is not a fee. The 25,000 euros of a GmbH stay the company's money and can be spent on the business the day after registration.
- The cheapest form is rarely the cheapest decision. A UG saves capital and costs credibility with banks and buyers.
The forms, side by side
Capital, liability and register, with the provision each figure comes from.
| Form | Capital | Liability | Register | Realistic for you? |
|---|---|---|---|---|
| Einzelunternehmen Sole trader |
None | Personal, unlimited, all private assets | Trade office. Commercial register only if the business needs a commercially organised operation (§ 1 HGB) | No. One person, no liability shield, not sellable |
| GbR Civil-law partnership |
None | Personal, unlimited, all partners | Trade office. Since 2024 may register voluntarily as eGbR | No, for the same reason |
| OHG General partnership |
None | Personal, unlimited, all partners | Commercial register, section A | No |
| KG Limited partnership |
None | Split: the general partner unlimited, the limited partners up to their registered amount (§ 161(1) HGB) | Commercial register, section A | Rarely, and usually only as GmbH & Co. KG |
| UG (haftungsbeschränkt) Entrepreneurial company |
From 1 euro, but paid in full before filing, no contributions in kind (§ 5a(2) GmbHG) | Limited to the company's assets | Commercial register, section B | Sometimes. Read the reserve rule first |
| GmbH Limited liability company |
25,000 euros (§ 5(1) GmbHG), at least 12,500 paid before filing (§ 7(2) GmbHG) | Limited to the company's assets | Commercial register, section B | Yes. The default for a market entry |
| AG Stock corporation |
50,000 euros (§ 7 AktG) | Limited to the company's assets | Commercial register, section B | No, unless you are raising capital publicly |
| Zweigniederlassung Branch of a foreign company |
None of its own | The foreign parent, fully | Commercial register (§§ 13d, 13e HGB) | Possible, but heavier than it looks |
The only distinction that really matters
German legal forms split into two families, and the split is about liability, not about paperwork.
Personally liable forms, the Einzelunternehmen, the GbR and the OHG, are cheap and quick to start. They cost nothing in capital and need no notary. What they cost is your private assets. If the business owes money, the creditor may take your house. For a founder operating across a border, that is a bad trade: you would be exposing personal assets in India to a claim arising in Germany.
Capital companies, the UG, the GmbH and the AG, exist as legal persons in their own right. They are formed before a notary, they are entered in section B of the commercial register, and the liability stops at the company's assets. That protection is the reason they cost more to set up.
The KG sits between the two: one partner is fully liable, the others only up to the amount registered for them (§ 161(1) HGB). The common construction puts a GmbH in the fully liable position, which is where GmbH & Co. KG comes from.
The UG, and why the euro is misleading
A UG is not a different legal form. It is a GmbH with less capital, which is why it lives in the same statute. Two rules make it different in practice.
First, the capital must be paid in full before the filing, and contributions in kind are excluded (§ 5a(2) GmbHG). A GmbH may file with half of its 25,000 euros; a UG may not file with half of anything.
Second, it must retain a quarter of its annual profit until it has accumulated the 25,000 euros of a GmbH. Until then, the name has to carry the words UG (haftungsbeschränkt) (§ 5a(1) GmbHG), on every invoice, every contract and every email footer.
What we see: the name is the expensive part. A German buyer reading "haftungsbeschränkt" on a supplier's invoice reads it as "this company has almost no capital", because that is precisely what it means. The full comparison, including the bank's view, is in UG or GmbH?
What actually applies if you are not in Germany
Three things narrow the choice sharply, and none of them appear in a general comparison table.
Personal liability across a border is worse than it sounds. A German judgment against a personally liable founder does not stop at the German frontier. That alone removes the Einzelunternehmen, the GbR and the OHG from serious consideration.
Neither shareholders nor managing directors need to live in Germany. A managing director must be a natural person with full legal capacity and no disqualifying convictions (§ 6(2) GmbHG). Residence is not a requirement. The question returns later at the tax office, which looks at where the company is actually managed from, and that is a different problem with a different answer.
An existing company abroad has a second option. Instead of forming a subsidiary it can register a branch under §§ 13d and 13e HGB. It looks lighter, and it is not: the parent stays fully liable, it has to publish its own accounts in Germany under § 325a HGB, and the apostilled document chain is the same either way. We set that out in Subsidiary or branch office?
How the choice usually ends
For a founder or a company from India, in our experience it comes down to two questions.
Do you need the money now, or the credibility? If the 25,000 euros are genuinely not available, a UG is a legitimate bridge. If they are available but you would rather deploy them elsewhere, forming a GmbH is still the better decision, because the capital is not spent. It stays the company's money and can be used the day after registration.
Are you setting up a company, or extending one? A new venture, a joint venture or anything that will take investors becomes a GmbH. An established manufacturer that only wants a German invoicing and warranty address sometimes finds the branch sufficient, until it reads § 325a HGB and changes its mind.
The forms themselves are the easy part. What decides the outcome is what happens after registration, and that is set out in the full formation guide.
Questions we get
Which legal form can a founder from abroad actually use?
In practice the GmbH, and occasionally the UG. Both limit liability, and neither requires German residence for the shareholders or the managing director. The partnership forms expose private assets. The AG is disproportionate for a market entry. An existing foreign company can also register a branch instead of forming a company.
Does the UG really start at one euro?
Legally yes, practically no. A UG may be formed with less than the 25,000 euro minimum of a GmbH, but under § 5a(2) GmbHG the capital has to be paid in full before the filing and contributions in kind are excluded. It must also retain a quarter of its annual profit until it reaches 25,000 euros, and carry "haftungsbeschränkt" in its name until then.
What is the minimum share capital of a GmbH and an AG?
A GmbH needs 25,000 euros (§ 5(1) GmbHG), of which at least 12,500 must be paid before the registration filing (§ 7(2) GmbHG). An AG needs 50,000 euros (§ 7 AktG).
Is a sole trader an option for someone living outside Germany?
Rarely. An Einzelunternehmen is not a separate legal person, so the founder is personally liable with all private assets. It is also tied to the person rather than to a company that can be sold or joined by investors.
Can one person found a GmbH alone?
Yes. A GmbH may be founded by one or more persons (§ 1 GmbHG). A single shareholder can hold all the shares and be the managing director at the same time. The capital rules do not change.
Sources
§ 1 GmbHG, formation by one or more persons, gesetze-im-internet.de
§ 5 GmbHG, share capital of the GmbH, gesetze-im-internet.de
§ 5a GmbHG, the UG, full payment and reserve, gesetze-im-internet.de
§ 6 GmbHG, who may be a managing director, gesetze-im-internet.de
§ 7 GmbHG, what must be paid before the filing, gesetze-im-internet.de
§ 7 AktG, minimum capital of the AG, gesetze-im-internet.de
§ 1 HGB, when a business is a commercial business, gesetze-im-internet.de
§ 161 HGB, the limited partnership, gesetze-im-internet.de
§ 325a HGB, branch accounts of a foreign parent, gesetze-im-internet.de
Written by Christoph Schuler
Founder, Business Center Reutlingen. Fifteen years in international automotive at Daimler,
two of them living in Bengaluru.
Published 31 August 2026
Business Center Reutlingen provides administrative and organisational support and introduces you to licensed professionals. We do not give legal or tax advice, in Germany only admitted lawyers (Rechtsanwälte) and tax advisors (Steuerberater) may do so.