Caution when doing business with a UG (haftungsbeschränkt)

Many Polish enterprises are unaware of the certain risks involved in doing business with an Unternehmergesellschaft, shortened to UG (haftungsbeschränkt).

This can have serious consequences for suppliers, contractors or other contractual partners of the Unternehmergesellschaft, as in many cases the Unternehmergesellschaft companies do not have sufficient creditworthiness.

What is the Unternehmergesellschaft?

The Unternehmergesellschaft is a capital company under German law with a very low share capital. It can be founded with a share capital of just 1,00 EUR. In the event of insolvency, the share capital serves as liability assets. Beyond this, the shareholders or managing directors of the company are generally not liable.

In order to warn legal transactions of this low capitalisation, the Unternehmergesellschaft companies are obliged to use the designation “Unternehmergesellschaft (haftungsbeschränkt)” or “UG (haftungsbeschränkt)” in accordance with § 5a of the German Limited Liability Company Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung). If, contrary to this, the Unternehmergesellschaft only operates under the name “Unternehmergesellschaft” or “UG”, the managing directors will be liable for the incorrect legal appearance this has created (german Federal Supreme Court (Bundesgerichtshof), judgement of 12.01.2022, file number III ZR 210/20).

Pursuant to § 5a sec. 3 of the German Limited Liability Company Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung), Unternehmergesellschaft companies are obliged to form reserves that may only be used for legally defined purposes. The reserves are to be utilised to increase the share capital. If EUR 25,000.00 is reached, the company can be converted into a GmbH. However, the Unternehmergesellschaft that does not make a profit is generally unable to build up reserves. Due to their low capitalisation, Unternehmergesellschaft companies are susceptible to insolvency.

Why was Unternehmergesellschaft introduced in Germany?

Many business founders who set up a limited liability company often do not have the 25.000,00 EUR required to establish a limited liability company (GmbH). For this reason, numerous companies adopted the legal form of a limited company under British law, but operated exclusively in Germany. This often led to complications in the areas of tax law, company law or insolvency law. The German legislator reacted to this and introduced the legal form of the Unternehmergesellschaft.

How can you protect yourself while doing business with Unternehmergesellschaft companies?

If the contractual partner has the legal form of the Unternehmergesellschaft, advance payment or certain pre-payments or instalments should be demanded. Alternatively, guarantees or other securities can be requested in order to be protected in the event of the Unternehmergesellschaft becoming insolvent.

Grau Rechtsanwälte PartGmbB offers legal support in day-to-day business, especially for foreign companies operating in Germany or suppliers of German companies – the whole spectrum of German business law, starting with corporate and commercial law, distribution law, labor law, insolvency law and debt management.

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