Choosing a legal form in Germany: sole trader, GbR, UG or GmbH
The legal form decides who is liable, how much paperwork you have and how profits are taxed. For most small businesses in Germany, the choice comes down to four options. Here is a plain comparison to prepare the conversation with your tax adviser or notary.
Sole trader (Einzelunternehmen)
The simplest start: register the trade, and you can begin. You are liable with your private assets, and profits are subject to income tax. For trade tax, sole traders and partnerships have an annual allowance of €24,500 (§ 11 GewStG). Registration in the commercial register as an e.K. becomes necessary once the business requires commercial organisation.
Partnership (GbR)
Two or more people running a business together without choosing another form automatically form a GbR. All partners are personally liable. Since 2024, a GbR can be entered in the company register as an eGbR, and it must be for certain transactions, such as acquiring real estate. A written partnership agreement is advisable from the first day.
UG and GmbH: limited liability
A GmbH requires share capital of €25,000, at least half of which must be paid in before registration (§ 5 and § 7 GmbHG). The UG (haftungsbeschränkt) can start with €1 but must retain a quarter of each year's profit until its share capital is raised to €25,000 (§ 5a GmbHG). Both need a notary, an entry in the commercial register and annual financial statements:
- Liability limited to company assets, except where managers are personally at fault.
- Corporate tax of 15% plus solidarity surcharge, plus trade tax; from 2028 the corporate tax rate falls step by step to 10% in 2032.
- The managing director's salary as a business expense.
- Higher costs for founding, accounting and annual statements.
Example: opening a café
A café with employees, a lease and a loan carries real liability risks, so many owners choose a UG or GmbH. A food truck run by one person can start as a sole trader and change the legal form later, when turnover and risk grow. Changing later is possible but costs fees and advice.
Questions for your tax adviser
Expected profit in the first three years, liability risks, plans for partners or investors, and whether you want to pay yourself a salary: these determine the best form. Have your plans reviewed before you sign; this article does not replace tax or legal advice. Once the company exists, we help with the website, the legal notice and your processes.
Frequently asked questions
- Is a UG a good way to start?
- With a small budget and real liability risks, often yes. Some suppliers and banks consider it less creditworthy, and the profit retention rule must be followed.
- Can I switch from sole trader to GmbH later?
- Yes, through a conversion or a new foundation into which the business is contributed. Plan it with a tax adviser, because taxes may arise.
- Which legal form pays the least tax?
- It depends on profit, salary and distributions. At higher profits a GmbH can be cheaper; in the early years a sole trader is often simpler. Only a calculation with your figures will tell.
Sources
Tell us what you plan to start and with whom. We will help you prepare the questions for your tax adviser and set up the website and processes.
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