No it's not. With UG's limited liability is only extended to the collateral put in, meaning that as soon as someone sues you for 2€, suddenly you're liable with your private wealth. A GmbH is a true shield against that, you can be sued for millions and are shielded behind the 25k collateral.
This is wrong. The UG offers the same protection as the GmbH. It's probably less trusted.
Funfact: you should always use the full title, Companyname UG (haftungsbeschränkt) on all communications and contracts. Emitting the 'haftungsbeschränkt' or shortening it 'haftungsb.' may make you as a CEO personally liable for damages occured.
My understanding was so far, that if the initial Stammkapital for an UG is too low, it then is seen under constant thread of insolvency under the law. Meaning that you're effectively always delaying insolvency, which is a crime. So if you then actually go bankrupt, assuming you're both Gesellschafter and Geschäftsführer, you're pretty much guaranteed to be convicted.
Though I have to admit this was 10 years ago when I looked into it. I remember there being a lot of fearmongering around starting an UG back then.
I'm not an expert, especially not on the German law. But here's my understanding:
If a UG with 1 euro in share capital has a large equity, low expenses, and is run prudently, then I don't think the CEO/shareholders are personally liable if the UG is sued for a million euros and must pay that?
Both a GmbH and a UG have a "share capital" (Stammkapital). It is at least 25 000 euros for a GmbH, and 1 euro for a UG. On day 1, this is also the equity (Eigenkapital).
If the company makes profits, that will increase the equity. The equity makes it possible to keep spending money for a while even if the cash flow is negative. A 1 euro UG can in theory have 1 million euros in equity.
In both cases, the CEO is legally obligated to start insolvency proceedings immediately if it looks like the company can't pay its bills or loans any more. This is also required if the equity goes below half the share capital (same as in Sweden, "kontrollbalansräkning").
> if the initial Stammkapital for an UG is too low, it then is seen under constant thread of insolvency under the law
I don't think it's that simple? To begin with, it's the equity and the cash flow that matters, not just the Stammkapital (share capital) by itself. A UG can start out with a very low share capital, but if it has no expenses and a positive cash flow, then insolvency is not a risk, right?
If the cash flow suddenly becomes negative, for instance by losing a big client, or the main product suddenly can't be sold any more, then even a GmbH can be under immediate threat of insolvency. The 25 000 euro in share capital is nothing compared to salaries for a bunch of people, plus an office lease agreement that runs for another couple of years, etc.
So if you're operating a GmbH with employees and an office, then I'd say that it can be "seen under constant threat of insolvency" if it only has the share capital available as equity (or worse, just half of it), and the future income is very uncertain. So both a GmbH and a UG can put the CEO in jail if he plays it fast and loose.
I can definitely see how it is easier for a UG to get into insolvency territory, and above all, people running UGs aren't as familiar with the rules and pitfalls.
I could be wrong on some things? I'm interested to learn more in that case.
