Which Business Structure is Ideal for Your Online Shop?

You're ready to start your online shop and launch your own e-commerce business – but one big question comes up quickly: Which legal form is best for me?

In Germany, you can choose between a sole proprietorship, a UG (entrepreneurial company with limited liability), or a GmbH (limited liability company). Each form has its pros and cons when it comes to taxes, liability, and credibility.

In this guide, we help you navigate the key differences so you can start with confidence.

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1. Sole Proprietorship – The Quick and Easy Start

A sole proprietorship (Einzelunternehmen) is the simplest and fastest way to start your online shop. No start-up capital, no notary, no waiting.

Advantages:

• No initial capital required
• Fast and low-cost setup
• Simple taxation (cash-basis accounting)
• Minimal ongoing admin work

Disadvantages:

• Unlimited personal liability
• No separation between business and personal assets
• Less professional image in the B2B sector

Tip: A great entry point if you're starting solo and want to test the waters without big risks.

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2. UG (Entrepreneurial Company) – Low Capital, Limited Liability

The UG (haftungsbeschränkt) is a slimmed-down version of the GmbH. You can start with just €1 in capital and still benefit from limited liability.

Advantages:

• Limited liability to company assets
• Minimal capital required
• More professional than a sole proprietorship
• Can later be upgraded to a GmbH

Disadvantages:

• Requires notarized formation
• Must retain 25% of annual profits as reserves
• More complex accounting
• If using the simplified formation (Musterprotokoll), only one shareholder allowed

The UG is ideal if you want liability protection without needing a lot of initial funds – perfect for Amazon FBA sellers and cross-border operations.

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3. GmbH – Stable, Professional, Investment-Ready

The GmbH (Gesellschaft mit beschränkter Haftung) is Germany's most trusted corporate form. It’s suitable if you're building a serious operation, working with partners, or seeking funding.

Advantages:

• Limited liability
• High level of credibility
• Easier access to loans or investors
• Allows employee equity programs

Disadvantages:

• Requires €25,000 in share capital (€12,500 minimum at incorporation)
• Notarized formation and registry entry required
• Full accounting obligations under HGB (German GAAP)

Choose GmbH if you aim for long-term scale, external investment, and a professional presence.

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4. Tax Differences by Legal Form

• Sole Proprietors pay income tax (14–45% progressive) based on their total personal income.
• UGs and GmbHs pay:
  • Corporate tax: 15%
  • Solidarity surcharge: 5.5% of corporate tax
  • Trade tax: ~14% depending on your municipality

This adds up to an average 30% effective tax burden on profits before distributions. Distributions to shareholders are additionally taxed with 25% withholding tax (Abgeltungsteuer).

Note: UGs and GmbHs are subject to full double-entry bookkeeping and strict GoBD compliance.

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5. Summary: Which Structure Fits Best?

Criteria	Sole Proprietorship	UG (Ltd.)	GmbH
Capital Requirement	None	From €1	€25,000 (€12,500 at start)
Liability	Unlimited (personal)	Limited to company assets	Limited to company assets
Setup Effort	Very low	Moderate	High
Taxation	Income tax (14–45%)	~30% + 25% withholding	~30% + 25% withholding
Professional Image	Basic	Suitable for startups	Highly professional

Conclusion: Start lean and evolve smart. Many founders begin as sole proprietors or UG and later convert to a GmbH as they grow.

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6. Legal Form & Bookkeeping: What Changes?

Your bookkeeping obligations depend on the legal form:

• Sole proprietors: cash-basis (EÜR) allowed if revenue < €600,000 or profit < €60,000 (§141 AO)
• UG / GmbH: full double-entry accounting, annual balance sheet (HGB)
• All forms: GoBD-compliant recordkeeping is mandatory

KudTax supports all legal structures with automated accounting, invoice management, DATEV exports, and seamless e-commerce integrations (Amazon, Shopify, WooCommerce, etc.).

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Final Thoughts: Choose Strategically – and Go Digital

Your legal structure affects how you're taxed, how liable you are, and how you're perceived. Pick the model that matches your capital, risk level, and business goals.

KudTax is by your side from day one – with a digital accounting solution that grows with your business.

Get started with KudTax and stay on top of your finances, invoices, and tax obligations – no matter what structure you choose.

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