Partnerships in Germany: General Partnerships & Limited Partnerships

German Corporate Lawyers

Partnerships in Germany: General Partnerships & Limited Partnerships

German Corporate Lawyers

German corporate law allows for different forms of partnership arrangements as corporate structures. Partnerships in Germany enable entrepreneurs to come together and grow their companies significantly. Partnerships have lower establishing requirements than other companies, including the GmbH and the AG. However, it should be noted that there are significant differences between the different types of partnerships, and these fundamental differences involve their stated purpose and liability requirements.

This page will outline the key differences between the different types of partnerships in Germany, such as the limited partnership (Kommanditgesellschaft – KG), the general partnership (OHG – offene Handelsgesellschaft), the Civil Law partnership (GbR – Gesellschaft bürgerlichen Rechts) and the blended form of partnership (The GmbH & Co. KG and the UG & Co. KG.) and provide insight into which form may be most suitable for your business.

Please do not hesitate to contact our lawyers directly for specialised legal assistance in all matters relating to partnerships in Germany.

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The Kommanditgesellschaft (KG) – Limited Liability Partnership

The KG (“die Kommanditgesellschaft”) is a form of partnership with an element of limited liability. In this business, the partnership has a minimum of two partners, with limited partners (Kommanditist) and general partners with unlimited liability (Komplementär).

Under this form of partnership, the partners can be natural or legal persons, and this is what gives rise to another form of business where a GmbH or a UG can take the role of the Komplementär (general/unlimited liability partner) in the form of the GmbH & Co. KG or UG & Co. KG. In a KG, the Komplementär have a more active role in the company’s management. These partners generally make the daily decisions about the partnership’s direction, whereas the Kommanditist acts primarily as an investor in the company.

To form a KG, the partnership agreement must outline the list of shareholders and distribute the limited liability partner’s roles and the unlimited liability partner. They must also present the partnership’s name, the enterprise’s purpose, and its planned duration, among other aspects. KG company formation can be a complex business, as many bureaucratic requirements must be addressed.

Allow our team of German corporate lawyers to guide you through the necessities.

Establishing a Limited Liability Partnership (KG)

The requirements in setting up a KG partnership are much less demanding than those in setting up a limited company. The starting point is the Partnership Agreement. The Partnership Agreement is a  written agreement that outlines the partners’ role and establishes which partners are the general partners (with unlimited liability) and the limited partners (with limited liability).

The agreement should also outline the partnership’s aims, the distribution of the partnership’s profits, and how the KG will contend with changing shareholders/partners within the partnership.

Registration: Following the partnership agreement, the partnership needs to be registered. A notary should then oversee the partnership agreement before the KG is registered with the trade office, the tax office and the registrar.

Capital Requirements: Like other partnership arrangements, no set amount of capital is required to start a KG. It is recommended to have enough finances to adequately support the partnership in the early stages of business to establish the business entirely.

The Advantages of the Limited Partnership in Germany

Ease of Establishment: In common with other forms of partnerships, the KG is relatively straightforward to establish. In establishing a KG, the partners should draft a partnership agreement that lays out the purpose of the partnership, the business aims, and the designation of the general partner and the limited partner. The requirements within a partnership agreement are less demanding than those on a limited company’s articles of association.

Limited Liability Element: Since the KG allows some partners to have limited liability serves as encouragement for more significant investment in the partnership.

Greater Level of Control: The partners have more control over the firm’s aims under a partnership arrangement than in a limited company set. The share of the company’s profits is also likely to be increased depending on the KG’s nature.

Shareholder Turnover: With the right plan in place in the company’s partnership agreement, there should be little disruption in shareholders’/limited partners’ changes.

Flexibility: With the general partners in charge of the company’s management, there is greater flexibility in how a KG is run compared to a limited company. The general partner makes the operating decisions as to how business is conducted. Of course, they also run the risk since they have unlimited liability.

Issues with the Limited Partnership in Germany

Bookkeeping and Records: The bookkeeping requirements for KGs are not as high as those for GmbHs and AGs, but like all companies, they need to ensure that they keep their records. At the end of the year, it is a requirement that they submit their profit-and-loss account and balance sheet to the Trade Register.

Taxes: A KG is not liable for corporation tax in its own right; however, if the partner of the company is a limited company (Gmbh & Co. KG/UG & Co. KG), the tax liability for the partnership will be part of the corporation tax paid by the partner company. Otherwise, the tax liability will be calculated as part of their income tax requirements for natural persons.

Unlimited Liability of the General Partner: It is worth keeping in mind that the General Partner faces a risk when operating under this model. Should the partnership face legal or financial issues, their personal assets (not just those invested in the company) can be at risk.

Purpose: A KG partnership is a partnership with a commercial purpose instead of a more general-purpose (such as those registered under the GbR/Civil Law Partnership). This means it is subject to the HGB (German Commercial Code) requirements and subject to commercial registration.