Limited Partnership (Kommanditgesellschaft (KG))

Difference to the oHG – the partners of the KG

A limited partnership (KG) differs from a general partnership (oHG) in that the liability of one or more partners towards creditors is limited to a precisely quantified amount of money - which is also entered in the commercial register. The partners with full liability are called ‘Komplementäre’ (general partners), the partners with limited liability ‘Kommanditisten’ (limited partners).

The fact that the partners bear different risks has an effect on the structure: The position of the personally liable partners is much stronger than that of the limited partners. In particular, limited partners are excluded from the management and representation of the KG. Furthermore, limited partners have a limited claim to payment of profits.

Special case: GmbH & Co. KG

The GmbH & Co. KG is a special case of the limited partnership. A GmbH is involved as the personally liable partner, which ultimately leads to an indirect limitation of liability. This fact must be labelled in the name: The usual addition to the legal form is ‘GmbH & Co. KG’.

Management is carried out by the general partner GmbH, i.e., by its managing directors. This means that the decision-making process within the GmbH & Co. KG is controlled by the GmbH.

The GmbH & Co. KG model is often used when many limited partners contribute sums of money and none of them want to assume the position of personally liable partner due to high financial volumes.

Trade and commercial enterprise

A trade exists in the case of an independent, outwardly recognisable, legal activity that is designed to be permanent and profitable and is not a freelance profession (e.g., doctors, lawyers, tax consultants, etc.) or primary production (agriculture, etc.).

There is freedom of trade in Germany. Anyone who wants to carry out a trade has the fundamental right to do so. Every company that operates a trade must comply with the provisions of the German Trade Regulation Act (GewO).

A company that operates a trade can also be organised as a KG in various ways. In addition, as a company that has already reached a certain size, the KG is subject to the organisational regulations of the German Commercial Code (HGB), regardless of whether it operates a trade in the narrower traditional sense.

According to the German Commercial Code (HGB), companies that carry out typical commercial activities are considered commercial enterprises: e.g., wholesale and retail, manufacturing, banking and insurance, transport, commercial agents, etc., but also people who run a craft or other commercial enterprise are considered merchants

The following explanations relate exclusively to an enterprise running a trade which has organised itself in the form of a Kommanditgesellschaft.

Kommanditgesellschaft (KG)

A

A KG is a company whose purpose is to operate a commercial business under a joint name, in which at least one partner has unlimited liability. The liability of the other partners towards the company's creditors is limited to the amount of a specific capital contribution.

The law governing the KG is regulated in Paragraphs 161-179 HGB. In addition, the provisions on the oHG (Paragraphs 105-160 HGB) and the provisions on the partnership under civil law (Paragraphs 705-740c BGB) apply. The KG must be entered in the commercial register.

Special case: GmbH & Co. KG

This is a subtype of the KG. The term GmbH & Co. results from the fact that a GmbH is the personally liable partner of the KG instead of one or more natural persons. The GmbH & Co. KG is subject to the law of the KG.

Like the oHG, the KG is a typical company form for medium-sized companies. In view of its capitalistic structure, it is also suitable for larger companies. It is particularly popular in the hybrid form of the GmbH & Co. KG, in which the advantages of a corporation (limited liability) can be combined with those of a partnership.

The GmbH & Co. KG makes it possible to exclude the full personal liability of all natural persons involved in a partnership and still essentially be treated and taxed as a partnership.

I. B. Key features

Company form

Like the oHG, the KG is a partnership, but with a capitalist flavour. The formation of a partnership is not dependent on a certain minimum capital.

Unlike the personally liable partners (general partners), limited partners do not normally work in the company.

The nature of the GmbH & Co. KG is characterised by the membership-based connection between the partnership and the corporation.

Constitution, executive organs

The KG has no legal personality of its own, distinct from the partners themselves. Nevertheless, it is similar to a legal entity in that it can sue and be sued in court. It can acquire rights and enter into liabilities, acquire property and other rights in rem to real estate. Each personally liable partner (general partner) has sole management authorisation and sole power of representation. The limited partners have no external power of representation.

Legal relationships of the partners, liability

The personally liable partners (general partners) are merchants. The limited partners, on the other hand, are not merchants.

The KG is liable for company debts with the company assets (joint assets). The general partners are also personally liable. A limitation of liability of the general partners to the company assets is not possible.

The limited partner is only liable to company debtors to the extent of his contribution. Once this has been paid, any further liability of the limited partner is excluded. However, the limited partner's limitation of liability only applies from the time of entry in the commercial register. The limited partner has unlimited liability if the company has already commenced business and the creditor was not aware of the limited partner status.

Since the GmbH is already liable by law only with its own assets, this also results in a limitation of liability for the GmbH & Co. KG.

As self-employed persons, the shareholders of a KG are not normally subject to social security contributions (pension insurance, health insurance and unemployment insurance). Voluntary continued insurance in the statutory health insurance scheme is possible for former employees. It is also possible to apply for compulsory or voluntary insurance in the statutory pension insurance scheme. In some sectors, entrepreneurs are also required to take out statutory accident insurance (employers' liability insurance associations) if they do not have any employees.

Partners

The KG is formed by a partnership agreement between at least two partners. One partner has unlimited liability (general partner). The liability of the other partner is limited to his contribution (limited partner). Partners in a KG can be natural and legal persons (e.g., in the case of a GmbH & Co. KG), including foreign partners. A general partner cannot be a limited partner at the same time and vice versa.

A change of partners is only possible with the consent of all partners, unless otherwise stipulated in the contract.

Partners of the general partner-GmbH and limited partners can be identical persons. It is also possible for the sole partner of a one-man general partner-GmbH to be the sole limited partner.

Capital

No minimum capital is required. The limited partner makes a fixed contribution of any amount.

Object

The KG is a trading company, i.e., according to the German Commercial Code (HGB), its business purpose is the operation of a trade. In addition, to a typical, traditional commercial trade (wholesale, retail), a KG can also pursue all other purposes permitted in the form of a trade in particular also industry, crafts and other services, like any merchant entered in the commercial register.

If the nature and scope of a company’s business operations require a commercially organised business, the company is always deemed to be a commercial enterprise, regardless of whether it has been entered in the commercial register or not. When assessing whether a company is run in a commercial manner, particular attention must be paid to the annual turnover, type and number of business transactions, borrowing, business premises, number of employees, type of bookkeeping, etc.

Companies whose type and scope of business operations are not organised in a commercial manner can voluntarily register in the commercial register and are therefore deemed to be merchants with all rights and obligations.

Company name

The company name is the name of a company with which it appears in legal and business transactions. The company name of a KG may contain the surname of a personally liable partner, fanciful additions or factual additions, as long as it has distinctive character and thus a naming function. It can also be formed as a combination of these elements. The legal form ‘Kommanditgesellschaft’ must always be stated. It can be abbreviated to ‘KG’.

In the case of the GmbH & Co. KG the company name must always include an addition indicating this particular formation (GmbH & Co. KG or personally liable KG).

However, the company components must not be capable of misleading as to the nature or scope of the business or the circumstances of the business owner. The company name must be clearly distinguishable from other companies already entered in the commercial register at the same location or in the same municipality.

Only the company entered in the commercial register can have a company name that can be sold, inherited and leased together with the business operations

III. A. The management of the KG

Acting bodies

Internal management

Management is only carried out by the general partners. If a GmbH is the general partner (GmbH & Co. KG), its managing director acts on its behalf. The limited partner is excluded from management. The consent of the limited partner is only required for unusual transactions. However, the partnership agreement may provide for a different regulation.

In all other respects, the individual management authorisation applies by law. However, a partner resolution is required for unusual transactions.

Partner resolutions must always be passed unanimously. The procedure is informal. Deviating regulations are possible.

External representation

External representation is carried out by the personally liable partners (organisational representation). In principle, each general partner is authorised to represent the company with sole power of representation. Alternative arrangements are possible. The limited partner has no power of representation.

In the case of the GmbH & Co. KG, the company is generally represented by the general partner-GmbH. This in turn is represented by its managing director.

Non-partners and also limited partners can be granted the power of representation with the power of attorney. The granting of the power of attorney must be entered in the commercial register

III. B.

Control and partners’ right to information

General partners may inspect company documents, in particular accounting documents. They also have the right to request information on company matters. This applies even if they are excluded from the management of the company. Limited partners, on the other hand, only have limited control rights. They can request a copy of the annual financial statements and check their accuracy.

Bookkeeping and annual financial statements

KG

As a commercial company, the KG is obliged to keep commercial books and to disclose its commercial transactions and assets in accordance with the principles of proper accounting. At the end of each financial year, a balance sheet (annual balance sheet) and a profit and loss account must be prepared (in German and in euros).

A KG is not obliged to have its annual financial statements audited by auditors, except in the case of credit institutions or companies subject to the law on accounting for certain for certain companies and groups.

Disclosure or publication of the annual financial statements is not required, except in the case of credit institutions or companies subject to the law of on accounting for certain companies and groups.

Special case: GmbH & Co. KG

Special rules apply to the GmbH & Co. KG. For instance, the annual financial statements must be supplemented with notes and the audit of the annual financial statements is mandatory for large and medium-sized GmbH & Co. KGs.

ThThe KG is a partnership. Partnerships themselves are not subject to income tax or corporation tax. Instead, the profit is determined uniformly and separately and allocated directly to the partners. The partners' profit shares are subject to income tax or corporation tax, depending on their legal form.

Further information can be found in our brochure Accounting and Taxes – Information for People Setting Up a Business.