The German Kommanditgesellschaft – “the all-rounder”

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The Kommanditgesellschaft (German equivalent to the limited partnership), generally abbreviated as KG, is a very popular legal form in Germany due to its versatility and is mostly used in the special form as a GmbH & Co. KG.

The limited partnership (KG)
The limited partnership is characterised by the fact that it is made up of a personally and fully liable partner (Komplementär) and additionally at least one partner with limited liability (Kommanditist). According to German law, the KG is managed by the fully liable general partner. A major advantage of the KG is that it is a company with (at least partial) limited liability.

Advantages of the Kommanditgesellschaft
As a partnership, the KG is subject to less strict regulations than the so-called capital-based-companies (Kapitalgesellschaften) – hereinafter referred to as “corporations”. For instance, contrary to a corporation, the partnership agreement of a KG does not need to be notarised, and the partners of a KG are free to determine the amount of the limited liability capital.

By choosing the special form of the GmbH & Co. KG, in which a limited liability company (a German GmbH) participates in the KG as general partner with unlimited liability, the liability of the natural persons involved can be limited to their limited partner contribution. Accordingly, the GmbH & Co. KG is a partnership with limited liability, which, with the right tax and civil law structure, can be economically extremely attractive, especially in the area of property management:

Income from a partnership is treated differently from a tax point of view than that of a corporation. Through the so-called “commercial characterisation or de-capitalisation”, the taxation of a GmbH & Co. KG can be specifically subjected to one or the other type of taxation, whereby the best possible tax structure can be achieved in the individual case.

The simpler transferability of the limited partnership shares also means that the KG is a very popular vehicle for the sale of companies or for family asset management or succession planning.

“One-man partnership” with limited liability

While partnerships must consist of at least two partners, the GmbH & Co. KG can also be founded as a so-called “one-man company” by only one natural person. This is possible if the KG holds all the shares of the GmbH, which is general partner (the Einheits-GmbH & Co. KG) and the natural person is the sole limited partner.

The greatest advantage of the Einheits-GmbH & Co. KG is that the entire company can be sold and transferred without any formalities. If a sole limited partner transfers all shares  of the limited partnership held by him, the shares of the general partner GmbH will thereby also be transferred indirectly without any formalities.

Have we aroused your interest in setting up a limited partnership? Then contact us!

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