General partnership (OHG)

The general partnership (OHG) is a form of partnership regulated in Germany by the German Commercial Code (HGB). It is a company in which two or more persons conduct a commercial business under joint names. In contrast to other corporate forms, such as the limited liability company (GmbH) or the stock corporation (AG), the partners of a general partnership have unlimited liability with their personal and corporate assets.

Foundation and company

A general partnership is established by a partnership agreement concluded between the partners. This contract may be concluded orally, in writing or by conclusive conduct. However, it is advisable to conclude the contract in writing to avoid ambiguities later on.

The name of the general partnership must contain the addition “OHG” or “general partnership”. It may contain the name of one or more shareholders and a factual or fanciful addition. The company name must be clear and distinguishable and must not contain misleading information.

Legal capacity and liability

The OHG is a partnership with legal capacity. It may acquire rights and incur liabilities, acquire ownership and other rights in rem in real property, sue and be sued in court.

The partners of a general partnership have unlimited liability, i.e. with all their personal and corporate assets. This liability applies both to the liabilities of the company and to the actions of the other shareholders. In contrast to the limited partnership (KG), in which the limited partners are only liable up to the amount of their contribution, there is no limitation of liability in the OHG.

Management and representation

In principle, the management and representation of the general partnership rests with all partners. Each shareholder is entitled and obliged to manage the company’s business. However, the articles of association may also provide for a different arrangement, for example that only certain shareholders are entitled to manage the company or that the management is taken over by a third party.

The partners represent the company externally. In principle, each shareholder is authorized to represent the company individually. However, the partnership agreement may also provide for joint representation, in which case several partners must act jointly.

Profit and loss distribution

The profit and loss of the general partnership is generally distributed according to heads, i.e. each partner receives the same share. However, the partnership agreement may also provide for a different distribution, for example according to the amount of the contributions or according to the work performed by the partners. In such cases, the profit or loss shall be distributed among the shareholders in accordance with the quota stipulated in the partnership agreement. This can be particularly useful if the shareholders make different levels of contribution to the business, whether in the form of capital or through personal commitment and work. It is important that the regulations on the distribution of profits and losses are clearly and unambiguously formulated in the partnership agreement in order to avoid disputes later on.

Termination and liquidation

The general partnership may be terminated by various events, for example, by the expiry of the term stipulated in the partnership agreement, by a resolution of the partners, by the death of a partner or by the opening of insolvency proceedings against the assets of the partnership or a partner.

After the termination of the general partnership, liquidation takes place, i.e. the winding up of the company. In this process, the company’s business is terminated, its liabilities are settled and its assets are distributed. Liquidation is carried out by the liquidators, who are usually the existing shareholders, unless the articles of association provide otherwise.

Advantages and disadvantages of a general partnership

The OHG offers various advantages. It is flexible and can be tailored to the needs of the shareholders. It enables collaborative management and offers the possibility of pooling the expertise and resources of several people.

However, the OHG also has disadvantages. The main disadvantage is the unlimited liability of the shareholders. This means a high financial risk for the shareholders. In addition, when there are multiple shareholders, management can be complex and conflictual.

Conclusion

The general partnership is a flexible and versatile corporate form suitable for various business purposes. It enables collaborative management and offers the possibility of pooling the expertise and resources of several people. However, it is associated with a high financial risk, as the shareholders have unlimited liability.