Limited partnership (KG)

Introduction

One of the many legal forms available to entrepreneurs is the limited partnership (KG). This legal form offers a mix of personal liability and equity participation that can be attractive for certain business models. In this article we will examine the structure, characteristics, advantages and disadvantages of a limited partnership, as well as the relevant legal aspects.

What is a limited partnership (KG)?

A limited partnership is a company in which at least one partner has unlimited liability (general partner) and at least one other partner has limited liability only with his contribution (limited partner).

Structure of a KG

Complementary

The general partner(s) are the active partners in a KG. They manage the day-to-day business, make decisions and bear unlimited liability with their personal assets for the company’s liabilities.

Limited partner

Limited partners are investors who limit their liability to the amount of their capital contribution. They are usually not actively involved in day-to-day operations and have less say in decisions.

Formation of a limited partnership

The formation of a KG requires a partnership agreement signed by all partners. This contract specifies the rights and obligations of the shareholders, the amount of capital contributions, the distribution of profits and losses, and other important aspects. The KG must be entered in the commercial register.

Advantages and disadvantages of a KG

Advantages

Flexibility

The KG offers flexibility in terms of capital structure and shareholder participation.

Limited liability for limited partners

Limited partners are only liable up to the amount of their contribution, which reduces the risk for investors.

Tax benefits

The KG itself is not subject to tax. Profits and losses are allocated to the partners and taxed in their personal tax returns.

Disadvantages

Unlimited liability for general partners

Unlimited liability of general partners can pose a significant risk, especially in the case of large liabilities.

Complexity

The structure of a KG can be more complex than that of a simple partnership or a sole proprietorship.

Legal aspects

Commercial Code (HGB)

The KG is regulated by the German Commercial Code (HGB). Sections 161 to 177a HGB contain specific provisions for limited partnerships.

Tax laws

A KG is taxed in accordance with the income tax laws. Profits and losses are allocated to the shareholders and taxed accordingly.

Liability regulations

As already mentioned, general partners have unlimited liability, while limited partners’ liability is limited to their capital contribution. This is regulated in Section 171 of the German Commercial Code.

Bookkeeping and accounting

A KG is required to keep accounts and must prepare a balance sheet in accordance with the provisions of the HGB.

Practical considerations when establishing a limited partnership

Election of shareholders

It is important to select the right partners, especially the general partner(s) who will manage the business.

Raising capital

The structure of the KG makes it possible to raise capital from limited partners without giving them full control over the company.

Legal advice

Due to the complexity of the legal form and liability issues, it is advisable to seek legal advice before establishing a KG.

Conclusion

The limited partnership is a versatile legal form suitable for various business models. It offers flexibility in terms of capital structure and participation and allows limited liability for capital providers. At the same time, it requires careful planning and consideration of the legal aspects, especially with regard to liability and taxes. For entrepreneurs who want to play an active role in their business while raising capital from investors, the limited partnership can be an attractive option.