Partnership

Introduction

Partnerships are a form of business organization in which two or more people jointly operate a business with the goal of making a profit. Unlike corporations, partnerships are based on the personal commitment and liability of the partners. In Germany, the most common forms of partnerships are the Gesellschaft bürgerlichen Rechts (GbR), the offene Handelsgesellschaft (OHG), the Kommanditgesellschaft (KG) and the Partnerschaftsgesellschaft (PartG).

Definition and characteristics

A partnership is characterized by the personal participation of its members, who are called partners. The shareholders contribute capital, labor or know-how to the company and share the profits and losses. As a rule, they are personally and unlimitedly liable for the company’s obligations.

Civil law partnership (GbR)

The GbR is the simplest form of partnership. It arises automatically when two or more people join together to pursue a common goal. No entry in the commercial register is required. The GbR is often used for small businesses, projects or as a company for a specific purpose.

General partnership (OHG)

The general partnership is a trading company in which all partners are considered merchants. It must be registered in the Commercial Register. The partners have unlimited liability for the company’s obligations. The general partnership is suitable for larger commercial enterprises where the partners wish to be actively involved in the business operations.

Limited partnership (KG)

The KG is a special form of the OHG. It has two types of partners: general partners and limited partners. General partners have unlimited liability, while limited partners are only liable up to the amount of their contribution. The KG is often used when a shareholder wishes to provide capital without actively participating in the business.

Partnership company (PartG)

Partnership firm is a form of partnership for liberal professions such as lawyers, tax advisors, architects, etc. It allows partners to work together under a common firm while being liable for their own professional actions.

Rights and duties of the shareholders

In a partnership, the partners have certain rights and obligations. These include the right to share in profits, the right to participate in the management of the company and the obligation to contribute to covering losses. The exact rights and obligations can be regulated in the partnership agreement.

Tax aspects

Partnerships are transparent entities in Germany, which means that they are not themselves subject to corporate income tax. Instead, the profits and losses are allocated to the partners, who pay tax on them in their personal income tax returns.

Liability

An essential characteristic of partnerships is the personal liability of the partners. In most cases, the partners have unlimited liability for the company’s debts with their private assets. However, there are exceptions, such as in the case of the KG, where limited partners are liable only up to the amount of their contribution.

Termination of a partnership

A partnership may be terminated in various ways, such as by termination of a partner, expiration of an agreed term, resolution of the partners, insolvency, or by attainment of the partnership’s purpose.

Differences from corporations

In contrast to corporations such as the GmbH or AG, partnerships are not based on capital participation, but on the personal participation of the partners. This leads to closer ties between shareholders and often to more efficient management. However, the liability risk is usually higher.

Conclusion

Partnerships provide a flexible and effective way for entrepreneurs to jointly operate a business. They are particularly suitable for smaller companies and freelancers. However, potential shareholders should carefully weigh the liability risks and tax consequences.

Sources

• Commercial Code (HGB)
• Civil Code (BGB)
• Partnership Company Act (PartGG)