GmbH & Co. KG – all information on the legal form

GmbH & Co. KG – what is that? How can I set up a GmbH & Co. KG and what do I have to consider? On this page we give you an overview of the common legal form. In addition to an explanation of terms, we also address topics such as:

• minimum capital required,
• formation costs,
• questions on liability and responsibilities,
• the duties of the managing directors and
• the topic of taxes.

Topics in our legal advice

Do you have legal questions about the GmbH & Co. KG or other legal forms and company formations? Contact our lawyers at the Herfurtner law firm. We can advise you throughout the German-speaking world.

Table of contents

1. GmbH & Co. KG – Significance
2. Composition – parties involved
3. Minimum capital and formation costs
4. GmbH & Co. Forming a KG: what to look out for?
5. Managing directors of the GmbH & Co. KG
6. Internal & external tasks
7. Liability, responsibilities, risk distribution
8. GmbH & Co. KG – Taxation
9. Advantages, disadvantages, naming

Limited Liability Company & Co. KG – Meaning

GmbH & Co. KG is an abbreviation and stands for Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft. It is a joint venture, similar to the limited partnership (KG).

The main difference is that in this case the general partner is a limited liability company and not a natural person. In contrast, the natural person who contributes the capital to the partnership is the limited partner (part-partner).

This exposes the general partners, i.e. the persons behind the limited liability company, to a lower liability risk. Those who establish such a form of company can thus benefit from the advantages of raising the capital of a KG and at the same time achieve the limitation of liability characteristic of a GmbH & Co.KG.

As a result, two companies must be established: a GmbH and a GmbH & Co. KG, both of which must be registered as commercial companies in order to be able to operate legally. Another option is to establish a UG & Co. KG, in which an Unternehmergesellschaft acts as the general partner.

Composition – parties involved

The terms “general partner” and “limited partner”, which refer to the different types of partners, are important in the context of the legal form.

General partner: definition

A general partner is a type of investor.

He is the personally and unlimitedly liable partner of a limited partnership (KG). A limited liability company serves as the general partner of a GmbH & Co. KG. This has the advantage that, in contrast to the OHG, no natural person is directly liable for the debts of a legal company such as the GmbH.

The entire business assets of the GmbH are liable for the debts.

Limited partner: definition

Similar to the general partner, the limited partner is also a type of investor.

As a shareholder in a limited partnership (KG), a limited partner is only liable up to the amount of his liability in the commercial register.

Minimum capital and formation costs

Since the general partner is a GmbH, the formation of a GmbH & Co. KG requires a capital contribution of 25,000 euros. Alternatively, a UG can assume the role of general partner in a UG & Co. KG by contributing at least one euro of capital.

Both the limited partner and the general partner GmbH agree on the amount of the contributions in the partnership agreement before they conclude it. In particular, it is important to know the amount of the limited partnership’s equity that will be entered in the commercial register.

Consultancy fees with a lawyer or tax expert are due here if the partnership agreements are to be tailored to the general partner-GmbH and the GmbH & Co. Registration and commercial register entry costs must also be paid.

Formation of a GmbH & Co. KG: What you must bear in mind

Every company must have a personally liable partner in addition to the other partners.

The first step is the formation of a GmbH by the shareholders.

The GmbH & Co. KG can be founded if it is entered in the commercial register.

The basic features of the company are laid down in the articles of association or partnership agreement. The limited partners’ liability ceases completely if it is also entered in the commercial register.

Even before entry in a commercial register, the partnership is capable of doing business, but the limited partners are also liable with their private assets until that time.

The minimum amount is – as already mentioned – €25,000. It is also possible to contribute assets in kind.

Purpose and benefits of the legal form

A GmbH & Co. KG can have two purposes:

• either to operate a business or
• to manage its own assets.

Contractual regulations

In their articles of association, the partners determine the legal basis on which the GmbH & Co. KG is based on. The provisions of the Commercial Code, such as voting processes among the partners or the distribution of profits, can also be changed here.

Commercial register and trade office – double registration required

As mentioned, the general partner GmbH must be established before the GmbH & Co. KG can be founded. It must fulfil all GmbH formation requirements including the required share capital, even if it only acts as general partner.

A partnership agreement applies to both the GmbH and the GmbH & Co. KG. In addition, a notary must enter both companies in the commercial register, the GmbH in section B and the GmbH & Co.KG in section A.

In order to be legally recognised in Germany, both companies must be registered with the local trade office – in the chosen legal form, which is only intended for merchants: GmbH & Co. KG.

As a rule, the trade offices report the changes to the tax office and the Chamber of Industry and Commerce (IHK) or Chamber of Crafts (HWK). These then independently contact the potential members to conclude a membership agreement.

The articles of association should be drawn up with the help of a lawyer or notary. A tax expert should be consulted on the financial implications of the contracts concluded.

Managing Director of GmbH & Co. KG

The management of such a corporate form is under the control of the GmbH. Whereas the GmbH is not a natural person and therefore cannot act as managing director of the company.

Consequently, the managing director of the GmbH is also the managing director of the GmbH & Co. KG. However, it should be noted that the management of the GmbH does not necessarily have to be occupied by one of its owners, but can also be taken over by an outsider.

The GmbH & Co. KG in the internal relationship and in the external representation

The GmbH and its limited partners have – as in the KG – different tasks. Through its managing director, the general partner GmbH represents and manages the KG externally. In the case of the general partner GmbH, the managing director can be elected from outside the partnership.

However, it is also possible that one or more limited partners manage the general partner GmbH as a whole as managing director.

It is not permissible for limited partners who are not managing directors of the general partner GmbH to manage or represent the GmbH & Co. However, the limited partner has a right of control in any case. For example, the annual financial statements must be presented to him. In addition, the limited partner has the right to object to extensive or risky transactions.

If only one general partner manages the partnership, it should be stipulated in the partnership agreement that the general partner is exempt from the management restrictions of § 181 BGB. These laws regulate the practice of insider trading, which is a form of self-dealing (i.e. transactions one enters into with oneself).

If the managing director of the general partner GmbH concludes a lease agreement with this GmbH or with the GmbH & Co. KG, this is an example of self-dealing.

Managing directors of such a legal form must have knowledge of commercial accounting. As commercial companies, both the general partner GmbH and the GmbH & Co. KG must prepare annual financial statements and profit and loss accounts in the form of double-entry bookkeeping.

In addition, there is the need for audits and publicity. Thus, it is obliged to have its annual financial statements audited annually by an auditor and to publish the results in the Federal Gazette (Bundesanzeiger).

Shared and limited liability: clear distribution of risk between partners

Since a GmbH can function as a limited liability company, the limitation of the general partner’s responsibility is an advantage of this structure. In this case, the shareholders of the limited liability company are not personally responsible.

This is the main difference between an LP and a KG, in which the general partner is personally liable for all debts and obligations of the company and himself.

There are no significant differences between the KG and other types of contracts. This means that in case of failure the general partner GmbH is only liable up to the amount of its contribution, whereas the limited partners are liable exclusively with their shares in the GmbH & Co.

There is a mandatory entry in the commercial register for the amount of the limited partner’s contribution.

The general partner GmbH limits the liability of its managing director, but certain lenders and suppliers do not recognise this limitation and require that the managing director of the general partner GmbH be liable with his personal assets. The managing director of a GmbH is personally liable if he fails to distinguish between business and private assets.

Taxes: KG and partners share costs

It should be noted that both the general partner GmbH and the GmbH & Co KG are independent legal entities with separate tax obligations.

The GmbH & Co. KG is liable to VAT on the goods and services it purchases, just like any other KG.

Depending on the type of delivery or service, this amounts to 19 % or 7 % of the total amount. Since the GmbH & Co. KG can only be founded by traders, trade tax is also due.

Wage tax is paid by the employer if he employs workers. The same rules apply to the general partner GmbH as to the general partners.

Each partner is responsible for paying his own share of the tax on his separate share of the profits. As a legal entity, the general partner-GmbH is liable for corporate income tax.

GmbH & Co. KG Taxation

• For employees: Wage tax
• Trade tax
• Tax on gifts and estates (inheritance tax)
• Limited partner: income tax
• General partner/GmbH: tax on company profits (corporation tax)
• Possibly the limited partner in his function as managing director: turnover tax
• If a property is acquired for an OHG or KG, with restrictions: Real estate transfer tax; If it is acquired for a special division: Special balance sheet limited partner

Advantages, disadvantages and naming

In addition to being entered in the commercial register, the GmbH & Co. KG appears in business transactions as a corporation. Personal names, the object of the company or even an imaginary name can be used in the composition of the name. In addition, founders have the option of using a mixture of these components.

Another rule is that the name of your organisation should be clear and precise.

Furthermore, the company names of the general partner GmbH and the GmbH & Co. KG may have different company names. It is a bigger problem if they are all the same. In this case, founders of two companies with identical names should use different additions.

Examples are Hans Schmidt Betriebs-GmbH and Hans Schmidt GmbH & Co. KG, which are the general partner GmbHs (company name of the GmbH & Co. KG).

Advantages of the GmbH & Co. KG

One advantage is, among other things, the fact that the GmbH acts as the general partner of the KG. As already mentioned, the GmbH is liable with all of the company’s assets, but not with the private assets of the partners. This is because the GmbH is a corporation. This significantly reduces the liability concerns for the business partners.

Clear risk distribution and less personal responsibility are advantages of the GmbH & Co. KG.

Since the opposition rights of the capital providers are partly restricted, the general partners of the GmbH & Co. KG have the advantage that they can manage the company in their own interest, although they receive money from the limited partners.

Because the general partner is a GmbH and not a natural person as in the KG, the general partner’s liability is limited to the GmbH’s assets. Thus, the partners of the general partner GmbH are not individually liable, but the company as a whole.

Without bearing any risk beyond the amount of their contribution or actively participating in the company’s activities, limited partners can hold the GmbH&Co.KG with capital as in the legal form of a KG.

GmbH & Co. KG: the disadvantages

High formation and accounting costs are disadvantages of the GmbH & Co. KG. In any case, the formation and management of a GmbH & Co. KG is in any case more difficult than with the conventional GmbH or KG. This doubles the effort and costs involved in setting up two companies.

Since records must be kept for both companies, the administrative burden increases considerably. The connection of a GmbH or KG with the other company is more transparent for outsiders.

For whom is the legal form GmbH & Co. KG particularly suitable?

KG and GmbH & Co. KG are suitable for individual shareholders who merely want to invest money in a business enterprise but do not want to actively participate in the company.

Through the diversions via the general partner GmbH, the GmbH & Co. KG enables the general partners to limit their risk.

If you have invested in or made payments to one of the companies on this list, our lawyers will be at your disposal at short notice.