In the article from Wise Business Group, we introduce the legal form GmbH & Co. KG in Germany and mention its differences from a simple GmbH.
If exemption from personal liability is a determining factor in choosing the suitable legal form for your business in Germany, both of the following will be on your final list:
Both companies are among the most popular legal forms in Germany. However, they have some differences.
Limited liability and limited partnership company or legal form GmbH & Co. KG in Germany is two types of companies combination: a partnership and a corporation. However, under German law, GmbH & Co. KG is a limited partnership company (KG) and therefore is a partnership.
The notable feature of GmbH & Co. KG is that the general partner is not a natural person but a legal entity in the form of a GmbH.
The legal form GmbH in Germany has limited liability solely. Because GmbH in GmbH & Co. KG takes the general partner position, GmbH & Co. KG will only have limited liability partners.
Read more: Article of association for limited liability and partnership in Germany
A general partner is a partner who is personally liable in a limited partnership in Germany. In contrast, a limited partner is a partner whose liability is limited to the amount of liability registered in the German Commercial Register. See section 161 (1) of the German Commercial Code (HGB).
The management and representation of GmbH & Co. KG in Germany is the responsibility of the managing director or managing directors of the general partner (GmbH). See Section 35 of the German GmbH Act (GmbHG).
Shareholders in a limited liability and limited partnership company in Germany can usually choose whether to participate in these two companies separately. For this reason, there are various legal forms of GmbH & Co. KG in Germany.
In this legal form, shareholders of the general partner or GmbH are also the limited partners of GmbH & Co. KG.
In this legal form, unlike GmbH & Co. KG with the same persons, all shareholders participate equally to each other as limited partners in the KG and as shareholders in the general partner GmbH.
A unitary GmbH & Co. KG in Germany exists only if the KG is the sole shareholder of the general partner or GmbH. In other words, KG should have all the shares of its general partner. In this case, the limited partners only hold shares in the KG and indirectly through the KG in the GmbH.
In single-player mode, a natural person is the only shareholder of the GmbH and simultaneously the sole limited partner.
This type of company is usually characterized by many limited partners having no shares in GmbH.
In two-story or double GmbH & Co. KG in Germany, the general partner of KG is another GmbH & Co. KG.
In Germany’s star-shaped type of limited liability and limited partnership company, one GmbH is a general partner of several GmbH & Co. KG.
In addition, an entrepreneurial limited liability company (UG) can also be a general partner. It is also possible that foreign companies such as Limited & Co. KG to be in the position of general partner.
The establishment process of GmbH & Co. KG company in Germany is significantly more complicated than a simple GmbH. A KG must be established parallel to a GmbH or even before it. Thus, two Articles of Association (one for the GmbH and one for the KG) are required.
Similar to a simple limited liability company, setting up a limited liability and limited partnership company or GmbH & Co. KG in Germany requires a minimum share capital of € 25,000, as GmbH is its general partner. It is also mandatory for this company to enter the commercial register.
Read more: What are the costs associated with purchasing a GmbH in Germany?
Founders in Germany constantly face the question of whether the legal form GmbH & Co. KG is more appropriate for their company or GmbH. Even if a GmbH & Co.KG has legal (tax) advantages compared to a GmbH, it is always necessary to examine which legal form best aligns with the shareholders’ goals. Therefore, the following is merely an overview of the advantages and disadvantages of a limited liability and limited partnership company compared to a simple limited liability company in Germany.
• Low tax risks: Legal form GmbH & Co. KG in Germany as a partnership has a different tax character than a limited liability company. The so-called “hidden profit distribution” does not apply to KG.
• General tax benefits: When paying dividends to shareholders, the tax rate for a partnership (GmbH & Co. KG) is significantly lower than that for a limited liability company (GmbH). In addition, GmbH & Co.KG has a business tax exemption of 24,500 euros. This legal form also has an advantage in financial loss; you can reduce the loss amount with the partners’ income. As a result, their income tax will be reduced simultaneously.
• Greater flexibility when accepting new shareholders: Admission of new shareholders or change of shareholders in GmbH & Co. KG has less bureaucracy than a GmbH, as modifications to the KG’s articles of association do not require an official and notarized certificate.
• Great administrative effort and high running costs: Administrative actions in general at GmbH & Co.KG are significantly more than a typical GmbH. Because on the one hand, its establishment requires too much effort, and on the other hand, there is a double accounting obligation with annual financial statements and profit and loss accounts. Running costs are also higher for the two companies than for a GmbH.
• Great need for advice: Due to its complex structure, a GmbH & Co.KG company in Germany needs more expert advice than GmbH.
Read more: Dissolution, liquidation and deletion of a GmbH in Germany
A limited liability and limited partnership company (GmbH & Co. KG) in Germany is a combination of a partnership (KG) and a corporation (GmbH). In this legal form, known by law as a partnership, the general partner must be a legal entity in the form of a GmbH.
For company establishment, a KG must be established parallel to the GmbH or before it. Also, separate articles of association must be prepared for each one. The minimum capital to set up a GmbH & Co. KG in Germany is 25,000 euros, and entry into the commercial register is required.
Exemption from personal liability is one of the features of the two legal forms GmbH & Co. KG and GmbH in Germany. However, they are different from each other.
Advantages of GmbH & Co. KG over a GmbH in Germany include low tax risk, general tax benefits, and greater flexibility when accepting or changing shareholders. On the other hand, its establishment requires too much administrative effort, high running costs, and receiving advice from experts.
Read the translation of this article in Persian, here.
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