The corporate form of the GmbH & Co. KG

I – Introduction

The GmbH & Co. KG is a special form of limited partnership (KG). It is formed by a combination of a GmbH and at least one other – usually natural – person as a partner in the KG. A limited partnership has two types of partners: the general partners with unlimited liability, who are liable without limitation – i.e. also with their personal assets – and the limited partners, who are only liable to a limited extent with their respective contribution. The special feature of the GmbH & Co. KG is that the general partner position in the limited partnership is held by a GmbH. This combines the partnership structure of a limited partnership with the limited liability of a GmbH – quasi the construct of a „limited liability partnership“. With the GmbH & Co. KG, two different legal forms are mixed together, so that special rules inevitably result from this. Nevertheless, the law refers to this form of company only in very few places.

II – Formation

Internally, the GmbH & Co. KG is formed in the same way as a limited partnership by concluding a partnership agreement. As soon as the limited partnership commences its business or is entered in the commercial register, it also comes into existence in the external relationship. In this context, it is particularly important to ensure that the articles of association are of sufficient quality, because unlike the articles of association of a GmbH, which must be notarised, the articles of association of a limited partnership are not subject to any formal requirement. Furthermore, the limited partnership does not require a minimum contribution. However, the general partner GmbH must still have a share capital of at least 25,000.00 euros. Then the limited partnership as well as the general partner GmbH, if newly founded, must be registered with the commercial register by a notary public. It is also important that the companies are different from each other, i.e. they must not be completely identical. However, a single addition is sufficient to distinguish them.

III – Management

The management is carried out by the general partner, which in the case of a GmbH & Co. KG is the general partner GmbH. As a legal person, this is only capable of acting through the managing director as a body of action. Ergo, the managing director of the GmbH is also the representative body for the limited partnership. In this way, the management authority is bundled and ensured on one organ.

IV – Liability

In principle, a general partner has unlimited liability with all his assets. However, the combination of both legal forms results in the peculiarity that the limited liability corporation – i.e. the GmbH – holds the position of the general partner, so that as a consequence there can no longer be a fully liable party.

V – Annual accounts

The GmbH & Co. KG is a combination of two legal forms, so that for the general partner GmbH and the limited partnership corresponding annual accounts must also be prepared independently of each other. Furthermore, with regard to the annual financial statements of both companies there is an obligation to publish them in the electronic Federal Gazette. The legislator has explicitly extended the regulation with regard to the GmbH & Co. KG has been explicitly extended.

VI – Changes in the shareholder structure and the relevance of the articles of association

Particularly in the context of a change of shareholders, termination or exclusion as well as provisions on the succession of a testator, the special challenges of the GmbH & Co. KG come into play. The particular difficulty here lies in the qualitative formulation of the provisions in the partnership agreement, as different formal requirements apply to a limited partnership and a GmbH in many respects. This means that the partnership agreement should contain concrete and detailed regulations on individual sub-aspects. The drafting of the partnership agreement thus enables the parties to establish appropriate safeguards.

VII – Dissolution and liquidation

The respective provisions of the corresponding legal form apply. However, the dissolution of one company does not automatically lead to the dissolution of the other company.

VIII – Advantages and disadvantages of the GmbH & Co. KG

Advantages

The most obvious advantage is the limitation of liability with the help of the combination of two legal forms: the limited partnership and the GmbH as general partner. Furthermore, losses of the GmbH & Co. KG can be offset against profits from other income, and by admitting new limited partners, the partnership is able to quickly provide new capital. Another special feature is the possibility to concentrate the management authority on a single representative body. In addition, amendments to the partnership agreement are not subject to the formal requirement of notarial certification – they only have to be registered notarially with the commercial register in accordance with § 162 HGB, which means that the GmbH & Co. KG can act very flexibly as a legal form. A tax advantage of the mixed form is in particular the freedom to transfer economic assets in a value-neutral manner within the framework of accounting. Furthermore, access to profit shares is also possible in an uncomplicated manner.

Disadvantages

Due to the complex corporate structure of the GmbH & Co. KG also results in some hurdles. Obviously, the company requires a great deal of advice. The articles of association must meet a certain qualitative standard so that the operation of both companies can function smoothly at all. It is necessary that the articles of association contain certain safeguards so that the different formal requirements and other legal regulations balance each other out in the operation and no gaps arise – this is usually also accompanied by high and ongoing consultancy costs. Furthermore, separate annual financial statements must not only be prepared for both companies but must also be dutifully published. Furthermore, it is not possible for the GmbH & Co. KG is not able to gain access to the capital market.

Written by Linda Naomi Henschel

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