Term and Principles: GmbH & Co
Under the designation GmbH & Co refers to a special form of partnership in which a limited liability company (GmbH) acts as the general partner of another company, usually a limited partnership (KG). The combination “GmbH & Co” is not an independent legally defined type, but rather describes a structure in which the advantages of a limited liability corporation are combined with the legal and tax peculiarities of a partnership.
Corporate Structure: GmbH & Co KG
Structure
The GmbH & Co KG is a limited partnership (§§ 161-177a HGB) whose general partner (Komplementär) is not a natural person but a GmbH. The GmbH assumes unlimited liability for the debts of the KG, while the other partners, as limited partners (Kommanditisten), have their liability limited to their contributions.
Legal Particularities
- Liability Structure: The limitation of liability results from the fact that the GmbH, as general partner, is liable with the company’s assets, but for its own liabilities, liability is limited to the share capital (at least 25,000 euros) of the GmbH. As a result, personal liability of natural persons is generally avoided.
- Shareholders’ Powers: The company may be both directed and managed by its shareholders, without them having to be liable with their personal assets.
- Separation of Management and Liability: The structure of the GmbH & Co KG allows for flexible allocation of management powers, especially by appointing the management in the GmbH.
Formation and Establishment
For the company law establishment of a GmbH & Co KG, the creation of both company forms is required: first, the formation of a GmbH (according to § 1 GmbHG) with its own articles of association, and then the conclusion of a KG partnership agreement with the GmbH as general partner.
Necessary Elements for Formation
- Formation of the GmbH: Notarial certification of the articles of association, entry in the commercial register, determination of share capital.
- Formation of the KG: Conclusion of the KG partnership agreement, registration with the commercial register stating the shareholders (GmbH as general partner, at least one limited partner).
Legal Classification
Legal Personality and Representation
The GmbH & Co KG does not have its own legal personality, but according to § 161 para. 2 HGB, it is legally capable like a KG and can acquire rights and obligations. Representation and management is generally carried out by the GmbH as general partner. In the GmbH, management and representation are executed by its managing director(s).
Registration in the Commercial Register
For its effectiveness and establishment, the registration of the GmbH and the KG with the commercial register is required. Registration obliges the disclosure of essential information, including liability conditions and shareholdings.
Rights and Duties of Shareholders
The rights and duties of shareholders of the GmbH & Co KG are determined by the HGB and the respective partnership agreements. They are essentially comparable to those in a typical limited partnership, but supplemented by the particularities of a GmbH at the general partner level.
Liability and Insolvency
Liability of the Shareholders
Liability within the GmbH & Co KG is as follows:
- Limited partners: Are liable with their contributions, not with personal assets.
- General Partner (GmbH): Is liable without limitation, but limited to the assets of the GmbH.
In the event of insolvency, the proceedings are usually separated: insolvency proceedings may be opened both with respect to the assets of the general partner GmbH and the KG.
Tax Treatment
Transparency Principle for the KG
For tax purposes, the GmbH & Co KG is a partnership. This means that, under the transparency principle, income is allocated directly to the shareholders for tax purposes (§ 15 EStG). Profits are thus recorded for both the limited partners and the GmbH as general partner.
Taxation Levels
- Income of the KG: Profit determination is made at the level of the KG, taxation takes place at the shareholders’ level.
- GmbH as General Partner: Its share of profits is subject to corporate income tax.
- Trade Tax: The GmbH & Co KG is by virtue of its legal form subject to trade tax.
Special Features in Tax Law
- Offsetting of Losses: Losses of the KG can be offset by shareholders with other income, but for limited partners the loss offset restriction of § 15a EStG may apply.
- Flexibility in Structuring: The dual role of the GmbH (as general partner and often as managing company) offers wide scope for structuring remuneration, profit allocation, and distribution of tax burden.
Advantages and Typical Fields of Application
In practice, the GmbH & Co KG is valued especially for its limitation of liability and the flexibility it offers. It is commonly used for larger family businesses as well as medium-sized companies and in the context of business succession.
Advantages at a Glance
- Limitation of liability to the assets of the GmbH
- Flexibility in corporate management and profit allocation
- Tax advantages due to the transparency principle for partnerships
- Suitable for structuring business succession and participation models
Variants of the GmbH & Co
Different forms of this structure are possible, for example:
- GmbH & Co OHG: A general partnership (OHG) with a GmbH as partner
- GmbH & Co KGaA: A partnership limited by shares (KGaA), in which the general partners are exclusively GmbHs
Summary
The GmbH & Co constitutes a corporate law structuring option that combines the advantages of a limited liability corporation with the flexible structures of a partnership. The separation of liability and management opens up a broad range of corporate, tax, and organizational advantages, making it an important instrument in German corporate law.
Frequently Asked Questions
Who is authorized to manage a GmbH & Co. KG and what legal obligations arise from this?
In a GmbH & Co. KG, management and representation of the limited partnership is assumed by the general partner GmbH pursuant to § 164 HGB. Unlike a classical KG, where a natural person acts and is liable as general partner, in this case a legal entity—the GmbH—acts as personally liable partner. The operative management is carried out by the managing directors of the general partner GmbH, who are appointed and dismissed by the shareholders’ meeting (§§ 46 ff. GmbHG). In practice, these are often the same people as the shareholders of the GmbH & Co. KG.
Legally, the managing directors must conduct business properly in accordance with § 43 para. 1 GmbHG; they must exercise the care of a prudent businessman and are subject, among other things, to extensive duties regarding supervision, bookkeeping, and provision of information. In the event of breaches of duty, they may be personally liable with their private assets (internal liability, § 43 para. 2 GmbHG). Special importance is also attached to the obligation to comply with insolvency law (§ 15a InsO): in the event of over-indebtedness or insolvency of the KG or the GmbH, the managing directors must immediately file for insolvency; otherwise, criminal consequences and personal liability under § 64 GmbHG a.F. or § 15b InsO n.F. may apply.
How is the liability of individual shareholders structured in a GmbH & Co. KG?
The liability structure is the central legal feature of the GmbH & Co. KG: the general partner GmbH has unlimited liability with its own assets, but not its shareholders. The limited partners involved in the KG are only liable up to the amount of their registered contribution as entered in the commercial register, § 171 HGB. The actual payment of the contribution is no longer relevant after registration (§ 172 para. 1 HGB); if a contribution is repaid, liability revives to the corresponding amount. Personal liability for the shareholders of the GmbH is excluded since, legally, they only act as shareholders of the general partner and not of the KG itself. However, there may be exceptions in cases of destructive interventions or so-called piercing the corporate veil.
Moreover, the liability of the limited partners during the founding phase must be observed: before entry in the commercial register, they are personally and fully liable like general partners for obligations incurred up to that point.
What legal particularities apply to the partnership agreement of a GmbH & Co. KG?
The partnership agreement of the GmbH & Co. KG is legally complex, as separate agreements are required for both the KG and the general partner GmbH. The KG agreement must contain provisions regarding management, the audit rights of limited partners (§ 166 HGB), profit allocation, succession, capital contributions and possibly withdrawals. Particular attention should be paid to provisions excluding or limiting settlement payments in the event of exit (keyword: protection against termination under § 161 para. 2 HGB).
Furthermore, a separate partnership agreement for the GmbH must be drafted with detailed information about share capital, management, and shareholders’ meetings (§§ 3 ff. GmbHG). Linking both contracts (e.g., by agreements for coordination between GmbH and KG or binding of voting rights) is legally permissible but must be carefully examined in order not to create unlawful control structures or other legal violations (especially against co-determination rights).
What tax requirements and legal consequences result from the formation of a GmbH & Co. KG?
Even though tax considerations are at the forefront of the formation, compliance with legal norms is essential to avoid putting the desired tax optimization at risk. The GmbH & Co. KG is regarded as a partnership under civil law and, for tax purposes, as well, unless there is an atypical silent partnership. The status as co-entrepreneur is determined by case law and tax law (entrepreneurial initiative and risk, see § 15 EStG). Formation requires at least two different legal entities, i.e., at least one limited partner and the GmbH as general partner.
It is legally relevant that both the GmbH and the KG must each be established with a notarially certified partnership agreement and entered in the commercial register (§§ 2, 12 HGB; § 2 GmbHG). In addition, the requirements of the Transformation Act (UmwG) must be observed if a GmbH & Co. KG is to be formed as part of a restructuring. Incorrect contract construction can result in tax non-recognition.
What is the role of contributions and additional payments in a GmbH & Co. KG and how are they legally regulated?
The statutory provisions can be found in §§ 161, 162, and 167 HGB and for the GmbH in §§ 5, 7, 30 GmbHG. The limited partners of the KG are obliged to make the contributions specified in the partnership agreement, the amount of which is published in the commercial register. The company can require additional payments only if expressly foreseen in the contract. A limited partner who does not fully make or receives back contributions remains liable to third parties up to the full registered amount (§ 172 HGB).
For the general partner GmbH, there is an obligation to provide the share capital (at least €25,000; § 5 para. 1 GmbHG), at least half of which must be paid in on formation (§ 7 para. 2 GmbHG). Additional payments can only be required of the GmbH if such provisions are included in its articles (§ 26 GmbHG). The legal distinction between the types of contributions is important for allocating profit shares, calculating severance payments on exit, and assessing possible insolvency risks.
How is the termination or dissolution of a GmbH & Co. KG carried out from a legal perspective?
During liquidation, the legally prescribed procedures must always be followed: First, termination or a dissolution resolution is required (often a 3/4 majority according to the contract or § 131 HGB); in addition, the expiration of the GmbH, court decisions (e.g., opening of insolvency proceedings), or withdrawal of all partners may constitute grounds. Legally, the winding up is carried out in accordance with §§ 145 ff. HGB. The general partner GmbH may also act as liquidator of the KG, provided there are no contrary provisions in the partnership agreement.
The termination of the general partner GmbH necessarily leads to the liquidation of the entire GmbH & Co. KG unless there is an explicit succession clause in the contract. After liquidation and distribution of assets, termination must be registered in the commercial register and the company is deleted (§ 157 HGB; § 74 GmbHG).
What legal particularities must be observed regarding publicity and disclosure obligations of the GmbH & Co. KG?
As a partnership governed by commercial law, the GmbH & Co. KG is generally subject to the disclosure requirements under § 325 HGB, since it is usually classified as a large or medium-sized company. The regulations applicable to corporations apply analogously, particularly regarding the filing and disclosure of annual financial statements with the electronic Bundesanzeiger. This applies to both the KG and the general partner GmbH (obligation to disclose pursuant to § 325 HGB in conjunction with §§ 264a, 267 HGB).
Furthermore, timely and complete information about the shareholders must be filed with the GmbH in accordance with § 40 GmbHG. Violations of disclosure obligations can result in substantial administrative fines (§ 335 HGB). In addition, any change in liability relationships, shareholder changes, or management must be reported in the commercial register (§§ 106, 161 HGB) to ensure legal certainty in business transactions.
