GmbH & Co. KG partnership agreement

Tips from a german specialist lawyer on clauses, special features and amendments to articles of association of a GmbH & Co. KG

The GmbH & Co. KG in Germany is a hybrid between a partnership and a corporation. The relationships of the partners of the GmbH & Co. KG are regulated by the partnership agreement. In contrast to an AG, for example, there is a very wide freedom of design in regulating the legal relationships between all decision-makers at all levels (shareholders, managers, controlling bodies).

Further information on the articles of association of a GmbH can be found here GmbH articles of association

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Legal expertise on GmbH & Co. KG partnership agreements in Germany

Our team of corporate lawyers, tax lawyers and specialized tax advisors has many years of experience in the structuring of companies, joint ventures and investments in german medium-sized businesses. We assist entrepreneurs and investors with all GmbH & Co. KG concepts, in particular:

  1. Advice on the formation of a GmbH & Co. KG as well as in conversion measures concerning a GmbH & Co. KG
  2. Expert examination of articles of association and individual contractual clauses, for example non-competition clauses for managing directors and shareholders, restrictions on sale, tax clauses and severance payment provisions
  3. Planning and preparation of amendments to articles of association and adjustments, for example in preparation for a company succession
  4. Establishment of a management participation system or sale of shareholdings
  5. Enforcement of shareholder and management rights in and out of court, management of shareholder disputes
  6. Tax law review and optimization of the GmbH & Co. KG partnership agreement

If you have questions regarding the articles of association of a GmbH & Co. KG or are planning a review and adjustment of articles of association, please contact our corporate lawyers in Hamburg, Berlin, Munich, Frankfurt or Cologne. We advise companies, managing directors and shareholders in Germany nationwide.

Conception and types of GmbH & Co. KG partnership agreements in Germany

In german small and medium-sized businesses, different types of GmbH & Co. KGs can be found. All GmbH & Co. KGs are based on the basic concept that the GmbH as a legal entity assumes the position of the managing, personally liable partner (general partner). Therefore, this GmbH is also called general partner GmbH in Germany. In addition to the general partner, there are limited partners, who often have all voting and profit rights alone. From this basis, different types can be distinguished. These are based on the legal, tax and strategic objectives of the shareholder group or the majority shareholder. In this context, each partnership agreement of the respective type of company has certain peculiarities:

From the normal commercially active GmbH & Co. KG with a small or medium-sized group of shareholders, the family company organized as a GmbH & Co. KG, asset-managing GmbH & Co. KG or the family pool in the form of a GmbH & Co. KG are to be distinguished in Germany. The organizational structure of these company forms can be divided as follows:

The person-owned GmbH & Co. KG is the original form of the GmbH & Co. KG in Germany. It can also be referred to as the typical GmbH & Co. KG. With the GmbH & Co. KG, all partners are simultaneously involved in the general partner GmbH and as limited partners in the KG.

Very close to the same persons GmbH & Co. KG is the participation-identical GmbH & Co. The participation-identical GmbH & Co. KG differs from the partnership with the same persons in that all partners not only have a share in the KG and GmbH in some way, but all partners have an equal share in the KG and GmbH in the same proportion in Germany.

The unified german company differs seriously from the types mentioned above. In the case of the unified GmbH & Co. KG, the KG holds all shares of the general partner GmbH. The limited partners only hold an interest in the KG and indirectly, via the KG, in the GmbH. The GmbH is the general partner of the KG, which in turn holds the GmbH in full. Both companies thus form a participation unit in Germany, from which the name is also derived.

In addition, there is the public GmbH & Co. KG. It is characterized by the fact that a large number of investors participate in the KG as limited partners. Typically, closed-end funds are organized as a public GmbH & Co. KG. Unlike open public companies, the shares cannot be traded on public stock exchanges in Germany. Disinvestment is generally excluded during the agreed term.

In the case of a double or multi-level GmbH & Co. KG, the sole general partner or limited partner is another GmbH & Co. KG which is involved. This type is often chosen for reasons of co-determination or german conversion law. A distinction must be made between this and the star-shaped general partner participation, in which the GmbH serves as the general partner in several KGs.

What is the significance of the partnership agreement of a german GmbH & Co. KG?

Since the GmbH & Co. KG are two legally separate companies, each GmbH & Co. KG also has two articles of association: A partnership agreement for the general partner GmbH and a partnership agreement for the KG. With regard to the partnership agreement for the GmbH, please refer to our page GmbH partnership agreement.

In a german GmbH & Co. KG, the partnership agreement of the limited partnership is of greater importance. The partnership agreement of the limited partnership regulates all important legal relationships and contractual relations of all partners, i.e. the individual limited partners and the general partner, among each other. As in the partnership agreements of other legal forms, the rights and obligations of the partners are regulated in detail. These often include, among other things, the right to information, the right to profits, non-competition clauses and obligations to make contributions. In addition, the partnership agreement in Germany regulates the access of third parties to the circle of shareholders by means of transferability and succession clauses in order to counteract alienation.

The partnership agreement is of decisive importance not only in the relationship between the partners, but also in the relationship with the tax office. From a tax point of view, a written contract that is effective under german civil law is required for various contractual relationships that are colored by german company law. Relationships that are laid down in the KG partnership agreement can prevent tax complications.

Moreover, the partnership agreement plays an important role in the formation of a GmbH & Co. KG in Germany. The formation of the KG always presupposes the existence of the general partner GmbH. In other words, the GmbH must be formed before the KG is formed or at the same time. With the conclusion of the KG partnership agreement by the general partner GmbH and one or more limited partners, the KG comes into existence by german law. In the external relationship, the KG becomes effective when it is entered in the german commercial register. It is recommended to conclude a detailed written KG partnership agreement, otherwise the legal norms of the German Commercial Code apply, which are often not in the interest of the limited partners. It should be noted, however, that the partnership agreement of a KG does not require any special form in Germany. It can therefore even be concluded orally. However, an oral partnership agreement creates a great deal of legal uncertainty and should be avoided - as described above - for tax reasons alone. With a written partnership agreement, longstanding shareholder disputes can be avoided by means of intelligent dispute resolution provisions.

Information on shareholder disputes in a GmbH & Co. KG can be found here: Shareholder dispute partnership

The most important clauses in the GmbH & Co. KG partnership agreement in Germany

Unlike GmbH partnership agreements, there is no obligation to file the partnership agreements of a GmbH & Co. KG with the german commercial register. Therefore, in the case of a GmbH & Co. KG a certain contract management is necessary in order to catch the current changes of the partnership agreement. Below you will find the most important regulations of a partnership agreement of a GmbH & Co. KG with several limited partners:

Company name: The regulation on the company name is usually found in the first place in the partnership agreement. The KG can choose a personal, factual or fancy name as the company name. The company name is intended to achieve distinctiveness. The company suffix "GmbH & Co. KG" after the company core makes clear that no natural person has unlimited liability as general partner. Therefore, the use of the company suffix is also required by german law.

Contributions and performance obligations of the partners: Unlike the GmbH and AG, there are no requirements for a minimum capital in the KG in Germany. The KG can already be founded with a contribution of e.g. 1,000.00 EUR. The limited partners undertake to make contributions to the KG through the partnership agreement. It should be noted that a distinction must be made between the mandatory contribution and the liability sum to be entered in the german commercial register. The mandatory contribution describes the payment to which the limited partner has committed himself vis-à-vis the limited partnership. In contrast, the liability sum is the amount to be entered in the german commercial register with which the limited partner is liable to the creditors of the limited partnership as long as the contribution is not paid into the limited partnership. In german practice, the mandatory contribution and the liability amount are often the same. However, they can also be different.

Management, representation and remuneration of the general partner: In the partnership agreement of a GmbH & Co. KG, it is a special feature that only a general partner GmbH is entitled to manage and represent the KG. The regulation of an exemption from the restrictions of Art. 181 BGB is indispensable. In this respect, the limited partners are excluded from management. However, they have the possibility to object to an act of the managing director if it goes beyond the ordinary business of the KG (Art. 164 p. 1, 2. HS HGB). It should be noted that although the KG is represented by the general partner GmbH, the latter is in turn represented by its managing director in Germany. As a rule, the management clause in the partnership agreement also stipulates that the general partner GmbH is reimbursed for the expenses incurred for the management. Furthermore, from a german tax law perspective, it is advisable to grant a so-called liability remuneration for the assumption of liability risks in the case of a general partner GmbH not participating in the capital of the KG. This can be a fixed remuneration or a guarantee commission based on the share capital.

Special rights and control rights of shareholders in Germany: Especially in family-owned companies, disproportionate profit and voting rights are often standardized in favor of the founder. This often secures the rule of one shareholder or a group of shareholders, although they do not have a majority of votes. In addition, responsibilities and control rights can be agreed between shareholders in favor of all or individual shareholders in and outside of shareholders' meetings.

Non-competition and confidentiality obligations: It is not uncommon to find standardized non-competition clauses, customer protection clauses and confidentiality clauses in the partnership agreement of a KG to the detriment of the partners in order to protect business secrets and economic interests of the company. In most cases, the non-competition clauses and customer protection regulations with far-reaching consequences apply during the period of the shareholder's position. To a certain extent, however, post-contractual non-competition clauses are also conceivable in Germany.

Information and inspection rights vis-à-vis the management: By german law, the limited partner has only very limited information and disclosure rights. The scope of his information rights can be extended in the partnership agreement to protect the limited partners.

Tax clauses: Appropriate tax clauses can be used to limit or even completely avoid tax burdens on individual partners caused by uncontrolled actions of other partners in Germany.

Procedural rules for shareholder disputes: Shareholder disputes can be preemptively limited by clear procedural rules in connection with shareholders' meetings, by dispute resolution provisions and by clear rules on voting prohibitions.

Synchronization between KG and general partner GmbH shareholdings: In the case of GmbH & Co. KGs, the partnership agreement ensures that a partner's shareholdings in the KG and in the general partner GmbH are synchronized. If a limited partner does not participate in the fixed capital of the KG in the same proportion as he participates in the share capital of the general partner, a reason for exclusion is established with the consequence that he can be dismissed from the german KG.

Annual financial statements: In most cases, the preparation of annual financial statements falls within the competence of the general partner GmbH. In german practice, the approval of the annual financial statements is the responsibility of the limited partnership partners in accordance with the common partnership agreements (preparation means the preparation of the annual financial statements; approval leads to the binding adoption of the annual financial statements). The partnership agreement in Germany is of paramount importance with regard to the regulation of the limited partners' participation in profit and loss. In the absence of a provision in the partnership agreement, the profit of a limited partnership is allocated in such a way that, by way of a so-called preferential dividend, the capital shares of the limited partners first earn interest of 4% each and the profit exceeding this amount is distributed among the partners in an appropriate ratio. Nowadays, this antiquated profit allocation is not considered to be in line with the interests of the partners in german practice. By means of a partnership agreement, profit and loss are linked to the amount of participation.

Termination of the partnership relationship: In the case of a GmbH & Co. KG is established for an indefinite period of time, all limited partners have an ordinary right of termination. According to the german law, a partner may terminate the partnership for the end of a fiscal year by giving six months' notice. Extensions of the statutory notice period by means of clauses in the partnership agreement are possible and common in german practice. It should be noted that the ordinary right of termination may not be undermined by inadmissible restrictions on termination. According to current german court rulings and the prevailing literature, notice periods of more than 30 years are generally inadmissible and considered null and void. However, restrictions of more than 10 years can also be problematic. The termination leads to the withdrawal of the partner from the KG. The withdrawal gives rise to a claim for compensation on the part of the shareholder against the GmbH & Co. KG.

Matrimonial property clause and compulsory share clause: With these clauses, the company tries to protect itself from attacks by third parties. According to these clauses, partners who are married are obliged to enter into a german property law agreement with their spouse that does not allow the shareholding or the value of the partnership interest to be included in the gain. Corresponding agreements can also be made in the partnership agreement when calculating a claim to a compulsory portion under german inheritance law for the shareholding in the limited partnership.

Restrictions on the sale of shares: So-called transfer restriction clauses offer protection against excessive alienation. According to these clauses, shares in a german company may only be transferred to third parties with the consent of the majority, the qualified majority or all shareholders.

The above-mentioned provisions in the articles of association are classic clauses. In addition, many other provisions in the articles of association are conceivable which are based on the interests of individual shareholders or all shareholders in Germany.

Amendment of the partnership agreement of a GmbH & Co. KG

Unlike an AG or GmbH, the articles of association of a GmbH & Co. KG are not subject to any form. Therefore, in principle, amendments to partnership agreements can even be agreed or resolved verbally in Germany. However, in order to achieve a certain degree of legal certainty, it is recommended that the amendments be drawn up in writing. Moreover, in the tax-relevant area, amendments to a GmbH & Co. KG partnership agreement should be made in writing. It should be noted that the amendment of the partnership agreement of the general partner GmbH always requires notarization in Germany.

If you have any questions regarding partnership agreements or the effectiveness of individual clauses, please do not hesitate to contact our attorneys in our offices in Hamburg, Berlin, Munich, Frankfurt or Cologne.

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