GmbH & Co. KG: what is it and when does it pay off?

What is a GmbH & Co. KG?

The GmbH & Co. KG is a limited partnership (Kommanditgesellschaft, KG). A KG has two types of partners (Sec. 161 (1) HGB): at least one personally liable partner, the general partner, and at least one limited partner whose liability is limited to a liability amount. In the classic KG, the general partner is a person who is liable with all their assets. In the GmbH & Co. KG, a GmbH takes on this role. It is liable without limit, but only with what it owns itself.

The long form is "Gesellschaft mit beschränkter Haftung und Compagnie Kommanditgesellschaft"; it is also written GmbH und Co. KG or GmbH Co KG.

Partnership or corporation? The GmbH & Co. KG is a partnership; its general partner is a corporation. Because no natural person is liable without limit, the law treats it like a corporation for its annual financial statements (Sec. 264a HGB).

How the GmbH & Co. KG is structured

The general partner GmbH manages the KG's business and represents it externally. The GmbH can only act through its managing director. It usually has no share in the KG's assets and profit and receives a fee for its liability and reimbursement of its expenses.

The limited partners hold the economic ownership. They are entitled to the KG's profit and assets. They are excluded from management (Sec. 164 HGB) and do not represent the KG (Sec. 170 (1) HGB).

Often they are the same people: the limited partners are also the shareholders and often the managing directors of the GmbH, and in this way steer the KG.

External management: the managing director does not have to be a shareholder, for example an employed manager in a family business.

One-person variant: one person can be the sole shareholder and managing director of the GmbH and at the same time the only limited partner.

Single-entity structure (Einheitsgesellschaft): the KG itself holds all the shares in its general partner GmbH. The limited partners then exercise the rights in the GmbH's shareholders' meeting, unless otherwise agreed (Sec. 170 (2) HGB).

Who is liable in a GmbH & Co. KG?

The general partner GmbH is liable without limit for all the KG's obligations, but only with its own assets. Once these are used up, creditors have no access to the private assets of its shareholders.

The limited partners are liable to creditors up to the liability amount entered in the commercial register. Once the agreed contribution has been paid, liability is excluded (Sec. 171 (1) HGB, Sec. 172 (1) HGB). There are three traps:

• Liability before registration: if the KG starts doing business with the consent of a limited partner before it is registered, that partner is liable for the debts incurred up to then like a general partner, unless the creditor knew of their position as a limited partner (Sec. 176 (1) HGB). Business should therefore only begin after registration.
• Repayment of the contribution: if the contribution is repaid, it is deemed not to have been made as far as creditors are concerned, and liability revives. The same applies to withdrawals if the capital share has fallen below the liability amount due to losses (Sec. 172 (4) HGB).
• Contribution in GmbH shares: if a limited partner makes their contribution in the form of shares in the general partner GmbH, it is deemed not to have been made as far as creditors are concerned (Sec. 172 (5) HGB).

Personal guarantee for loans: banks often require personal guarantees. The shareholders are then privately liable for that loan after all, under the guarantee agreement.

Managing director's liability: the managing director is liable to the GmbH for breaches of duty (Sec. 43 GmbHG) and must file for insolvency in good time in the event of insolvency or over-indebtedness (Sec. 15a InsO).

Who manages the business?

Management lies solely with the general partner GmbH. The limited partners have rights of control (Sec. 166 HGB). Transactions that go beyond the ordinary course of business require a resolution of all partners, and therefore also their consent (Sec. 164 in conjunction with Sec. 116 (2) sentence 1 HGB). Limited partners can have a say through the GmbH.

Self-dealing (Sec. 181 BGB): if the managing director concludes a contract on behalf of the KG with themselves, for example their own service agreement, they need an exemption from Sec. 181 BGB. It is customary in both sets of articles and in the commercial register.

Taxation of the GmbH & Co. KG

For tax purposes, the KG is a partnership. Its profit is allocated to the partners according to their share; the KG itself pays neither income tax nor corporation tax.

Trade tax: the KG pays trade tax. As a partnership, it has an allowance of €24,500 (Sec. 11 (1) no. 1 GewStG), and the base rate is 3.5%. The partners can largely credit the trade tax against their income tax under Sec. 35 EStG.

Income tax of the limited partners: each limited partner pays tax on their share of profit at their personal tax rate as income from a commercial business. This also includes remuneration they receive for working in the service of the partnership, for loans or for assets made available (Sec. 15 (1) sentence 1 no. 2 EStG). This mainly concerns a limited partner's salary as managing director: for tax purposes it does not reduce the KG's profit, but is allocated to them as special remuneration.

Corporation tax of the GmbH: the general partner GmbH only pays tax on its own income, mainly the liability fee, at 15% corporation tax (until 2027, then falling gradually to 10% from 2032, Sec. 23 (1) KStG) plus the solidarity surcharge.

Commercial character by structure (gewerbliche Prägung): even a KG that only manages assets, such as real estate, is treated as a commercial business for tax purposes if only the GmbH is personally liable and only it or non-partners are authorised to manage the business (Sec. 15 (3) no. 2 EStG).

Option model: on an irrevocable application, the KG can be taxed like a corporation (Sec. 1a KStG). The application must generally be made no later than one month before the start of the financial year, and for a new formation up to one month after the partnership agreement is concluded. Whether this pays off is a question for your tax adviser.

Worked example: trade tax

Step	Calculation	Result
Trade income	€100,000	€100,000
less allowance	€100,000 minus €24,500	€75,500
Base tax amount	€75,500 × 3.5%	€2,642.50
Trade tax of the KG	€2,642.50 × 400%	€10,570
Credit against the limited partner's income tax	up to 4 times the base tax amount	up to €10,570

With a multiplier of 400%, the trade tax in this example can in arithmetic terms be credited in full against income tax, insofar as the income tax on the commercial income is sufficient (maximum reduction under Sec. 35 (1) EStG). The reduction is also limited to the trade tax actually payable (Sec. 35 (1) sentence 5 EStG). A GmbH would have neither the allowance nor the credit. Its shareholders also pay tax on the distributions.

Advantages and disadvantages of the GmbH & Co. KG

Advantages	Disadvantages
no natural person is liable without limit	two companies, two sets of accounts, two annual financial statements
taxation as a partnership, no second level on distribution	€25,000 share capital for the general partner GmbH
trade tax allowance of €24,500 and credit under Sec. 35 EStG	higher formation and running costs than a GmbH
flexible profit distribution and withdrawals under the partnership agreement	disclosure of the annual financial statements as for corporations (Sec. 264a HGB)
new investors as limited partners without a say in management	banks often require personal guarantees
limited partnership shares can be transferred step by step, for example in business succession	liability traps for limited partners on repayment or business before registration
external management possible without being a partner	two chamber of commerce (IHK) memberships and double register maintenance

When does a GmbH & Co. KG pay off?

Family businesses and succession: the family holds the limited partnership shares, the GmbH manages the business, if necessary with an external managing director. Shares can be transferred to the next generation step by step.

Real estate: property companies limit their liability in this way. Because of the commercial character by structure, letting becomes a commercial business, which may be intended or unintended.

Investors without a say: investors take a share in the profit as limited partners without having a say in decisions.

Liberal professions since the MoPeG: since 1 January 2024, partnerships for the joint practice of liberal professions can also be registered as commercial partnerships, insofar as the relevant professional law permits this (Sec. 107 (1) sentence 2 HGB, for the KG via Sec. 161 (2) HGB). Whether architects, engineers or tax advisers may use a GmbH & Co. KG therefore depends on their professional law. What the MoPeG has changed for the GbR is explained in the guide to the eGbR.

When not: for small projects without investors or succession planning, a GmbH is usually cheaper. If you want to pool shareholdings, consider a holding company.

GmbH or GmbH & Co. KG? The comparison

Feature	GmbH	GmbH & Co. KG	UG & Co. KG	KG
Capital	€25,000, €12,500 immediately	€25,000 for the GmbH, contributions freely chosen	UG share capital below €25,000, contributions freely chosen	no minimum capital
Liability	company assets	GmbH with its assets, limited partners up to the liability amount	UG with its assets, limited partners up to the liability amount	general partner without limit, privately
Taxation	corporation tax, trade tax without allowance	partnership, trade tax with allowance	partnership, trade tax with allowance	partnership, trade tax with allowance
Minimum founders	1	1 person (via the GmbH and a limited partnership share)	1 person (via the UG and a limited partnership share)	2
Notary	notarisation	notarisation of the GmbH, certification of the KG application	notarisation of the UG, certification of the KG application	certification of the application
Annual financial statements	one	two, both to be disclosed	two, both to be disclosed	one, not a case under Sec. 264a HGB
Ongoing effort	low to medium	high	high, plus the UG's reserve requirement	medium
Price at Recht 24/7	€319	€519	€469	€469

Prices net plus VAT and third-party costs.

The cheaper sister is the UG & Co. KG: instead of a GmbH, a UG (haftungsbeschränkt) is the general partner. This saves share capital, but the UG suffix appears in the name, and the UG must save 25% of its annual net profit as a reserve. If you deliberately want a natural person as the partner with unlimited liability, form a classic KG.

Name and company name

The KG's company name must contain the designation "Kommanditgesellschaft" or a generally understandable abbreviation (Sec. 19 (1) no. 3 HGB). If no natural person is personally liable, the company name must also indicate the limitation of liability (Sec. 19 (2) HGB). This is done with the suffix "GmbH & Co. KG". Personal, descriptive or invented names are possible.

Examples:

• General partner "Müller Verwaltungs GmbH", KG "Müller Holzbau GmbH & Co. KG"
• General partner "Seeblick Beteiligungs GmbH", KG "Seeblick Immobilien GmbH & Co. KG"
• General partner "Nordlicht Management GmbH", KG "Nordlicht Solar GmbH & Co. KG"

Both names must be distinguishable from other company names in the same place.

Formation in 5 steps and costs

1. Define the structure: who becomes a shareholder of the GmbH, who becomes a limited partner with which contribution and liability amount, who becomes managing director?
2. Form the general partner GmbH: have the articles of association notarised, pay in at least €12,500 of the share capital, apply to the commercial register. Alternatively, an existing GmbH joins as the general partner.
3. Conclude the KG agreement: the KG's partnership agreement requires no particular form, but should be in writing and coordinated with the GmbH's articles.
4. Register the KG: all partners apply to register the KG in the commercial register with a notarially certified signature, including the limited partners' liability amounts. The KG should only start doing business after registration.
5. After registration: trade registration, tax registration questionnaire for each company, separate accounts, reporting both companies to the transparency register.

Registration usually takes 5 to 16 days per company.

Item	Amount	Note
Recht 24/7 fee (form a GmbH & Co. KG)	€519 net	fixed price for the GmbH and KG, all formation documents
Notary for the GmbH	approx. €800 to €900	notarisation of the articles of association and the application
Notary for the KG	approx. €150	certification of the application to the commercial register
Register court	approx. €300 per company	registrations; for the GmbH alone, the registration fee is €225 (no. 2100 of the fee schedule of the HRegGebV)
Transparency register	€129 net per company	report by Recht 24/7
Trade registration	depends on the municipality	for the KG
GmbH share capital	€25,000, of which €12,500 immediately	not a fee, remains the GmbH's assets
Limited partners' contributions	freely chosen	remain the KG's assets

Obligations afterwards: both companies keep books under the HGB and each prepare annual financial statements, which are disclosed (Sec. 264a HGB). Both report their beneficial owners to the transparency register. Changes to partners, liability amounts or management must be entered in the commercial register.