Limited partner: how they are liable and what they may do in a KG

What is a limited partner?

A KG has two types of partners. For some, liability to creditors is limited to a specific amount; these are the limited partners. For the others there is no limit; the statute calls them personally liable partners, and in practice they are called general partners (Komplementäre) (Sec. 161 (1) HGB). Every KG needs at least one partner of each type. Otherwise, the rules of the OHG (general partnership) apply to the KG (Sec. 161 (2) HGB). Our guide What is a KG? explains how the legal form works as a whole, and you will find a short definition in the glossary.

The limited partner is a full partner, not a lender. They share in profit and loss, vote on fundamental matters and are entered in the commercial register with their name and liability amount (Sec. 162 (1) HGB). However, the owner of the business assets is the KG itself, because it can acquire its own rights and incur liabilities (Sec. 105 (2), Sec. 161 (2) HGB). The limited partner holds a share in it.

Typical limited partners are investors who do not want to work in the business, family members and founders of a GmbH & Co. KG who manage the business through the general partner GmbH.

Limited partner and general partner: the difference at a glance

Feature	Limited partner	General partner
Liability	up to the registered liability amount, excluded insofar as the contribution has been paid (Sec. 171, 172 HGB)	unlimited and personal, as joint and several debtors (Sec. 126 HGB)
Management	excluded (Sec. 164 HGB), but extraordinary transactions require a resolution of all partners (Sec. 116 (2) sentence 1 HGB)	entitled and obliged (Sec. 116 (1) HGB)
External representation	no (Sec. 170 (1) HGB)	yes, unless the agreement excludes it (Sec. 124 (1) HGB)
Information	copy of the annual financial statements, inspection, information (Sec. 166 HGB)	inspection of documents and information (Sec. 717 BGB via Sec. 105 (3) HGB)
Non-compete obligation	no (Sec. 165 HGB)	yes (Sec. 117 HGB)
Death	the KG continues with the heirs (Sec. 177 HGB)	they leave the partnership unless the agreement provides otherwise (Sec. 130 (1) no. 1 HGB)

The detailed comparison with all the duties of the fully liable partner can be found in the guide General partner.

How is a limited partner liable?

The limited partner is liable to the KG's creditors directly, i.e. immediately and not only via the partnership, but only up to the amount of their liability amount. Insofar as they have paid the agreed contribution, liability is excluded (Sec. 171 (1) HGB). Towards creditors, the liability amount that applies is the amount entered in the commercial register (Sec. 172 (1) HGB). The glossary also explains the principle under limited liability.

Liability amount and mandatory contribution

For the limited partner there are two amounts, which are often the same but do not have to be:

• Liability amount (also called liability contribution, Hafteinlage, or limited partner's contribution, Kommanditeinlage): the amount in the commercial register. It counts in relation to creditors.
• Mandatory contribution (Pflichteinlage): the contribution the limited partner must make to the KG under the partnership agreement. It counts in the relationship between the partners and can also consist of assets or services (Sec. 709 (1) BGB via Sec. 105 (3), Sec. 161 (2) HGB).

If the mandatory contribution is lower than the liability amount, a remainder stays open towards creditors until the payments reach the liability amount. If the KG waives or defers a limited partner's contribution, this has no effect towards creditors (Sec. 172 (3) HGB). A reduction of the liability amount only takes effect from registration and not towards existing creditors (Sec. 174 HGB).

Worked example

Lea is a limited partner in a KG. The commercial register shows a liability amount of €20,000, and she has paid in €5,000 so far. The KG becomes insolvent, and insolvency proceedings are opened. The insolvency administrator can demand the outstanding €15,000 from Lea, because during the proceedings they assert the creditors' rights against the limited partners (Sec. 171 (2) HGB). Had Lea paid the full €20,000, she would not have to pay anything more. However, her contribution would as a rule be lost.

Is a limited partner liable with their private assets?

Only up to the amount of the liability amount still outstanding. If the contribution has been paid in full and has not flowed back, the KG's creditors cannot access their private assets. It is different if one of the three liability traps applies or if they personally sign a guarantee for the KG's loans, because they are then liable under this contract of their own.

Three liability traps

1. Starting business before registration

If the KG takes part in legal transactions before it is entered in the commercial register, every limited partner who consented to this is liable for the debts incurred up to registration like a general partner, i.e. without limit. This does not apply towards creditors who knew that they are only a limited partner (Sec. 176 (1) HGB). The same applies if you join an existing KG, for the period between joining and registration (Sec. 176 (2) HGB). The solution: only start business after registration and, when joining, agree that the joining only takes effect on registration.

2. Contribution repaid or profit withdrawn

Insofar as the KG repays a limited partner's contribution, it is deemed not to have been made as far as creditors are concerned (Sec. 172 (4) sentence 1 HGB). If, after full payment, the KG repays €4,000 to Lea from the example, she is once again liable to creditors for €4,000. The same applies to withdrawals of profit as long as her capital share is below the liability amount because of losses or falls below it as a result of the withdrawal (Sec. 172 (4) sentence 2 HGB). Towards the KG, she does not have to repay profits received because of later losses (Sec. 169 (2) HGB); this does not affect the liability trap of Sec. 172 (4) HGB.

3. Contribution in shares of the general partner GmbH

If no general partner is a natural person, as in the GmbH & Co. KG, a limited partner's contribution is deemed not to have been made as far as creditors are concerned, insofar as they made it in shares of the general partner (Sec. 172 (5) HGB). Anyone who contributes their GmbH shares as their limited partner's contribution is therefore not free of liability. More on this structure in the guide GmbH & Co. KG.

Rights of the limited partner

• Information: They can demand a copy of the annual financial statements and inspect the related business records in order to check them. In addition, they have a right to information insofar as they need it to exercise their membership rights, in particular if there is a suspicion of dishonest management. An agreement that excludes or restricts these rights is invalid (Sec. 166 HGB).
• Having a say in extraordinary transactions: Transactions that go beyond the ordinary course of business require a resolution of all partners, i.e. including the limited partners (Sec. 116 (2) sentence 1, Sec. 164 HGB), as long as the partnership agreement does not provide otherwise (Sec. 163 HGB).
• Termination: For a KG with an indefinite term, with six months' notice to the end of the financial year, and without notice for good cause (Sec. 132 (1) to (3) HGB). The agreement cannot exclude the right to terminate for good cause (Sec. 132 (6) HGB).
• No non-compete obligation: It does not apply to limited partners (Sec. 165 HGB). They may hold interests in companies in the same line of business, but must take the KG's interests into account. The agreement can provide for a non-compete obligation.

What may a limited partner do and what not?

Topic	Limited partner	Legal basis
Running the day-to-day business	no, unless the agreement grants them this	Sec. 163, 164 HGB
Representing the KG externally	no, not as a limited partner	Sec. 170 (1) HGB
Objecting to ordinary transactions	no, only partners authorised to manage have the right to object	Sec. 116 (3), Sec. 164 HGB
Consenting to extraordinary transactions	yes	Sec. 116 (2) sentence 1, Sec. 164 HGB
Inspecting and checking the annual financial statements	yes, cannot be excluded	Sec. 166 HGB
Doing competing business	yes, no statutory non-compete obligation	Sec. 165 HGB
Being granted Prokura	possible, with the consent of all partners authorised to manage	Sec. 116 (2) sentence 2, Sec. 170 (1) HGB
Having profit paid out	yes, but not while losses push the capital share below the contribution paid	Sec. 122, Sec. 169 (1) HGB
Selling or giving away the share	only with the consent of the other partners	Sec. 711 (1) BGB via Sec. 105 (3), Sec. 161 (2) HGB
Ordinary termination	yes, six months to the end of the financial year	Sec. 132 (1) HGB

Can a limited partner be a managing partner? In the KG itself only if the partnership agreement grants them management authority, because Sec. 164 HGB can be varied by agreement (Sec. 163 HGB). Even then, they can only represent the KG with a power of attorney, for example Prokura; the guide Prokura explains what a holder of Prokura may do. The GmbH & Co. KG solves this differently: the limited partner becomes managing director of the general partner GmbH and so steers the KG. This also works on your own, as sole shareholder and managing director of the GmbH and at the same time the only limited partner.

Profit, loss and withdrawals

The partners authorised to manage prepare the annual financial statements and in doing so determine each share of profit or loss (Sec. 120 (1) HGB); the partners adopt them by resolution (Sec. 121 HGB). The partnership agreement governs the distribution. If there is no rule, the agreed shareholding ratios apply, then the ratio of the agreed contributions, and lastly equal shares per capita (Sec. 709 (3) BGB via Sec. 105 (3) HGB). Profit is credited to the capital share, and loss is debited from it (Sec. 120 (2) HGB).

Older guides still mention a preferential interest of 4% of the contribution for each partner. This special rule for limited partners was in Sec. 168 HGB, which was repealed on 1 January 2024. Our guide to the MoPeG explains the changes made by the reform.

Payout block: The limited partner cannot demand payment of their profit as long as their capital share has fallen, because of losses, below the amount they have paid towards the agreed contribution, or would fall below it as a result of the payment (Sec. 169 (1) HGB). Later profits therefore first refill the capital share.

Losses: Losses reduce the capital share. If the limited partner has paid their agreed contribution, they do not have to make up a shortfall when they leave or on liquidation (Sec. 167 HGB in conjunction with Sec. 136, 149 HGB). Nobody can oblige them to make a higher contribution without their consent (Sec. 710 BGB via Sec. 105 (3) HGB). An obligation to make additional contributions (Nachschusspflicht) therefore only exists if they have agreed to it, for example in the partnership agreement.

Withdrawals: Beyond the payout of profit (Sec. 122 HGB), the limited partner can only withdraw money if the partnership agreement allows it. Any withdrawal that pushes the capital share below the liability amount revives the liability (Sec. 172 (4) HGB).

Can a limited partner receive a salary?

There is no statutory salary for limited partners; their return is their share of profit. If they work in the KG, the partnership agreement can provide for remuneration for their work, or the KG concludes an employment contract with them. In the GmbH & Co. KG, as managing director of the general partner GmbH, they often receive remuneration under their managing director's contract.

For tax purposes, the limited partner is as a rule a co-entrepreneur (Mitunternehmer). Remuneration they receive from the KG for their work, for loans or for assets made available then forms part of their income from a commercial business, not employment income (Sec. 15 (1) sentence 1 no. 2 EStG).

For social security, it depends on the individual case. Employment is dependent work; indicators are instructions and integration into the work organisation (Sec. 7 (1) SGB IV). Because a limited partner does not manage the business, they can be in employment subject to social security contributions if they work in the KG. A status determination by the German Pension Insurance (Deutsche Rentenversicherung) provides clarity.

Who can become a limited partner?

• Natural persons, including several.
• Legal entities such as a GmbH, UG or AG and partnerships with legal capacity such as an OHG, KG or GmbH & Co. KG; the application must then state the company name, legal form, registered office and register (Sec. 106 (2) no. 2 letter b HGB). The guide Partnerships gives an overview of the legal forms.
• Minors, for example in a family KG. For the partnership agreement concluded to operate a commercial business, and for acquiring such a share, the parents need the approval of the family court (Sec. 1643 (1) BGB in conjunction with Sec. 1852 no. 1 letter b and no. 2 BGB).

Joining, leaving and death

Joining an existing KG: The joining is registered with the commercial register together with the liability amount (Sec. 162 HGB). Under Sec. 171, 172 HGB, the new limited partner is also liable for debts incurred before they joined; a different arrangement has no effect towards third parties (Sec. 173 HGB). Until registration, the trap of Sec. 176 (2) HGB applies.

Leaving: The main reasons are termination, the limited partner's insolvency, termination by a private creditor and exclusion by the court (Sec. 130, 134 HGB); the agreement can provide for others. The KG must release them from its debts and pay them reasonable compensation, unless the agreement provides otherwise (Sec. 135 (1) HGB). The departure is registered with the commercial register (Sec. 162 (2) HGB).

Continuing liability: If the compensation is paid from the KG's assets, this can count as a repayment of the contribution and revive liability up to the liability amount (Sec. 172 (4) HGB). For debts incurred up to the departure, a partner who has left is only liable if they fall due within five years and are established or enforced against them; the period begins when the creditor learns of the departure or when the departure is registered (Sec. 137 (1) HGB). If the share is instead transferred to a successor, no money flows back out of the KG.

Death: If a limited partner dies, the KG continues with their heirs unless the agreement provides otherwise (Sec. 177 HGB). If there are several heirs, the share passes to each heir in line with their share of the inheritance; to that extent, the rules on the community of heirs (Erbengemeinschaft) do not apply (Sec. 711 (2) BGB). Who inherits is determined by the will or by statutory succession.

The last limited partner leaves: If only partners with unlimited liability remain, the partnership is no longer a KG but an OHG (Sec. 105 (1) HGB); the change must be entered in the commercial register. The guide What is an OHG? explains what then applies. If only a single partner remains, the partnership is extinguished without liquidation and its assets pass to that partner (Sec. 712a BGB via Sec. 105 (3), Sec. 161 (2) HGB).

Taxes in brief

The KG is transparent for income tax purposes: as a co-entrepreneur, the limited partner's share of profit forms part of their income from a commercial business (Sec. 15 (1) sentence 1 no. 2 EStG). They can only offset losses against other income insofar as this does not create or increase a negative capital account; excepted is the amount by which the registered liability amount exceeds the contribution they have paid. Losses that cannot be offset reduce later profits from the same participation (Sec. 15a (1), (2) EStG). Clarify the details with your tax adviser.

Advantages and disadvantages as a limited partner

Advantages

• Liability limited to the liability amount, no personal liability after full payment.
• No obligation to manage the business or to work in it.
• Share in the profit according to the partnership agreement.
• Right to information that the agreement cannot exclude.
• No statutory non-compete obligation, and the share can be inherited.

Disadvantages

• No influence on the day-to-day business and no representation of the KG.
• The contribution can be lost in the event of losses or insolvency.
• Liability traps before registration and with repayments.
• Payout of profit blocked as long as losses reduce the capital share.
• Name and liability amount are entered in the commercial register, and the share can only be transferred with the consent of the others.

Checklist: before you become a limited partner

Read the partnership agreement for these points before you join (the glossary explains the term under partnership agreement):

• Are the liability amount and the mandatory contribution the same, and when is the contribution due?
• Does your joining only take effect on registration in the commercial register?
• Does a new KG only start business after registration?
• How are profit and loss distributed, and which withdrawals are permitted?
• Is there an obligation to make additional contributions, or are there guarantees you are expected to give?
• Which transactions require your consent, and which rights to information do you have beyond the statute?
• Do you receive remuneration if you work in the business?
• How are termination, compensation and the valuation of your share regulated?
• What applies on death, gift or sale of your share?
• Is there a contractual non-compete obligation?

Forming a KG with Recht 24/7

Do you want to form a KG and take on investors as limited partners? We take care of the partnership agreement and the application to the commercial register. If no natural person is to be liable without limit, a GmbH or UG takes on the role of general partner.