Partnership (Personengesellschaft): what it is and which forms exist

What is a partnership?

A partnership is a contractual association of at least two persons who pursue a common purpose (Sec. 705 (1) BGB). The purpose can be a business, but also a single project.

Legal capacity, but not a legal entity. Since the reform of partnership law by the MoPeG, in force since 1 January 2024, the law distinguishes between two types:

• The partnership with legal capacity participates in legal transactions itself, concludes contracts, acquires property and can sue and be sued. If the partners run a business under a common name, this is presumed (Sec. 705 (2) and (3) BGB).
• The partnership without legal capacity only governs the relationship between the partners and has no assets of its own (Sec. 740 (1) BGB).

The OHG and KG always have legal capacity (Sec. 105 (2), Sec. 161 (2) HGB). Even so, a partnership is not a legal entity: the BGB expressly names the partnership with legal capacity alongside the natural person and the legal entity (Sec. 14 BGB).

The person is at the centre. That is why nobody can transfer their share without the consent of the others (Sec. 711 (1) BGB), and the partners manage the business themselves. Partners can be natural persons, but also legal entities such as a GmbH or other partnerships with legal capacity (Sec. 106 (2) no. 2 HGB, Sec. 707 (2) no. 2 BGB). The exception is the partnership company: only natural persons can belong to it (Sec. 1 (1) PartGG).

Which partnerships are there? Forms and examples

• Civil law partnership (Gesellschaft bürgerlichen Rechts, GbR): the basic form, governed by Sec. 705 et seq. BGB. It suits liberal professionals, small businesses and joint projects. Example: two graphic designers run a shared studio. If the GbR is entered in the partnership register, it is called a registered GbR (eGbR). More in the guide What is a GbR?
• General partnership (offene Handelsgesellschaft, OHG): its purpose is a commercial business under a common company name (Firma), and all partners are liable without limit (Sec. 105 (1) HGB). Example: two merchants run a wholesale business with employees, a warehouse and accounting. Details in the guide What is an OHG?
• Limited partnership (Kommanditgesellschaft, KG): like the OHG, but at least one partner is only liable up to a specific amount, the liability amount (Haftsumme) (Sec. 161 (1) HGB). Example: a family business takes on investors who do not work in it. More in the guide What is a KG?
• GmbH & Co. KG and UG & Co. KG: limited partnerships whose partner with unlimited liability is a GmbH or UG. More in the guide GmbH & Co. KG.
• Partnership company (Partnerschaftsgesellschaft, PartG): only for members of the liberal professions such as doctors, lawyers, tax advisers or engineers (Sec. 1 (1) and (2) PartGG). With professional liability insurance, a PartG with limited professional liability (PartG mbB) is also possible (Sec. 8 (4) PartGG). Briefly explained in the glossary under partnership company.
• Silent partnership (stille Gesellschaft): a silent partner participates with a contribution in another person's commercial business; the contribution passes into that person's assets, and only the owner acts externally (Sec. 230 HGB). It is a purely internal partnership without assets of its own.
• European Economic Interest Grouping (Europäische wirtschaftliche Interessenvereinigung, EWIV): in Germany, the rules of the OHG apply to it in addition, and it is deemed a commercial partnership (Sec. 1 EWIV Implementing Act, EWIV-Ausführungsgesetz).

Not partnerships are the sole proprietorship, because it has only one owner, and the GmbH, UG and AG. These are corporations and legal entities (Sec. 13 (1) GmbHG, Sec. 1 (1) AktG).

GbR, OHG, KG and PartG compared

Feature	GbR	OHG	KG	PartG
Legal basis	Sec. 705 et seq. BGB	Sec. 105 et seq. HGB	Sec. 161 et seq. HGB	PartGG, supplemented by the BGB
Purpose	any permitted purpose, for example a liberal profession or small business	commercial business; small businesses and asset management only with voluntary registration, liberal professions only insofar as their professional rules permit registration (Sec. 107 (1) HGB)	as OHG	joint practice of liberal professions
Partners	at least two	at least two	at least one general partner and one limited partner	at least two, natural persons only
Register	no obligation; voluntary partnership register (Sec. 707 BGB)	commercial register, mandatory (Sec. 106 HGB)	commercial register with liability amounts (Sec. 162 HGB)	Partnerschaftsregister, effective only on registration (Sec. 7 (1) PartGG)
Liability	all personally and without limit (Sec. 721 BGB)	all personally and without limit (Sec. 126 HGB)	general partners without limit, limited partners up to the liability amount	partners personally; for professional errors only the partners involved (Sec. 8 (2) PartGG)
Management without a different rule	all jointly (Sec. 715 (3) BGB)	each alone (Sec. 116 (3) HGB)	general partners only (Sec. 164 HGB)	each alone (Sec. 6 (3) PartGG)
Name suffix	mandatory only as an eGbR: "eGbR" (Sec. 707a (2) BGB)	"offene Handelsgesellschaft" or an abbreviation such as "OHG" (Sec. 19 (1) no. 2 HGB)	"Kommanditgesellschaft" or an abbreviation such as "KG" (Sec. 19 (1) no. 3 HGB)	"und Partner" or "Partnerschaft" (Sec. 2 (1) PartGG)
Bookkeeping	cash-basis accounting, books only above the thresholds of Sec. 141 AO	commercial books, balance sheet and profit and loss account (Sec. 238, 242 HGB)	as OHG	no commercial books
Formation at Recht 24/7	from €259 net, eGbR €369 net	€369 net	€469 net	no fixed-price formation, legal advice €169 incl. VAT

Formation prices net plus VAT: GbR plus chamber of commerce (IHK) and trade registration costs, for the eGbR plus notary and register costs; OHG and KG plus notary fees for certifying the signatures, court fees, IHK and trade registration costs.

Formation: how a partnership comes into being

Partnership agreement. The basis is always a partnership agreement. The law does not prescribe any particular form for the GbR, OHG, KG and partnership company. The agreement only has to be notarised if it itself contains a transaction that requires a particular form, such as the contribution of a piece of real estate (Sec. 311b (1) BGB). A GbR can even come into being if you simply run a business together. Put the agreement in writing anyway: otherwise the statutory rules on profit distribution, management and leaving apply.

No minimum capital. Unlike for a GmbH (€25,000, Sec. 5 (1) GmbHG) or an AG (€50,000, Sec. 7 AktG), the law does not require any start-up capital. A partner's contribution can be any support of the common purpose, including work (Sec. 709 (1) BGB).

Register. The OHG and KG must be registered with the commercial register (Sec. 106 (1) HGB), the partnership company with the Partnerschaftsregister (Sec. 4 PartGG). The GbR can voluntarily be entered in the partnership register (Sec. 707 (1) BGB). This is necessary, for example, if it wants to acquire a piece of real estate, because a GbR can only be entered in the land register if it is entered in the partnership register (Sec. 47 (2) GBO). The applications are submitted electronically in publicly certified form, that is via a notary (Sec. 12 (1) HGB, for the eGbR via Sec. 707b no. 2 BGB, for the partnership company via Sec. 5 (2) PartGG). Only the signatures on the application are certified; you do not have to take the partnership agreement to the notary.

When a GbR becomes an OHG. If a partnership carries on a commercial business, it is an OHG by operation of law if all partners are liable without limit (Sec. 105 (1) HGB). A commercial business is any trade that, by its nature or scope, requires a commercially organised operation (Sec. 1 (2) HGB). There is no fixed turnover threshold in the statute; what matters is the overall picture of turnover, number of employees, business transactions and organisation.

Further steps. Anyone who starts a trade must notify the trade office (Gewerbeamt) (Sec. 14 (1) GewO); liberal professions are not a trade. Registered partnerships, that is the OHG, KG, PartG and eGbR, must report their beneficial owners to the transparency register (Sec. 20 (1) GwG). Registration for tax purposes with the tax office is added to this.

Liability in a partnership

Personal, unlimited, joint and several. The partnership's assets are liable for its debts first. Alongside them, the partners of a GbR and OHG are liable to creditors personally as joint and several debtors (Gesamtschuldner) (Sec. 721 BGB, Sec. 126 HGB). A creditor can claim the full amount from any partner, including from their private assets; agreements to the contrary have no effect towards third parties.

New and former partners. Anyone who joins an existing partnership is also liable for the debts that arose before they joined (Sec. 721a BGB, Sec. 127 HGB). Anyone who leaves remains liable for the obligations incurred up to that point if they fall due within five years and are established or enforced against them (Sec. 728b BGB, Sec. 137 HGB). The period begins when the creditor learns of the departure or when it is entered in the register.

Exceptions:

• Limited partner: they are directly liable to creditors, but only up to the amount of their liability amount; insofar as they have paid the agreed contribution, their liability is excluded (Sec. 171 (1) HGB). After registration, the amount entered in the commercial register counts towards creditors (Sec. 172 (1) HGB). If the KG participates in legal transactions with their consent before it is registered, they are liable for the debts incurred up to registration like a general partner, unless the creditor knew of their participation as a limited partner (Sec. 176 (1) HGB). More in the guide Limited partner, the other side in the guide General partner.
• GmbH & Co. KG: here only the GmbH is liable without limit, and it in turn is only liable with its own assets (Sec. 13 (2) GmbHG). Because no natural person is personally liable, the company name must make this clear (Sec. 19 (2) HGB).
• Partnership company: for errors in the practice of the profession, only the partners who handled the engagement are liable alongside the partnership (Sec. 8 (2) PartGG). In the PartG mbB, only the partnership is liable for such damage (Sec. 8 (4) PartGG).

Management, representation and profit distribution

In a partnership, the partners manage the business themselves. There is no external managing director as in a GmbH; however, non-partners can be employed and given authority, for example with Prokura. Without a different rule in the agreement, the following applies:

Legal form	Management (internal)	Representation (external)	Basis
GbR	all partners jointly	all partners jointly	Sec. 715 (3), Sec. 720 (1) BGB
OHG	each partner alone, the others can object	each partner alone	Sec. 116 (3), Sec. 124 (1) HGB
KG	general partners only; extraordinary transactions only with a resolution of all partners	general partners only	Sec. 164 in conjunction with Sec. 116 (2) sentence 1, Sec. 170 (1) HGB
PartG	each partner alone	each partner alone	Sec. 6 (3), Sec. 7 (2) PartGG

For a GbR, a rule in the agreement is therefore worthwhile, otherwise everyone has to take part in every contract. Restrictions on the power of representation have no effect towards third parties (Sec. 720 (3) BGB, Sec. 124 (4) HGB).

How the profit is distributed. The law works in three stages (Sec. 709 (3) BGB, for the OHG and KG via Sec. 120 (1) HGB):

1. according to the agreed shareholding ratios,
2. if there are none, according to the ratio of the agreed values of the contributions,
3. if that is also missing, in equal shares per capita.

Example: Anna and Ben form a GbR. The agreement only states that Anna makes contributions worth €30,000 and Ben contributions worth €10,000. With a profit of €80,000, Anna receives €60,000 and Ben €20,000. If the agreement says nothing at all, each receives €40,000. The same distribution applies to losses.

What happens if a partner leaves or dies?

Many older texts are out of date here. Death, termination, insolvency of a partner, termination by their private creditor and exclusion today lead to the departure of the partner, not to the dissolution of the partnership, unless the agreement provides otherwise (Sec. 723 (1) BGB for the GbR with legal capacity, Sec. 130 (1) HGB for the OHG and KG). A GbR without legal capacity, by contrast, ends on the death or termination of a partner (Sec. 740a (1) BGB). In case of doubt, the departing partner's share accrues to the remaining partners in proportion to their shares (Sec. 712 (1) BGB).

• Death: the heirs only take the deceased's place if the partnership agreement provides for this (Sec. 711 (2) BGB). Without such a succession clause, the deceased partner leaves.
• Termination: for a GbR entered into for an indefinite period, the notice period is three months to the end of the calendar year (Sec. 725 (1) BGB), for the OHG six months to the end of the financial year (Sec. 132 (1) HGB). For good cause, termination without notice is possible.
• Dissolution: the partnership is dissolved, for example, by expiry of its term, insolvency of the partnership, termination of the partnership or a resolution (Sec. 729 (1) BGB).

What else the reform changed is summarised in the guide MoPeG.

How is a partnership taxed?

The basics; your tax adviser will clarify the details:

• Income tax: the partnership itself does not pay income tax. The profit is allocated to the partners proportionately and taxed in their hands. For commercial partnerships such as the OHG and KG, this also includes the remuneration a partner receives for their work, for loans or for assets made available (Sec. 15 (1) sentence 1 no. 2 EStG). A "salary" for partners therefore does not reduce the taxable profit.
• Trade tax: if the partnership carries on a trade, it pays trade tax itself (Sec. 2 (1), Sec. 5 (1) sentence 3 GewStG). For partnerships, there is an allowance of €24,500 (Sec. 11 (1) sentence 3 no. 1 GewStG). In return, the partners' income tax is reduced on a flat-rate basis, at most by the trade tax actually payable (Sec. 35 (1) sentence 1 no. 2 and sentence 5 EStG). Partnerships of liberal professionals do not pay trade tax as long as they do not engage in commercial activity (Sec. 15 (3) no. 1 EStG). If the partnership does not itself engage in commercial activity, but only corporations are personally liable and only they or non-partners manage the business, it is deemed commercial by its structure (gewerblich geprägt) (Sec. 15 (3) no. 2 EStG).
• VAT: the partnership is the business for VAT purposes.
• Option for corporation tax: the OHG, KG, PartG and eGbR can, on an irrevocable application, be taxed like a corporation (Sec. 1a KStG).

Partnership or corporation: the difference

Feature	Partnership (GbR, OHG, KG, PartG)	Corporation (GmbH, UG, AG)
Legal nature	legal capacity, not a legal entity	legal entity (Sec. 13 (1) GmbHG)
Founders	at least two	also a single person (Sec. 1 GmbHG, Sec. 2 AktG)
Minimum capital	none	GmbH €25,000, UG from €1, AG €50,000
Partnership agreement or articles	no particular form	notarised (Sec. 2 (1) GmbHG, Sec. 23 (1) AktG)
Liability	at least one partner personally and without limit	only the company's assets (Sec. 13 (2) GmbHG)
Management	by the partners themselves	also by employed external managing directors
Transferring a share	only with the consent of the others (Sec. 711 (1) BGB)	GmbH shares can be sold and inherited, assignment before a notary, the articles can lay down further requirements (Sec. 15 (1), (3) and (5) GmbHG)
Income taxes	income tax for the partners	corporation tax for the company

The figure for the UG follows from the fact that every share must be in whole euros and the UG may fall below the minimum share capital (Sec. 5 (2), Sec. 5a (1) GmbHG). How corporations work is explained in the guide Corporation; the choice between the two most common forms in the guide UG or GmbH.

Advantages and disadvantages of a partnership

Advantages:

• no minimum capital, work is enough as a contribution
• partnership agreement without a notary, formation quick and inexpensive
• wide scope for your own rules in the agreement (Sec. 108 HGB)
• GbR and PartG without an obligation to prepare a balance sheet under the HGB
• trade tax allowance of €24,500

Disadvantages:

• personal and unlimited liability with private assets, also for mistakes made by fellow partners
• continuing liability for up to five years after leaving
• shares only transferable with everyone's consent, succession must be provided for in the agreement
• no external managing director possible as a body
• OHG and KG: double-entry bookkeeping and annual financial statements

Which partnership suits you?

1. You practise a liberal profession together? Then the GbR or the partnership company suits you. The PartG limits liability for professional errors to the partners involved. Whether your activity counts as a liberal profession is explained in the guide Freelance professions.
2. You are starting small and without a commercially organised operation? The GbR is the simplest solution, form a GbR from €259 net. If needed, it can be entered in the commercial register and then becomes an OHG (Sec. 107 (1) HGB).
3. Your trade needs a commercially organised operation and everyone works in it full-time? Then you are an OHG, form an OHG for €369 net.
4. Some are only to provide capital and have limited liability? Then the KG suits you, form a KG for €469 net.
5. Nobody wants to be personally liable without limit? Then the GmbH & Co. KG (€519 net) or UG & Co. KG (€469 net), each plus VAT, notary fees, court fees, IHK and trade registration costs. Or a corporation straight away.

If you are starting on your own, a partnership is not an option; then the sole proprietorship is the simplest legal form.