What is a limited partnership (KG)? Explained simply

What is a limited partnership?

The German Commercial Code (HGB) defines the KG as follows: a partnership whose purpose is to carry on a commercial business under a common company name is a limited partnership if the liability of some of the partners towards the creditors is limited to a specific amount, the liability amount (Haftsumme), and the liability of the other partners is not (Sec. 161 (1) HGB). The partners with limited liability are called limited partners; the statute calls the partners with unlimited liability personally liable partners, and in practice they are called general partners.

The KG is therefore a special form of the general partnership (offene Handelsgesellschaft, OHG). What the HGB provides for the OHG applies accordingly to the KG, unless Sec. 161 to 177a HGB provide otherwise (Sec. 161 (2) HGB). Like the OHG, the KG has legal capacity: it can conclude contracts itself, acquire property and have debts (Sec. 105 (2) HGB). As a commercial partnership, it is subject to the rules for merchants (Sec. 6 (1) HGB). You will also find short definitions in the glossary under KG.

Does the KG have to carry on a commercial business? In principle, yes. However, a KG can also carry on a small business or merely manage its own assets, such as real estate; it then becomes a KG on entry in the commercial register (Sec. 107 (1) sentence 1 in conjunction with Sec. 161 (2) HGB). For liberal professions, this only applies insofar as their professional law permits registration (Sec. 107 (1) sentence 2 HGB).

New law has applied since 2024. The MoPeG (Act to Modernise the Law on Partnerships) rewrote many sections on the OHG and KG with effect from 1 January 2024. Partners' liability, for example, is now found in Sec. 126 HGB, no longer in Sec. 128 HGB.

Structure: general partner and limited partner

Every KG has at least one partner of each type; without limited partners, it would be an OHG. Partners can be natural persons, legal entities such as a GmbH or UG, and partnerships with legal capacity (cf. the information required for the application under Sec. 106 (2) no. 2 HGB).

Feature	General partner	Limited partner
Liability	unlimited, personal, jointly and severally (Sec. 126 HGB)	up to the registered liability amount, excluded insofar as the contribution has been paid (Sec. 171 (1) HGB)
Management	yes (Sec. 116 (1) HGB)	no (Sec. 164 HGB), but extraordinary transactions require a resolution of all partners
External representation	yes (Sec. 124 (1) HGB)	no (Sec. 170 (1) HGB), Prokura is possible
Contribution	not prescribed by law	agreed in the partnership agreement; the liability amount is entered in the commercial register (Sec. 162 (1) HGB)
Control	full insight as managing partner	copy of the annual financial statements, inspection, information (Sec. 166 HGB)
Non-compete obligation	yes (Sec. 117 HGB)	no (Sec. 165 HGB)
Death	leaves the partnership unless the agreement provides otherwise (Sec. 130 (1) no. 1 HGB)	the KG continues with the heirs (Sec. 177 HGB)

Both roles in detail: General partner and Limited partner.

KG liability: who is liable in a limited partnership?

First, the KG itself is liable with its partnership assets. In addition, creditors can turn to the partners, and this is where the KG distinguishes between its two groups.

The general partner is liable without limit

The general partner is liable for the KG's debts personally and as a joint and several debtor (Sec. 126 sentence 1 in conjunction with Sec. 161 (2) HGB). A creditor can therefore demand the full amount from them, not just a share. An agreement to the contrary only has effect between the partners, not towards third parties (Sec. 126 sentence 2 HGB). Anyone who joins as a general partner is also liable for the KG's existing debts (Sec. 127 HGB). Anyone who leaves remains liable for the debts incurred up to that point if they fall due within five years and are established or enforced against them (Sec. 137 (1) HGB).

The limited partner is liable up to the liability amount

The limited partner is liable to the creditors directly, 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). Towards creditors, after registration, the amount entered in the commercial register is what counts (Sec. 172 (1) HGB).

You need to keep two amounts apart:

• Liability amount (Haftsumme, Hafteinlage): the amount up to which the limited partner is liable to the creditors. It is entered in the commercial register.
• Agreed contribution (Pflichteinlage): the contribution that the limited partner has to make to the KG under the partnership agreement. It can be higher or lower than the liability amount.

If the limited partner has paid their contribution, they also do not have to make good a shortfall of the KG through additional payments when they leave or in the liquidation; the provisions on liability for a shortfall then do not apply to them (Sec. 167 in conjunction with Sec. 136, 149 HGB).

Example: Lena runs an online shop and forms a KG with her father Uwe. Lena is the general partner, Uwe the limited partner with a liability amount of €50,000, which he pays in full. If the KG gets into difficulties, Lena is liable with all her assets. Uwe is no longer personally liable to the creditors because his contribution has been paid. If Uwe later has €20,000 of his contribution repaid to him, the contribution is deemed not to have been paid in this amount as far as creditors are concerned (Sec. 172 (4) sentence 1 HGB). He is then personally liable again for up to €20,000.

Liability traps for limited partners

• Business before registration: if the KG takes part in legal transactions with the limited partner's consent before it is entered in the commercial register, they are liable for the debts incurred until registration like a general partner. This does not apply towards creditors who knew that they were only a limited partner (Sec. 176 (1) HGB).
• Repayment and withdrawals: if the contribution is repaid, or if the limited partner withdraws profits while their capital share has fallen below the liability amount due to losses, their liability revives to that extent (Sec. 172 (4) HGB).
• Waiver or deferral: if the partners waive or defer a limited partner's contribution, this has no effect towards the creditors (Sec. 172 (3) HGB).
• Joining an existing KG: the new limited partner is also liable for existing debts up to their liability amount (Sec. 173 HGB) and, until their registration, under Sec. 176 (2) HGB.

Management, representation and rights of the limited partners

The general partners manage the business. Under the statute, each general partner is entitled to manage the business alone; if another managing partner objects, the transaction must not go ahead (Sec. 116 (3) HGB). Externally, each general partner represents the KG unless the partnership agreement excludes them (Sec. 124 (1) HGB). The agreement can provide for joint representation or for representation only together with a holder of Prokura (Sec. 124 (2) and (3) HGB).

The limited partners are excluded from management (Sec. 164 HGB). However, the statute reserves Sec. 116 (2) sentence 1 HGB: transactions that go beyond the ordinary course of business require a resolution of all partners, i.e. including the limited partners. A limited partner as such may not represent the KG (Sec. 170 (1) HGB). If they are to act externally, the KG can grant them Prokura; how this works is explained in the guide Prokura.

Right to information: the limited partner can demand a copy of the annual financial statements, inspect the related documents and demand information insofar as they need it to exercise their membership rights, in particular if dishonest management is suspected (Sec. 166 (1) HGB). The partnership agreement cannot exclude these rights (Sec. 166 (2) HGB).

Profit distribution in the KG

How the profit is distributed is determined primarily by the partnership agreement, for example with an advance payment (Vorabvergütung) for the general partner and distribution of the rest according to capital shares.

If there is no provision, the general standard has applied since 2024: the share of profit and loss is based on the agreed shareholding ratios, otherwise on the ratio of the agreed values of the contributions and, if these are also missing, per capita (Sec. 120 (1) HGB in conjunction with Sec. 709 (3) BGB). The former special rule for the KG in Sec. 168 HGB ceased to apply on 1 January 2024.

A payout block applies to limited partners: a limited partner cannot demand payment of profit as long as their capital share has fallen below the contribution paid due to losses or would fall below it as a result of the payment (Sec. 169 (1) HGB). They do not have to repay profits they have received because of later losses (Sec. 169 (2) HGB); the liability trap of Sec. 172 (4) HGB remains unaffected by this.

Forming a KG: requirements, procedure and costs

Formation takes four steps:

1. Conclude the partnership agreement. The law does not prescribe any form. Notarisation is only necessary if the agreement itself contains a transaction that requires a particular form, such as contributing a piece of real estate (Sec. 311b (1) BGB). You should still conclude the agreement in writing. It should cover at least the company name, registered office, purpose, the roles of the partners, liability amounts and contributions, management, profit distribution, withdrawals, leaving and compensation.
2. Choose the company name. It must contain the suffix "Kommanditgesellschaft" or an understandable abbreviation such as "KG" (Sec. 19 (1) no. 3 HGB).
3. Apply to the commercial register. All partners apply to register the KG (Sec. 106 (7) HGB), stating the company name, registered office, business address, information on each partner, authority to represent (Sec. 106 (2) HGB) and the liability amount of each limited partner (Sec. 162 (1) HGB). The application is submitted electronically in publicly certified form, i.e. via a notary, by video communication if you wish (Sec. 12 (1) HGB). The KG is entered in division A of the commercial register (Sec. 3 (2) HRV).
4. After registration: register the trade, register with the tax office, report to the transparency register, because registered partnerships must report their beneficial owners (Sec. 20 (1) GwG).

Towards third parties, the KG comes into existence on registration or earlier if it takes part in legal transactions with the consent of all partners (Sec. 123 (1) in conjunction with Sec. 161 (2) HGB). For limited partners, this is the phase of Sec. 176 HGB, which is why the rule is: registration first, then start of business.

Item	Amount	Basis
Register court: first registration of a KG with up to 3 partners	€150	no. 1101 GV HRegGebV
per additional partner to be registered	€60	no. 1102 GV HRegGebV
Retrieval fee	one third of the registration fee, i.e. €50 for €150	no. 6000 GV HRegGebV
Notary: certification of the application	depends on the business value: total of the limited partners' contributions plus €30,000 for the first and €15,000 for each additional general partner	Sec. 105 (1) sentence 1 no. 5 GNotKG
Trade registration, IHK contribution	depending on the municipality and chamber

According to our calculation, registering a KG with two partners therefore costs €200 at the register court. Our fixed price for the formation: €469 net plus VAT, notary fees for certifying the signatures, court fees, IHK and trade registration costs, including a check of the company name, the partnership agreement and the application to the commercial register.

Taxes of the KG in brief

The KG itself does not pay income tax. Its profit is attributed to the partners in proportion to their shares; they pay tax on it as income from a commercial business, as co-entrepreneurs (Mitunternehmer), including the remuneration they receive from the KG for their work or for loans (Sec. 15 (1) sentence 1 no. 2 EStG).

The KG pays trade tax itself if it carries on a commercial activity. Partnerships receive an allowance of €24,500 on their trade income (Sec. 11 (1) sentence 3 no. 1 GewStG), and the partners' income tax is reduced by a flat-rate amount based on the trade tax base amount, at most by the trade tax actually paid (Sec. 35 (1) sentence 1 no. 2 EStG). Clarify the effect in your individual case with your tax adviser.

Advantages and disadvantages of the limited partnership

Advantages	Why
No minimum capital	The law does not prescribe a minimum contribution; the partners agree the liability amount and contribution freely
Investors without the full risk	Limited partners are only liable up to the liability amount (Sec. 171 HGB)
Clear management	The general partners manage the business, limited partners do not interfere in day-to-day business (Sec. 164 HGB)
Simple formation	Agreement without any particular form, only the application is certified (Sec. 12 HGB)
Less disclosure	If at least one general partner is a natural person, the disclosure rules for corporations do not apply (Sec. 264a HGB); only very large enterprises then have to disclose under the Disclosure Act (Sec. 1, 3, 9 PublG)
Limited partnership interests can be inherited	If a limited partner dies, the KG continues with the heirs (Sec. 177 HGB)

Disadvantages	Why
Unlimited liability of the general partner	They are liable with all their assets, also for existing debts and for up to five years after leaving (Sec. 126, 127, 137 HGB). For most founders, this is the biggest disadvantage
Cannot be formed alone	At least two partners are needed; anyone who wants to form one alone uses their own GmbH or UG as general partner
Liability traps for limited partners	Starting business before registration and repayments revive liability (Sec. 172, 176 HGB)
Little influence for limited partners	Without a contractual rule, no management and no representation (Sec. 164, 170 HGB)
Obligations under commercial law	Registration, bookkeeping and annual financial statements under the HGB (Sec. 6 (1), Sec. 238, 242 HGB)
Trust required	Each general partner can bind the KG alone unless the agreement provides otherwise (Sec. 124 HGB)

KG, OHG, GbR or GmbH & Co. KG?

Feature	GbR	OHG	KG	GmbH & Co. KG
Who is liable without limit?	all partners	all partners (Sec. 126 HGB)	only the general partners	only the general partner GmbH, with its assets
Limited liability possible	no	no	yes, for limited partners	yes, for limited partners and in effect for everyone involved
Minimum capital	none	none	none	€25,000 share capital of the general partner GmbH (Sec. 5 (1) GmbHG)
Commercial register	no, partnership register voluntary (Sec. 707 (1) BGB)	mandatory	mandatory	mandatory for the GmbH and the KG
Partnership agreement	no particular form	no particular form	no particular form	KG no particular form, GmbH notarised (Sec. 2 (1) GmbHG)
Form with us	from €259 net	€369 net	€469 net	€519 net

Formation prices are net plus VAT in each case; for the GbR plus IHK and trade registration costs, for the eGbR plus notary and register costs; for the OHG and KG plus notary fees for certifying the signatures, court fees, IHK and trade registration costs; for the GmbH & Co. KG plus notary fees, court fees, IHK and trade registration costs. You will find the basics of the other legal forms in What is a GbR?, What is an OHG? and in the overview Partnerships.

Which companies are a KG? How to recognise them

You can recognise a KG by the suffix in its company name: "KG" or "Kommanditgesellschaft" (Sec. 19 (1) no. 3 HGB). If it is preceded by "GmbH & Co.", "UG (haftungsbeschränkt) & Co." or "SE & Co.", the general partner is a corporation; these are also limited partnerships. In the commercial register, the KG is listed in division A, recognisable by the abbreviation HRA before the register number (Sec. 3 (2) HRV). We form a UG & Co. KG for €469 net plus VAT, notary fees, court fees, IHK and trade registration costs.

Do not confuse it with the KGaA. The partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA) also has at least one partner with unlimited liability, but it is a company with its own legal personality whose other partners hold shares in the share capital divided into shares (Sec. 278 (1) AktG). It is listed in division B of the commercial register (Sec. 3 (3) HRV) and counts as a corporation.

Leaving, death and dissolution

• Termination: for a KG with an indefinite term, with six months' notice to the end of the financial year (Sec. 132 (1) HGB). The partner leaves, and the KG continues (Sec. 130 (1) no. 2 HGB); without a contractual rule, they receive reasonable compensation (Sec. 135 (1) HGB).
• Death of a general partner: they leave the partnership unless the agreement provides otherwise (Sec. 130 (1) no. 1 HGB). If an heir becomes a partner, they can apply to become a limited partner; if the other partners do not accept this, they can terminate without notice. Both are only possible within three months of learning that the inheritance has passed to them (Sec. 131 (1) to (3) HGB). If the last general partner is gone, the KG needs a new one.
• Death of a limited partner: the KG continues with their heirs (Sec. 177 HGB).
• Dissolution: by expiry of the term, insolvency of the KG, court decision or a resolution to dissolve (Sec. 138 (1) HGB). Liquidation follows, unless insolvency proceedings have been opened (Sec. 143 (1) HGB).

Succession, compensation and leaving belong in the partnership agreement. You can clarify questions about an existing KG in legal advice at a fixed price of €169 incl. VAT.