Limited partnership: formation, advantages and disadvantages

In the following, you will find out everything you need to know about setting up a KG. How do you become a partner in a KG? When is the limited partner liable? How is the general partner liable? What are the advantages? What are the disadvantages? How do I set up a company? What is a company? You will get an answer to all these questions and more – explained simply and quickly. Plus everything you need to know about taxes in Germany and real estate trading.

If you’re considering forming a limited partnership, the first thing you need to know about is the formation process: Who can form what exactly, when, and to how many… what are the differences and similarities between the various business legal forms? It is equally important to know the advantages and disadvantages of a KG: From profit distribution to saving taxes – an overview of the seven most important founding criteria for you.

What are the founding criteria?

1. Number of shareholders
2. Management
3. Foundation
4. Company name
5. Funding
6. Liability
7. Profit distribution

Learn everything important about it here! In addition, you will find all German types of companies and legal forms, as well as tips on how to start a company, including the special case of real estate GmbH, family foundation & Co.

Partnership KG: Management according to HGB

In the entrepreneurial world, there are many different forms of business you can choose from. They are roughly divided into two categories, namely sole proprietorship and companies, which in turn are divided into incomplete companies – these include dormant companies and BGB companies – and complete companies – partnerships, corporations and some more.

The limited partnership – in short: Kommandite or KG – is one of the so-called complete companies and, in contrast to the incomplete companies, is not subject to the German Civil Code (BGB) but to the German Commercial Code (HGB). As a partnership, the KG is an uncomplicated form of corporate law, as it can be founded informally and a minimum of only two founding members is required.

Other typical partnerships:

• General partnership (OHG)
• Limited Liability Company and Company Limited Partnership(GmbH & Co KG)
• Limited Liability Company and Compagnie General Partnership(GmbH & Co OHG)

The limited partnership also appears to some extent as a share trading business, namely in the form of a partnership limited by shares (KGaA). This is no longer a partnership in the legal sense, but a corporation based on a stock corporation (AG), which has been given partnership characteristics…. Nevertheless, the special character of a traditional limited partnership shines through in a KGaA, which could make it an attractive legal form for start-ups who appreciate the combination of general partner and limited partner.

Read more about partnership limited by shares:

• Partnership limited by shares (KGaA)

Formation process of the KG: From the number of shareholders to the distribution of profits

You would like to found a KG? No problem! The formation process of a limited partnership is quite simple: On the one hand, you need at least one other person to be able to form a limited partnership. Secondly, an informal partnership agreement is sufficient, insofar as no real estate is contributed to the partnership. Due to the extensive similarity of the formation process and formalities, the KG is often referred to as a variation of a general partnership.

KG formation from 2 persons: Tax ID, commercial register, company name

The formation of a limited partnership requires at least two natural – or legal – persons. A maximum number of permissible partners is not specified by law. The internal relationship determines the beginning of the partnership as the date contractually agreed between the partners. In the external relationship however the emergence of the KG is dated on the first activity in the name of the enterprise, at the latest thus with the obligatory entry into the trade register. The registration costs you on average about 200 to 300 euros and is usually carried out by a notary. You will receive a tax identification number – tax ID for short – from your local tax office in advance. The registration of the limited partnership is carried out by the trade office for a processing fee of approximately 10 to 65 euros. Only in the case of contributed real estate are further costs incurred for the notarial certification of the partnership agreement.

Since you are entered in the commercial register as a KG shareholder, you can officially trade under your name – just like a OHG shareholder. This means that your company has a company name, i.e. an official name, which you can freely design together with the other partners. It doesn’t matter whether it is a personal company, a real company, a fancy company or a mixed company… As long as the name is in the sense of the prohibition of misleading and has the suffix “KG”, almost anything is allowed.

Limited partner & general partner: A question of liability

What is a limited partner and general partner? This is a question many people ask themselves when they first hear about the special characteristics of a limited partnership. This is because, unlike all other partnerships, the partners in a limited partnership are clearly divided into general partners and limited partners. Therefore, a single individual or legal entity can never be a general partner and a general partner at the same time.

The general partners of a KG are called general partners. They bear the same liability risk as the partners of a general partnership: They are liable with their business and private assets without limitation, directly and jointly and severally. Also their rights and obligations as partners correspond to a large extent to those of OHG partners – only the profit and loss distribution takes place differentiated.

The partial partners of a KG are called limited partners. From the time of registration of the company in the commercial register, their liability is limited to the contribution entered there, the so-called liability sum. Between entry into the partnership and registration, however, the same liability risk exists for limited partners as for general partners: For this period, from a legal point of view, there are only fully liable partners. So if something goes wrong and the limited partnership falls into arrears and financial difficulties, you as a future limited partner – even in the event of wrong decisions by your co-partner(s) – must assume unlimited liability for the partnership’s debts with your private assets.

Management with full liability, collusion & control

Management is a matter for the general partner. As a rule, limited partners cannot participate in decision-making with regard to ordinary business activities unless such joint management has been expressly stipulated in the partnership agreement. In the case of sole management by a limited partner, on the other hand, it is disputed whether and how the sole management authority once granted to the limited partner can be withdrawn again by means of a shareholders’ resolution. In order to avoid ambiguities and disputes, limited partners are therefore usually excluded from management activities.

Legal transactions are also subject to the sole power of representation of the general partners. This means that each fully liable partner may perform legal acts on behalf of the limited partnership in full and without restriction. Deviations – such as joint representation – are contractually possible, provided that all partners agree to this. Only in the case of actions that go beyond the ordinary operation of the commercial business do you, even as a general partner, have to consult with your co-partners. Here, the limited partners may also have a say and make use of their right to object.

Since the management authority and the power of representation give the individual general partners a great deal of freedom to make decisions, each partner – whether a general partner or a limited partner – may at any time personally obtain information about the affairs of the company, inspect the commercial books or draw up a balance sheet from the company papers. This ensures that none of the partners acts behind the backs of the others and that disagreements are adressed personally.

Financing, profit & loss distribution

The financing of your business is entirely up to you, so you can theoretically do without any start-up capital at all. However, it is advisable to have some reserves and to draw up a financing plan in order to be financially prepared in case of unpleasant surprises.

In contrast to the OHG, the distribution of profits in the case of a KG is not generally carried out at 4 percent of the capital share plus additional profit according to heads; instead, the additional profit is distributed “in reasonable proportion” in accordance with the statutory regulations. This also applies to the distribution of losses. In order to prevent disputes, clear regulations should be stipulated in advance in the partnership agreement.

In addition, profit shares are generally credited to the capital account until they correspond to the contribution entered in the commercial register. All profits in excess of this are regarded as liabilities of the KG to its limited partners and are either credited outside the capital account or paid out directly.

Rights of the limited partners: objection, control, profit & Co.

The rights of the partially liable partners secure your position in the KG despite the distribution of the liability risk among the general partners: The right to object comes into play in the case of actions that are extraordinary for the company… the right to control has the effect of keeping you informed about all matters…. Profits are distributed appropriately and you have the same rights of termination as a general partner.

Overview of the rights of limited partners:

• Right of objection
  • In the event of unusual operations
• Right of control
  • For corporate matters
• Profit share
  • 4 % of its capital share
  • Additional profit in reasonable proportion
• Right of termination
  • 6 months’ notice to the end of a financial year

Duties of the limited partners: mandatory contribution, liability & loss

As a limited partner, in many cases you cannot make your own decisions and are dependent on the guidance of the managing general partner in day-to-day business. However, especially with regard to liability issues and the capital contribution, it is important that you are familiar not only with your rights but also with your obligations as a limited partner.

Duties of limited partners at a glance:

• Capital contribution
  • Mandatory contribution may differ from liability amount
• Liability before registration
  • Unrestricted
  • Directly
  • Solidarity
• Liability after registration
  • Up to registered contribution (liability amount)
• Loss share
  • In proportion

Advantages: Flexibility of action, capital growth, liability risk at choice.

After presenting the typical characteristics of a limited partnership, you have certainly already recognized the advantages that this legal form offers you: The formation is relatively uncomplicated and you do not need any start-up capital. You can become active in the team and maintain your independence as a general partner or, as a limited partner, let others manage the day-to-day business without any restrictions on turnover. This offers you in both cases an attractive flexibility of action at relatively low costs.

In addition, as a limited partner you have the support of your fully liable co-founder(s): you make all extraordinary decisions together, while the general partners bear the decisive liability risk jointly and severally. By taking on additional limited partners, the capital base can also be increased quickly and easily, which is why banks are usually very positive about granting loans to limited partnerships.

• Fast and uncomplicated foundation
• Flexible share capital
• Attractive flexibility of action in the team
• No turnover limit
• Team decisions for exceptional transactions
• Joint and several liability of the general partners
• Low liability risk for limited partners
• Fast and easy capital growth
• High credit rating

Disadvantages: Full risk for general partners, registration requirement and HGB.

The disadvantages that the formation of a KG can bring with it are also quickly identified: On the one hand, you do not have one hundred percent decision-making power and must agree with your partner staff in special cases. Nevertheless, in case of doubt you must be fully and completely liable – even privately! even if you were not responsible for the losses. In addition, the limited partners participate as partial partners also only up to the height of the respective liability sum in the partnership debts. Thirdly, as a KG you are obliged to be entered in the commercial register and are no longer subject only to the BGB. Not least: Since the success of a limited partnership is largely tied to the teamwork and cooperation of the individual partners, internal disputes or serious breaches of trust can result in the dissolution of the partnership, and succession arrangements must be expressly set out in the partnership agreement.

• Consent requirement in special cases
• Full liability (incl. private assets) for general partners
• Loss participation of the limited partners only up to the amount of liability
• Obligation to register in the commercial register
• Validity of the HGB
• Endangering the continued existence of the company due to disagreements within the team
• Fixing the succession regulations in the shareholder agreement

Evaluation: Active & passive with team spirit to the goal

After comparing the advantages and disadvantages, the following emerges: A limited partnership offers a wide range of opportunities to participate directly or indirectly in a company. It is therefore suitable both for characters who like to make their own decisions and are prepared to accept a certain amount of risk for their goals…. as well as for those who shy away from the entrepreneurial risk and strive for capital growth without great personal effort. Common requirement: To join a KG you should be a team player and be able to respect and accept the opinions and advice of others.

Immobilien KG: asset management, family pool & Co

You don’t think the idea of a limited partnership is a bad idea at all, and now you’re wondering how to combine your partnership with the real estate industry? From real estate agents to asset management companies and family pools. All essential information on real estate partnerships, real estate GbR and real estate KG for you in a nutshell.

Small tip: When acquiring and/or managing real estate, make sure that all details are clearly stated in the partnership agreement. Due to the principle of joint, unlimited and direct liability, you should also make sure that your managing partners are persons with comparable creditworthiness – otherwise there could be difficulties with financing and creditworthiness.

Variant 1: Real estate agent with business licence

If you want to become a self-employed real estate agent, it’s not that easy. The profession of real estate agent is subject to the trade obligation and is not one of the liberal professions. This means that in order to be able to pursue this activity, you must first apply to the trade licensing office for permission and hope for a positive light. The official permit is required by law, for example to be able to assess your reliability in advance.

Real estate agent OHG, GbR & KG

Partnerships can also operate as real estate agents. However, without their own legal personality, OHGs, GbRs and KGs must obtain an official permit for each individual managing partner. In addition to the application form for permission, further documents must also be submitted. These include:

• A police clearance certificate – available on request from the Residents’ Registration Office;
• An extract from the Trade Central Register – available on request from the Ordnungsamt;
• A tax clearance certificate – available on request from the tax office;
• A certificate of no current insolvency proceedings – available on request from the local court;
• A certificate of missing entries in the debtors’ register – available on request from the local court.

A certificate of competence can also be provided on a voluntary basis.

Variant 2: Asset-managing partnership

If you want to be active in the area of surplus income – i.e.: income from non-self-employed work, capital assets, renting and leasing or other income – an asset-managing partnership could be just right for you. Here you can typically either use the legal form of a GbR or fall back on trading companies regulated in the HGB such as the OHG or KG. Mixed forms such as the GmbH & Co KG are also conceivable in principle, but mean further regulations and requirements.

Participation, say & tax advantages

An asset-managing partnership makes sense if several real estate investors want to manage their real estate holdings jointly. The aspect of ensuring succession in the event of inheritance is also interesting here. The partnership agreement determines how much say the individual partners have – decisions are often made on the basis of shares, but even partners with a small shareholding can gain a dominant voting right – for example, if they have enormous expertise, professionalism or experience.

Tax advantage of such an arrangement? The capital-forming partnership is not the same as the tax object: each partner is taxed individually and all income taxes as well as taxes from inheritance, sale or gratuitous transfer of partnership shares must be reported by each partner individually for tax purposes.

Asset-managing family company / family pool

The limited partnership in particular is ideally suited for the management of family assets. The internal family management of the joint real estate portfolio – the so-called family pool – is therefore advantageous, as the income generated in this way is not regarded as trade income, but as private income from letting and leasing. Thus the trade tax is omitted completely and also the fee-requiring registration with the trade office is settled. In the case of corporations, however, real estate is part of the business assets and as such is subject to trade tax.

In addition, compulsory membership of the Chamber of Industry and Commerce (IHK) with no trade tax liability is avoided and you can put your money to work without it flowing to the IHK as a contribution payment. Further taxes can be saved if the property is held in company ownership for at least ten years, because then the sale is no longer taxed with income tax.

Small tip: Due to the limited liability of the limited partners, minor family members can also participate in the family partnership, while the parents as general partners bear the full risk and therefore also make all ordinary business decisions.

Taxes for KG shareholders: ESt, USt & KSt

As a KG shareholder, you do not have to seriously think about a few types of tax, because without the income from a trade, trade tax does not apply to you. However, there is a uniform and separate determination of the profits, which forms the basis for the income tax assessment of the KG partners. Profit shares are evaluated accordingly as incomes from trade. The tax law provides that in addition to the income tax of each partner – or the corporate income tax of each legal entity – further duties for turnover tax must be paid, insofar as the limited partnership does not only carry out tax-exempt sales.

• Income tax (ESt)
• Value added tax (VAT)
• If applicable, corporate income tax (KSt)

You can find out what taxes you can expect with a real estate corporation here:

• Save taxes on real estate

Limited partnership – For whom is it worthwhile?

If you like to work in a familiar team and don’t want to overcome any major bureaucratic hurdles, you can get started quickly and easily as a limited partner. You can decide for yourself in advance whether you want to act as general partner and thus also bear the full risk, or whether you prefer to sit back as a limited partner while you let your money work for you. Great freedom of choice versus capital growth with limited liability – a KG makes sense above all for start-ups who are prepared to take on a great deal of entrepreneurial responsibility or are looking for a nice additional income without having to contribute significantly to the company.

From a real estate point of view, a KG is particularly worthwhile for beginners who would prefer to invest their capital directly in property management or deal in real estate instead of laying down the share capital for a corporation. For families, the limited partnership offers an attractive corporate legal form to manage the joint real estate portfolio in a cost-effective and uncomplicated manner. Another plus: even underage children can be integrated into the family pool as limited partners.

Limitation of liability, yes or no? KG & GmbH & Co KG in comparison

Many prospective business founders are faced with the question of whether they would like to set up a limited partnership (KG) or whether they would prefer to set up a limited liability company (Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft, GmbH & Co KG). The two forms of company law are very similar in many respects – however, one significant difference lies in the question of liability. In the case of a limited partnership, the general partner assumes the full risk and is liable for both business and private matters. With a GmbH and Co KG it looks different: Here, the general partner is not a natural person, but a GmbH, i.e. a limited liability company. As a result, his private assets remain unaffected and the general partner is only liable in business terms.

You can find out more about the GmbH & Co KG here:

• Limited Liability Company & Compagnie Limited Partnership(GmbH & Co KG)

Learn for free: Start a company & legal forms

Besides the limited partnership (KG), there are a few other alternative types of companies that might be interesting for you as a founder! Want to learn more about starting a business? Learn more about share capital, taxes and the advantages and disadvantages of the different types of companies.

Here you will find all the legal forms that can be chosen as a founder in Germany and a guide with a checklist:

1. Legal forms: List
2. Founding a company: Procedure, costs and overview

Legal forms: List

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

Company types in detail:

• Sole proprietorship
• Registered businessman / registered businesswoman (e. K.)
• Civil law partnership (GbR)
• General partnership (OHG)
• Limited partnership (KG)
• Entrepreneurial company (UG)
• GmbH: Limited liability company
• Real estate GmbH / Asset management GmbH
• Stock corporation (AG)
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation

Starting a company: Procedure, costs and checklist

Founding a company (real estate) – You want to found your first company? Requirements for you as a founder, share capital, shareholder agreements, costs for the foundation, legal forms and checklists. This sounds complicated for beginners, but it is actually quite simple. The process of founding a company is usually relatively the same. I have summarized the foundation here once in simple steps, for you. Learn how to start your own business. After the great guide to all legal forms or types of companies, today a detailed look at the establishment of a (real estate) company for beginners.

• Form a company

Civil law partnership: formation, advantages and disadvantages

In the following, you will find out everything you need to know about setting up a GbR. How do you become a partner in a GbR? What are the differences between incomplete and complete companies? What are the advantages? What are the disadvantages? How do I set up a company? What is a company? You’ll get answers to all these questions and more – explained simply and quickly. Plus everything you need to know about taxes and real estate trading.

If you are considering forming a civil law company, you first need to know about the formation process: Who can form what exactly, when and to how many… what are the differences and similarities between the various civil law companies? It is equally important to know the advantages and disadvantages of a GbR: From profit distribution to saving taxes – the seven most important formation criteria for you at a glance.

What are the founding criteria?

1. Number of shareholders
2. Management
3. Foundation
4. Company name
5. Funding
6. Liability
7. Profit distribution

Learn everything important about it here! In addition, you will find all German types of companies and legal forms, as well as tips on how to start a company, including the special case of real estate GmbH, family foundation & Co.

BGB companies at a glance

In the entrepreneurial world, there are many different forms of business you can choose from. They are roughly divided into two categories, namely sole proprietorship and companies, which in turn are divided into incomplete companies – these include dormant companies and BGB companies – and complete companies – partnerships, corporations and some more.

The civil law partnership – GbR for short – is one of the so-called incomplete partnerships and is often also referred to as a BGB partnership because, unlike the complete partnerships, it is not subject to the German Commercial Code (HGB) but to the German Civil Code (BGB). The GbR is an uncomplicated form of corporate law because it can be founded informally and a minimum of only two founding members is required. Since the formation of a GbR is for the purpose of jointly conducting a specific business, it is also referred to as an occasional company.

GbR between private persons

If you want to form a civil law partnership, there are different options for you and your co-founder(s). In fact, most people – knowingly or unknowingly – have already been part of a BGB company at one time or another: if, for example, you form a car pool with your colleagues or go on holiday together with your friends and split the costs between them, you have formed an occasional company in the legal sense. For a common goal, you have joined forces with at least one other person, temporarily or for a longer period of time, and contributed to the fulfilment of this goal under the premise of equality – in this or a similar way, a civil law partnership is informally formed between private individuals.

GbR among freelancers

You are already self-employed and want to found a GbR? No problem! Even between sole traders, the formation of a civil law partnership is not uncommon: Especially in the healthcare and legal sectors, doctors and lawyers like to join forces for a longer period of time. They establish a civil law partnership among freelancers in order to increase their chances on the market or to strengthen their competitiveness or simply to save costs.

GbR among merchants & banking syndicate

As a businessman or businesswoman, you can also join forces with like-minded people and set up an occasional company. For example, if you have a large construction project that you as a craftsman cannot handle alone, you can join forces with other craftsmen for this customer or project to tackle the property together. Once the construction project is complete, everyone goes their separate ways. In this case, it is a matter of founding a civil law partnership among merchants. A special feature here is the merger of banks: If several banks form a GbR – for example, for the purpose of easier organisation of the share issue when a public limited company (AG) is re-established – this is referred to as a banking consortium.

BGB companies in brief:

• GbR between private persons
• GbR among freelancers
• Partnership under business
  • Banking syndicate

Formation process of the GbR: From the number of shareholders to the distribution of profits

Regardless of whether you are a private individual, a freelancer or a merchant: The process of forming a civil law partnership is the same everywhere: For one thing, you need at least one other person to be able to form a GbR. The claim that a GbR is more or less a sole proprietorship, only with more people, is therefore no coincidence. But apart from the question of liability, these two legal forms have little in common.

Doing business together from 2 persons

Although it is possible to appoint a single managing director from among the BGB partners by agreement, all partners usually take over the management jointly and also make joint decisions.

The foundation itself requires a tax identification number – in short: tax ID – which you can apply for at the tax office responsible for your administrative area. Furthermore, you must apply for the registration of a small business at your responsible trade office, which usually costs you about 10 to 65 euros for processing. As a small business BGB company, you are restricted in terms of turnover – this means that you may generate turnover up to a fixed maximum limit of currently 250,000 euros per year. For higher amounts, the civil law partnership is automatically converted into a general partnership – OHG for short – for which entry in the commercial register is mandatory.

Company identification: Full name + GbR

Since you are not registered in the commercial register as a GbR partner, you cannot officially trade. This means that your company does not have a company name, but only a company designation. The company name must consist of your full first name and your surname plus the suffix “GbR”, which indicates the legal form of your BGB company. You are free to expand your company name by naming the industry and/or an imaginary name.

Financing, Liability & Profit

The financing is entirely at your discretion, so you can theoretically do without any start-up capital. However, it is advisable to have certain reserves and to draw up a financing plan in order to be financially prepared in case of unpleasant surprises. The company risk is borne jointly by all partners and they are liable for both business and private matters. Therefore, if something goes wrong and the BGB company falls into arrears and financial difficulties, you must – even in the case of wrong decisions by your co-partner(s) – take unlimited responsibility with your private assets.

Just like the entrepreneurial risk, the profit is also distributed equally. With two founding members, each of you receives 50 percent of the profit. If there are three or more partners, the profit is distributed accordingly per head.

Advantages: Winning by heads, team decision & joint liability.

After presenting the typical characteristics of a BGB company, you have certainly already recognized the advantages that this legal form offers you: The foundation is relatively uncomplicated and you do not need any start-up capital. You are active as a team together with your co-founder(s): You make all company-relevant decisions together, bear the liability risk jointly and share profits equally among yourselves.

• Fast and uncomplicated foundation
• Flexible share capital
• Head split
• Liability risk in the team
• Decisions with little coordination with others
• No disclosure of business figures

Disadvantages: Full liability, turnover restriction & OHG conversion.

The disadvantages of setting up an occasional company can also be quickly identified: On the one hand, you do not have sole decision-making power and must coordinate with your staff of partners. Nevertheless, in case of doubt, you must be fully and completely liable – even privately! even if you were not responsible for the losses. Thirdly, as a GbR you are limited in turnover and have to be careful not to unintentionally change into a OHG. Last but not least: Since a GbR is purpose-bound, a dissolution can be enforced without much effort – it is not made for eternity.

• No sole decision-making power
• Full liability (incl. private assets)
• Limitation of turnover up to 250.000 Euro per year
• Automatic conversion into OHG
• Simple dissolution of the GbR

Evaluation: Start-up without bureaucracy & share capital

After comparing the advantages and disadvantages, it becomes clear that if you like to work in a small and familiar team to achieve a common goal and do not want to overcome any major bureaucratic hurdles, you can get off to a fast and easy start as a GbR. Profits are shared fairly and losses are borne jointly, so that businesses with a manageable risk are particularly suitable as objectives. In addition, a GbR makes sense for entrepreneurs who do not have the necessary share capital for a corporation and/or have a general partnership as their goal.

Immobilien GbR: change of legal form, asset management & Co

You don’t think the idea of a general partnership is a bad idea at all, and now you’re wondering how to combine your partnership with real estate? From form change tricks and private contributions to corporations to real estate brokers and asset management companies. All essential information on real estate partnerships, real estate GbR and real estate KG for you in a nutshell.

Small tip: When acquiring and/or managing real estate, make sure that all details are clearly stated in the partnership agreement. Due to the principle of joint, unlimited and direct liability, you should also make sure that your managing partners are persons with comparable creditworthiness – otherwise there could be difficulties with financing and creditworthiness.

Variant 1: Save taxes through change of legal form trick

As an individual, you would like to contribute your property to a limited liability company (LLC) or other corporation, but the tax levies are too high for you? Then you should consider transferring your property to a partnership. The advantage: registered partnerships can be easily converted into corporations by means of a change of form and you can save the real estate transfer tax!

Change of legal form to a registered partnership

As a partnership under civil law (GbR), you can convert your property into 100 per cent GbR shares as a 100 per cent shareholding and, in the next step, carry out the change of form to a general partnership with entry in the commercial register. This turns the GbR into a full company and, above all, also into a registered partnership, which is the basic prerequisite for the conversion into a GmbH. But watch out: You need another person for the formation, who temporarily joins the company without deductible.

Change of legal form to a corporation after 5 years

The change of legal form to a GmbH is again tax-free in terms of the identity of the legal entity, so that you remain exempt from real estate transfer tax and can still transfer your private property to a corporation. You only have to wait until the five-year lock-up period has expired, because otherwise taxes will still be due retroactively in accordance with the Real Estate Transfer Tax Act (GrEStG). If everything goes smoothly, you are still 100 percent owner and your co-founder can leave the GmbH without any problems.

Variant 2: Real estate agent with business licence

If you want to become a self-employed real estate agent, it’s not that easy. The profession of real estate agent is subject to the trade obligation and is not one of the liberal professions. This means that in order to be able to pursue this activity, you must first apply to the trade licensing office for permission and hope for a positive light. The official permit is required by law, for example to be able to assess your reliability in advance.

Real estate agent OHG, GbR & KG

Partnerships can also operate as real estate agents. However, without their own legal personality, OHGs, GbRs and KGs must obtain an official permit for each individual managing partner. In addition to the application form for permission, further documents must also be submitted. These include:

• A police clearance certificate – available on request from the Residents’ Registration Office;
• An extract from the Trade Central Register – available on request from the Ordnungsamt;
• A tax clearance certificate – available on request from the tax office;
• A certificate of no current insolvency proceedings – available on request from the local court;
• A certificate of missing entries in the debtors’ register – available on request from the local court.

A certificate of competence can also be provided on a voluntary basis.

Variant 3: Asset-managing partnership

If you want to be active in the area of surplus income – i.e.: income from non-self-employed work, capital assets, renting and leasing or other income – an asset-managing partnership could be just right for you. Here you can typically either use the legal form of a GbR or fall back on trading companies regulated in the HGB such as the OHG or KG. Mixed forms such as the GmbH & Co KG are also conceivable in principle, but mean further regulations and requirements.

Participation, say & tax advantages

An asset-managing partnership makes sense if several real estate investors want to manage their real estate holdings jointly. The aspect of ensuring succession in the event of inheritance is also interesting here. The partnership agreement determines how much say the individual partners have – decisions are often made on the basis of shares, but even partners with a small shareholding can gain a dominant voting right – for example, if they have enormous expertise, professionalism or experience.

Tax advantage of such an arrangement? The capital-forming partnership is not the same as the tax object: each partner is taxed individually and all income taxes as well as taxes from inheritance, sale or gratuitous transfer of partnership shares must be reported by each partner individually for tax purposes.

Taxes for BGB partners: income tax, VAT & trade tax

As a GbR partner, you need to know about some types of taxes, because with the establishment of your company, you receive income from your business and must of course also pay tax on this. Tax law stipulates that in addition to the income tax of each partner, further duties must be paid for turnover tax, unless the GbR makes use of the small business regulation. In addition, trade tax is due for commercial enterprises with an annual income of more than 24,500 euros. A GbR among freelancers remains exempt from the trade tax obligation.

• Income tax (ESt)
• Value added tax (VAT)
• If applicable, trade tax (GewSt)

You can find out what taxes you can expect with a real estate corporation here:

• Save taxes on real estate

Conclusion: Civil law partnership – for whom is it worthwhile?

If you are prepared to join forces with other trustworthy people to start your own business quickly and easily, you do not need enormous financial reserves and also pay relatively little tax on your profits. A GbR is therefore ideally suited for young freelancers who want to take their lives into their own hands, not only dream of self-realisation and do not want to wait until they have saved up the necessary start-up capital.

From a real estate point of view, a BGB company is particularly worthwhile for beginners who would prefer to invest their capital directly in the purchase of real estate instead of laying down the share capital for a corporation. If you are successful, however, you should consider converting the casual partnership into a general partnership – if only to reduce the liability risk – or contributing the GbR as a contribution in kind to a GmbH.

You can find out more about general partnerships and limited liability companies here:

• General partnership (OHG)
• Limited liability company (GmbH)

Learn for free: Start a company & legal forms

Besides the civil law partnership (GbR), there are a few other alternative types of companies that could be interesting for you as a founder! You want to learn more about starting a business? Learn more about share capital, taxes and the advantages and disadvantages of the different types of companies.

Here you will find all the legal forms that can be chosen as a founder in Germany and a guide with a checklist:

1. Legal forms: List
2. Founding a company: Procedure, costs and overview

Legal forms: List

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

Company types in detail:

• Sole proprietorship
• Registered businessman / registered businesswoman (e. K.)
• General partnership (OHG)
• Limited partnership (KG)
• Entrepreneurial company (UG)
• GmbH: Limited liability company
• Real estate GmbH / Asset management GmbH
• Stock corporation (AG)
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation

Starting a company: Procedure, costs and checklist

Founding a company (real estate) – You want to found your first company? Requirements for you as a founder, share capital, shareholder agreements, costs for the foundation, legal forms and checklists. This sounds complicated for beginners, but it is actually quite simple. The process of founding a company is usually relatively the same. I have summarized the foundation here once in simple steps, for you. Learn how to start your own business. After the great guide to all legal forms or types of companies, today a detailed look at the establishment of a (real estate) company for beginners.

• Form a company