Partnership limited by shares (KGaA) – formation, financing, liability & Co

The partnership limited by shares – abbreviation: KGaA – is a relatively unknown form of corporate law and is formed as a hybrid of the conventional limited partnership – short: Kommandite or KG – plus the classic stock corporation – short: AG. Both the Kommandite and the AG belong to the so-called complete companies and are therefore primarily subject to the German Commercial Code (HGB). The limited partnership belongs beyond that however to the partnerships and has no own legal personality. The stock corporation, on the other hand, is probably the best-known corporation of all and is primarily committed to share trading.

The KGaA adopts the best features of both legal forms: it takes a stock corporation as its basic structure and supplements it with the structure of general partners and limited partners that is characteristic of the KG. Thus, the entrepreneurial management – similar to the AG – is divided into different bodies, whereas the liability risk is distributed among at least one personally liable partner and the remaining partners in the amount of their capital contribution. Although the partnership limited by shares is a limited partnership in name and suggests the legal status of a partnership, beware: it is in fact a corporation by virtue of its legal form, including its own legal personality!

Other typical corporations:

• Stock corporation (AG)
• European Company (Societas Europaea, abbreviated to SE)
• Entrepreneurial company / UG (limited liability)
• Limited liability company (GmbH)

Corporation KGaA – Stock Corporation Act §§ 278 – 290 & §§ 161 – 177a German Commercial Code (HGB)

In principle, the legal basis for partnerships limited by shares is the German Stock Corporation Act (Aktiengesetz, AktG), more precisely: paragraphs 278 to 290, where, among other things, the nature of the KGaA is defined. For the legal position of the individual partners, on the other hand, reference is made to the applicable provisions for conventional limited partnerships, which are found in the German Commercial Code (HGB) – sections 161 to 177a.

Excerpt from the law – § 278 AktG:

(1) A partnership limited by shares is a company with its own legal personality in which at least one partner has unlimited liability to the company’s creditors (general partner) and the others have an interest in the share capital divided into shares without being personally liable for the company’s obligations (limited shareholders).
(2) The legal relationship of the general partners among themselves and vis-à-vis the entirety of the limited liability shareholders as well as vis-à-vis third parties, namely the authority of the general partners to manage and represent the partnership, shall be determined in accordance with the provisions of the Commercial Code on limited partnerships.
(3) In all other respects, the provisions of the First Book concerning the stock corporation shall apply mutatis mutandis to the partnership limited by shares, unless otherwise provided for in the following provisions or in the absence of a management board.

Kommanditgesellschaft auf Aktien – International distribution of the legal form

The partnership limited by shares – abbreviated to KGaA – is where the legal form of a stock corporation and the typical features of a limited partnership meet. The resulting hybrid of a corporation and partnership features has so far been rather rare in Germany, although interest has been slowly but steadily increasing since the end of the 1990s. The partnership limited by shares also appears internationally, for example as a “commercial partnership limited by shares” in English-speaking countries or as a “société en commandite par actions” in France.

International distribution of the KGaA:

• Anglophone region: Commercial partnership limited by shares
• Belgium: Commanditaire vennootschap op aandelen (CommVA)
• Denmark: Partnerselskab (P/S) or Kommanditaktieselskab
• Germany: partnership limited by shares (KGaA)
• France: Société en commandite par actions (SCA)
• Italy: Società in accomandita per azioni (S. a. p. A. / S. A. A.)
• Iceland: Samlagshlutafélag (slhf.)
• Netherlands: Commanditaire vennootschap (CV)
• Poland: SpóÅka Komandytowo-Akcyjna (S. K. A.)
• Portugal: Sociedade em Comandita por acções (SCA)
• Spain: Sociedad comanditaria por acciones

Legal form variant Kapitalgesellschaft & Co KGaA – General partner as legal entity

Sometimes different corporations also appear in combination with a partnership limited by shares (KGaA). For example, family businesses occasionally organise themselves as a Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft auf Aktien – in short: GmbH & Co KGaA. In this case, they form a stock corporation in the legal sense – however, the general partner as personally liable shareholder is not just any natural person, but specifically a limited liability company (GmbH). If the general partner is instead embodied by an AG, it is referred to as an AG & Co KGaA, and in the case of a Societas Europaea, as an SE & Co KGaA.

More about the individual hybrid forms:

• GmbH & Co KGaA – see limited liability company (GmbH)
• AG & Co KGaA – see stock corporation (AG)
• SE & Co KGaA – see Societas Europaea (SE)

CEWE Stiftung & Co. KGaA is a special case: In this company, the general partner is embodied by a foundation. In principle, the partnership limited by shares is possible in all conceivable combinations, as GUB Investment Trust KGaA points out as an example.

Continue reading here on the topic of setting up a family foundation:

• Establish a family foundation

Foundation, company name & organs of a KGaA

The formation process of a partnership limited by shares is based on the formation process of stock corporations. Accordingly, a KGaA is considered a legal entity and can only participate in legal transactions through its executive bodies. Unlike the conventional stock corporation, however, this legal form does not provide for a management board as the governing body, so that the governing bodies of a KGaA are limited to the general meeting – consisting of the total of the limited liability shareholders – and the supervisory board. The management authority and the power to represent the company externally are incumbent on the general partners as personally liable partners.

You can find out here how the process of founding an AG works in detail:

• Formation of a public limited company

A personally liable partner can be either a natural person or a legal entity, which limits his liability to the business assets of the corporation and cleverly avoids personal liability. The limited partners or limited shareholders can also be natural persons or legal entities and are in any case only liable to the extent of their respective share contribution.

To set up your KGaA, you also need the following in brief: a tax identification number (tax ID); the confirmation of registration from the Trade Licensing Office; the shareholders’ agreement aka articles of association together with notarial certification; 50,000 euros of share capital; and finally the entry in the Commercial Register under the company name you have chosen plus the legal form suffix “KGaA”.

Examples of KGaA companies:

• Merck KGaA
• MERKUR PRIVATBANK KGaA

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.

Usually, general partners are the personally liable partners of a limited partnership. In a partnership limited by shares, too, a distinction is made between general partner and limited partner, the latter being contextually referred to as limited shareholder. The general partner bears the full risk as a general partner: as with the conventional KG, he is also jointly and severally liable, directly and without limitation with business assets and private assets. The liability risk of the limited shareholders, on the other hand, is limited only to the amount of the mandatory sum that they paid in as a limited partner contribution in the form of shares when the KGaA was formed.

Financing & profit distribution

The financing of a KGaA is advantageous compared to the conventional limited partnership, as equity capital can be raised more easily. Overall, as with the AG, a share capital of 50,000 euros or more is required. With regard to the distribution of profits and loss sharing, there are no special regulations compared to the conventional KG: Either the legal principles come into play or corresponding specifications have been anchored in the articles of association. Profits are distributed in principle to 4 per cent of the capital share plus additional profit “in the appropriate relationship”. Losses are also shared appropriately.

Taxes for company & shareholder: separation principle & transparency principle

Like all other forms of corporate law, the partnership limited by shares is generally liable to pay taxes. It is considered an independent tax subject with regard to corporate income tax and trade tax; all natural persons in the partnership are usually subject to income tax.

Due to its hybrid form, however, special regulations apply to the KGaA under tax law: the taxation of the company itself is based on the separation principle, the taxation of the limited liability shareholders is also based on the separation principle and the taxation of the general partners is compulsorily based on the transparency principle. In the case of taxable turnover, the KGaA is always subject to turnover tax.

• Trade tax (GewSt)
• Value added tax (VAT)
• Income tax (ESt)
• Corporate income tax (KSt)

Taxation of the KGaA – separation principle

As a corporation and legal entity, the partnership limited by shares is generally subject to corporate income tax. Insofar as the KGaA exercises its management and/or its registered office in Germany, it is deemed to be subject to unlimited corporate income tax and must pay tax on its entire global income accordingly. In the case of foreign management and/or foreign registered office with domestic income – for example from a domestic permanent establishment – the KGaA is deemed to have limited tax liability.

The profit of a KGaA is determined by means of a comparison of business assets. For the taxable income, on the other hand, a special provision applies with regard to deductible expenses, which is anchored in the German Corporate Income Tax Act (Körperschaftsteuergesetz, KStG) – the corporate income tax of the KGaA therefore only applies where income is attributable to the share capital, i.e.: the profit shares of the limited liability shareholders. The profit shares of the general partners as well as their management remuneration are deducted in advance and can be deducted as operating expenses. They do not come into play in the calculation of the KGaA’s income, but must be taxed by the general partners themselves.

Excerpt from the law – Section 9 (1) no. 1 KStG:

in the case of partnerships limited by shares and comparable corporations, that part of the profit which is distributed to personally liable partners on their contributions not made to the share capital or as remuneration (bonus) for management;

The KGaA must pay trade tax as an entrepreneur, regardless of its hybrid structure. Thus, the determined profit from business operations – increased and decreased by the amounts specified in the Trade Tax Act (GewSt) – is understood as the trade income of the KGaA. The amounts previously calculated for corporate income tax purposes for profit shares and management remuneration of the general partners are now added back to the calculated profit from business operations, thereby ensuring that no amounts escape taxation through trade tax.

Taxation of the limited liability shareholders of the KGaA – separation principle

As natural persons, limited shareholders do not have to pay corporate income tax. Therefore, their profit shares and any management remuneration are settled via the partnership limited by shares itself. Like their counterparts in the conventional limited partnership, they are subject to income tax in the event of a dividend distribution. If they hold limited partnership shares as private assets, they generate income from capital assets in accordance with the German Income Tax Act (EStG).

Taxation of the general partners of the KGaA – separation principle

General partners are taxed like co-entrepreneurs for the purposes of tax law. In this context, they are not to be regarded as co-entrepreneurs, but merely treated as co-entrepreneurs – a small but significant difference… especially in terms of “taxes”! As natural persons, general partners are subject to income tax as normal and must pay tax on their income from business operations.

In contrast to the limited liability shareholders, general partners are required to pay corporate income tax: Their profit shares and any management remuneration are deducted from the KGaA’s income to be determined and charged directly to the general partners. The corresponding amounts must be taxed as part of the income tax return.

Partnership limited by shares (KGaA) – For whom is it worthwhile?

The possibility of easy capital procurement is certainly one of the reasons for founders of new businesses to opt for the formation of a KGaA. In addition, the partnership limited by shares has a high resistance to takeovers, which is why the individual partners can contribute personally and maintain their entrepreneurial commitment despite high capital contributions. The sometimes high liability risk of the general partner can be absorbed by the clever positioning of a GmbH or AG as a personally liable partner.

So who is the partnership limited by shares suitable for? This legal form is worthwhile for start-ups that cannot avoid external financing, but do not want to make any concessions with regard to their decision-making authority as well as the management of their company. The special legal form of the KGaA provides family businesses with a company in which control does not have to be transferred to outside hands as soon as share capital is issued as shares.

Alternatives to the KGaA: Legal forms in Germany

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

Der Beitrag Partnership limited by shares (KGaA) – formation, management, liability & Co erschien zuerst auf ℄ Real Estates.

Types of shares: transfer, rights & capital split

There are many different types of shares, which in turn belong to different categories. For example, a distinction is made between types of shares according to the degree of transferability, or according to the scope of rights, or even according to the method of dividing the share capital. In some cases, the term “order paper” is also used. This simply refers to securities that are registered in a specific name and can change hands by agreement, transfer or endorsement. Incidentally, endorsement refers to the endorsement on such a security, which enables the rights to be transferred in part or in full. The word “order” thus derives from “order”, since the transfer of the share is ordered.

Generally speaking, the value of a share – or a bond or an investment certificate – can be expressed in two terms: On the one hand, there is the nominal value – also known as the face value – which is the numerical value expressed economically in money, as found on banknotes, coins or securities. On the other hand, there is the stock exchange price, the price of securities determined on the stock exchange – in other words, the current market value.

Types of shares by degree of transferability

When distinguishing types of shares according to the degree of transferability, bearer shares and registered shares as well as registered shares with restricted transferability are combined.

• Bearer shares (inh.)
• Registered shares (NA)
• Registered shares with restricted transferability (vink. NA)

Bearer share – transfer by agreement & surrender

Bearer shares – in short: Inh. – are usually made out to the bearer according to their designation and form the standard type among the share types according to the degree of transferability. They can be transferred to a new owner by agreement and transfer, which enormously simplifies the tradability of this type of share. The only restriction is that the shares may only be issued if they are fully paid up.

Registered shares – minimum deposit 25% par value & premium

Registered shares – abbreviated to: NA – are “born” order securities in terms of form. By law, negotiable instruments are regarded as securities. In addition to registered shares, these include cheques and bills of exchange. Registered shares are made out to the shareholder who is listed in the share register. This authorizes him to participate in the Annual General Meeting and to exercise his voting rights. Furthermore, he is the only one entitled to dividend payments for these shares. The minimum payment amount corresponds to 25 percent of the nominal value and the premium. The transfer of ownership of registered shares is effected by endorsement, handover plus transcription in the company’s share register, which places a corresponding burden on tradability.

Registered shares with restricted transferability – transfer with the consent of the company

Registered shares with restricted transferability are abbreviated as vink. NA and represent a special form of conventional registered shares. In terms of features, there are no differences, but a registered share with restricted transferability is only transferable if the company confirms its approval. This is particularly advantageous in order to be able to precisely control the ownership of the shares and to be able to detect early on the intentions of other companies to take over these shares. However, if many small investors are represented by major shareholders – banks, for example – registered shares with restricted transferability can also be transferred easily. If a shareholder leaves the AG, he can even transfer his claims to shareholders unknown to him by means of blank assignment and the signing of a special deed.

Types of shares according to legal scope

In accordance with the distinction between types of shares based on the scope of rights, a distinction is made between ordinary shares and preference shares.

• Ordinary shares (SA)
• Preference shares (VA)

Ordinary shares – original form of the share with fourfold legal entitlement

Ordinary shares – abbreviation: SA) – are the standard type among the types of shares in terms of legal scope and probably represent the most original form of all shares. Ordinary shares contain four main rights: First of all, there is the right to a dividend payment, i.e. there is a legal entitlement to a certain share of the balance sheet profit. Furthermore, ordinary shares allow participation in the general meetings of the stock corporation, including the exercise of one’s own voting rights. A third aspect concerns the right to a share in the liquidation proceeds, according to which a portion of the money from the liquefaction is due to the holder of an ordinary share by operation of law. Last but not least, an ordinary share also entitles the holder to challenge resolutions adopted at the general meeting.

Preference shares – privileges in profit distribution & company assets

Preferred shares – VA for short – are called preferred shares because their features include certain privileges compared with ordinary shares. These are usually either preferential rights in the distribution of profits or special rights with regard to the company’s assets. Preferred shares with multiple voting rights – so-called multiple voting shares – are not permitted in Germany under the German Stock Corporation Act (AktG).

Preferred shares without voting rights – also called non-voting preferred shares – are considered a special form of preferred stock. They are often used to finance equity when a capital increase is not possible due to poor share prices. In compensation for the loss of voting rights, the share holder is offered, for example, a higher dividend or a right of succession, and at the same time the equity capital requirement can be satisfied.

Excerpt from the law – § 12 AktG:

(1) Each share shall confer the right to vote. Preference shares may be issued as non-voting shares in accordance with the provisions of this Act.

(2) Multiple voting rights are not permitted.

Types of shares according to the method of dividing the share capital

If the method of dividing the share capital is considered, a distinction is made between par value shares and no-par value shares. The form and any applicable minimum amounts of the shares are specified in the German Stock Corporation Act (AktG).

• Par value shares
• Quota shares
• No-par-value shares

Excerpt from the law – § 8 AktG:

(1) The shares may be created either as par value shares or as no-par value shares.
(2) Nominal value shares must be denominated in at least one euro. Shares with a lower nominal value shall be null and void. The issuers shall be jointly and severally liable to the holders for any loss arising from the issue. Higher nominal share amounts must be denominated in full euros.
(3) No-par-value shares do not have a nominal value. The no-par value shares of a company participate in the share capital to the same extent. The proportionate amount of the share capital attributable to each share may not be less than one euro. Paragraph 2 sentences 2 and 3 shall apply accordingly.
(4) The proportion of the share capital shall be determined, in the case of par value shares, by the ratio of their par value to the share capital and, in the case of no-par value shares, by the number of shares.
(5) The shares are indivisible.
(6) These provisions shall also apply to share certificates issued to shareholders prior to the issue of the shares (interim certificates).

Par value shares – Money shares from 1 Euro & par

Par value shares – sometimes also called nominal value shares or aggregate shares – are, as the name suggests, denominated in a fixed nominal amount or par value, which is expressed in monetary terms. They may not be issued below par, which means that the nominal value may not be less than the market value. If this is the case, the difference is called a discount. If the par value of a share is above par – i.e. if the par value is greater than the market price – the difference is known as a premium. Par value shares are set at a minimum value of one euro. The sum of the par values results in the share capital of a company.

• Above par: nominal value > market price (difference in premium)
• Par: Nominal value = stock market price
• Below par: nominal value < market price (difference = discount)

No-par-value shares – Quota shares & no-par-value shares

No-par-value shares are a collective term for shares that have no stated par value. A distinction is made between quota shares – as “genuine no-par-value shares” – and no-par-value shares – as “non-genuine no-par-value shares”. Sometimes both types of shares are also referred to as genuine and non-genuine quota shares respectively.

• Quota share: genuine no-par-value (quota) share
• No-par-value share: non-genuine no-par-value (quota) share

Quota shares – shares in the share capital

Genuine no-par-value shares are quota shares whose share in the share capital of an AG is stated in a document, e.g. 1/1,000 or 1/50,000. They therefore represent a fraction of the company’s assets corresponding to the share right and are not, as the name “quota” might suggest, based on a certain minimum amount of the company’s share capital. Accordingly, no nominal value can be calculated for these shares. If the percentage of the share is indicated on the certificate, the quota share is referred to as “speaking”. A “silent” quota share, on the other hand, lacks this notation.

Caution: Although true no-par value quota shares are common in the USA, Canada, Belgium and Italy, among other countries, they are generally not permitted in Germany, as these shares are marketable and can therefore represent an extreme balance sheet concealment.

No-par-value shares – most common type of share since the introduction of the euro

No-par-value shares – abbreviated with o. N. for “without par value” – are considered “non-genuine”, as they are neither denominated in a certain par value nor in a certain quota. They are expressed in terms of quantity as the result of dividing the share capital by the number of shares, whereby their nominal value is calculated fictitiously. Thus, in contrast to quota shares, no-par shares embody a share in the capital stock of an AG and may not fall below a specified minimum amount of one euro per share. They are the most common type of share in Germany and were originally introduced to make the conversion of shares to the euro easier for stock corporations.

AG: foundation, legal form, real estate shares

1. Real estate shares: List of companies
2. Stock corporation (AG)
3. Real estate stock corporation (REIT-AG)
4. Real estate company

Real estate shares: List of companies

Real Estate Shares – Not everyone can afford real estate as a capital investment. Through real estate shares, however, everyone can participate in the real estate market and invest money. The share prices of the big players are rising year after year. Vonovia, Deutsche Wohnen, Dream Global, CBRE and Patrizia are a few of the best known active companies in Germany. In addition, there are more than 25 other companies. We have an overview of the most popular real estate stocks for you as an investor. But first a look at the risks of a stock, the stock market, for beginners and beginners. Now to the list and more on the real estate market, your investment options and all prices at a glance, here in the article on real estate stocks.

• Real Estate Stocks

Stock corporation (AG): Formation, liability, legal form & Co.

Aktiengesellschaft (AG) – The stock corporation is a German legal form founded by at least one person and organized by different bodies. Instead of a managing director, the company is managed by a board of directors consisting of at least one person. As the name already indicates, this legal form of a company primarily stands for stock trading. You would like to start a company alone or together with other people and learn more about company law forms in advance? Then you’ve come to the right place!

• Stock corporation (AG)

Real estate stock corporation (REIT-AG)

Real estate stock corporation / REIT-AG – You don’t find the idea of a stock corporation bad at all and are now wondering how you can combine your capital company with the real estate industry? A real estate company is a company that serves the financing, development, realization, leasing, or marketing of real estate – starting with a single property up to a real estate portfolio in the three or multi-digit range. The management of real estate property or third-party real estate on behalf of third parties can also be handled by a real estate company.

• Real estate stock corporation (REIT-AG)

Real Estate GmbH & Asset Management GmbH

Alternative – In this article you will learn the basics about real estate companies. Briefly explained, a real estate company is a company that has the purpose of leasing, developing, financing, realizing and/or marketing. It doesn’t matter if it is one or more properties. The management of residential and commercial real estate – in its own interest or as a service offered to third parties – is also a popular focus for real estate companies and asset management GmbHs. Find out more about the main advantages and disadvantages of buying real estate and the expected costs.

• Real estate company

Der Beitrag Types of shares – transferability, legal scope & share capital breakdown erschien zuerst auf ℄ Real Estates.