Real estate company: Founding a company

Do you want to buy and rent out your first property? You have inherited a property and now want to work in real estate management, property management and other related areas yourself, or even more, you want to become a real estate investor yourself? Then the big question is, which company is the right one? What is the first step?

Basically, you have many different possibilities and options as to how you can set up your business for the future. To give you an initial overview, we have written this guide to the different types of companies for you. Here you will learn about the different options you have as a founder in the USA. Definitions, start-up tips, advantages, disadvantages and taxes. Everything you need to make a good decision.

Legal forms USA – Overview

• LLC (cf. GmbH)
• Limited partnership (cf. limited partnership)
• General partnership (cf. general partnership)
• Real Estate Limited Partnership (cf. Immobilien-KG)
• C Corporation (cf. stock corporation)
• S Corporation (cf. small stock corporation)
• Real Estate Holding (cf. Real Estate Holding)
• REIT/ Real Estate Investment Trusts (cf. real estate investment company)

Combine legal forms:

• Multiple Entities

For the sake of completeness:

• Sole Proprietorship (cf. sole proprietorship)
• Owning private real estate in the USA (cf. private real estate ownership in Germany)
• Tenancy in Common (TIC) (cf. fractional community)

Limited Liability Company (LLC)

An LLC (Limited Liability Company) is a flexible and popular legal form in the USA. It offers its owners the advantage of limited liability, similar to a corporation, but combines the tax advantages of a partnership. Profits and losses are attributed directly to the shareholders, which avoids double taxation. In addition, an LLC offers a simple structure and flexibility in administration, which makes it particularly attractive for small companies.

• LLC

LLC: My recommendation for the first 10 properties

For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.

• More about the LLC

Limited Partnership

A limited partnership consists of at least one general partner and one limited partner. The general partner bears full liability for the company’s debts, while the limited partner is only liable to the extent of their contribution. This structure is often used in equity investment or real estate projects, as it enables a clear separation between active and passive participation. From a tax perspective, a limited partnership benefits from the fact that profits are only taxed at partner level.

• Limited Partnership

General Partnership

A general partnership is a partnership in which all partners have unlimited liability. This legal form offers flexibility and simple formation without major formalities. Profits and losses are attributed to the partners and are taxed personally by them. However, the partners’ full liability for the company’s debts entails a higher risk, which is why this form may be less suitable for certain business models.

• General Partnership

Real Estate Limited Partnership (RELP)

A real estate limited partnership (RELP) is a special form of limited partnership that is used for real estate projects. In this structure, passive investors invest as limited partners, while the general partner takes over the operational business and has unlimited liability. RELPs offer the advantage of tax transparency and are particularly suitable for large real estate investments where the parties involved want clear liability and profit relationships.

• Real Estate Limited Partnership

C Corporation

A C corporation is an independent legal entity that is separate from its owners. It offers a comprehensive limitation of liability for its shareholders. Profits are taxed at the corporate level and distributions to shareholders are subject to personal income tax, which can lead to double taxation. Nevertheless, this legal form offers advantages such as access to capital markets and the possibility of having an unlimited number of shareholders.

• C Corporation

S Corporation

The S Corporation is similar to the C Corporation, but with the difference that profits and losses are passed on directly to the shareholders, thus avoiding double taxation. However, there are restrictions on the number and type of shareholders. This legal form is often chosen by smaller companies that want to benefit from tax transparency but at the same time need the limited liability of a corporation.

• S Corporation

Real Estate Holding

A real estate holding company is a type of company that is used specifically for the ownership of real estate. This structure provides legal and tax separation between the owners and the property owners. It is ideal for investors who own and manage several properties without holding them directly in their own name. This allows liability risks to be reduced and tax advantages to be exploited.

• Real Estate Holding

REIT (Real Estate Investment Trust)

A real estate investment trust (REIT) is a special type of company that invests in real estate and is traded on the stock exchange. Investors can acquire shares and thus invest indirectly in real estate without owning real estate directly. REITs are tax-privileged, but must distribute a large part of their profits to shareholders as dividends. They are a popular option for investors looking for a liquid and diversified investment opportunity in the real estate sector.

• REIT

Multiple Entities

The combination of several company forms offers entrepreneurs the opportunity to spread risks and maximize tax advantages. For example, an LLC can be used in conjunction with a corporation to separate operational and administrative functions. This is particularly useful in the real estate industry or for more complex business models where different business areas need to be legally and fiscally separated.

• Multiple Entities

Sole Proprietorship

Sole Proprietorship, also known as a sole proprietorship, is the simplest legal form in the USA. The owner bears sole responsibility for the business, but also has unlimited liability for its debts. This form is suitable for smaller companies or freelancers who do not require a complex structure. As there is no separation between the company and the owner, taxation is levied directly on the owner’s income.

• Sole Proprietorship

Owning private real estate in the USA

Direct ownership of real estate in the USA as a private individual offers both opportunities and risks. Owners benefit from the increase in value of the property and the rental income, but must also observe the tax and legal obligations. In addition, personal ownership of real estate can lead to liability risks, which can be minimized by using a suitable legal form such as a real estate holding company or an LLC.

• Owning private real estate in the USA

Der Beitrag Legal forms USA (company / enterprise): LP, LLC, Corp., REIT & Co. – comparison, advantages and taxes erschien zuerst auf ℄ Real Estates.

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

Der Beitrag Limited partnership (KG): formation, liability, legal form, management, taxes erschien zuerst auf ℄ Real Estates.

General partnership: formation, advantages and disadvantages

In the following, you will find out everything you need to know about setting up a general partnership. How do you become a partner in a general partnership? 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? What taxes are there in Germany for an OHG? You will get an answer to all these questions and more – explained simply and quickly. Plus everything you need to know about taxes and real estate trading.

If you’re considering forming a general 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 forms of business law? It is equally important to know the advantages and disadvantages of a general partnership: 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 OHG: 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 general partnership – OHG for short – 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 general partnership 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:

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

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

You would like to found a general partnership? No problem! The formation process of a general partnership is quite simple: Firstly, you need at least one other person to be able to form a general partnership. Alternatively, you are already a co-founder of a partnership under civil law (GbR) and you have decided to convert the incomplete partnership into a general partnership. Secondly, an informal partnership agreement is sufficient insofar as no real estate is contributed to the partnership.

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

The formation of a general 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 company as the date contractually agreed between the partners. In the external relationship, however, the formation of the general partnership is dated on the first activity on behalf of the company, i.e. at the latest with the binding entry in the commercial 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 OHG 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.

As you are registered in the commercial register as a partner in a general partnership (OHG), you can officially operate your business, unlike a partner in a civil law partnership (GbR) or a sole trader. This means that your business has a company, i.e. an official name, which you can freely design together with the other partners. It doesn’t matter whether it’s 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 “OHG”, almost anything is allowed.

Individual management, agreements & procuration

Although it is possible to manage a general partnership jointly with some or all of the partners by agreement, all partners usually have sole management authority and generally make their decisions alone. This power of sole management applies to all normal business activities such as purchasing and selling, hiring personnel, accepting bills of exchange, and more.

The sole power of representation also applies to legal transactions. This means that each shareholder may perform legal acts on behalf of the general 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 extraordinary legal transactions do you have to consult with your co-partners. This is the case, for example, when taking on a silent partner, but the purchase or sale of real estate also requires the prior consent of all partners. Furthermore, the managing partners may only jointly appoint a proxy – each of them is individually entitled to revoke the proxy.

Since the sole power of management and the sole power of representation give the individual partners a great deal of freedom to make decisions, each 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, Liability & Profit Distribution

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. If something goes wrong and the general partnership defaults on payments and gets into financial difficulties, you must – even in the case of wrong decisions by your co-partner(s) – take full responsibility with your private assets.

In contrast to the GbR, the distribution of profits in the case of a general partnership does not take place in equal parts, but in dependence on the value of the contribution made. According to the legal regulations, each partner receives 4 percent of his capital share – contributions and withdrawals taken into account – and only the remaining surplus profit is actually distributed according to heads. Deviating regulations can be laid down in the shareholders’ agreement.

Shareholders’ rights: withdrawal of capital, control, termination & Co

The rights of the partners secure your position in the general partnership despite the joint liability risk: The individual business authority only applies within a certain, customary framework… the right of control means that you are informed about all matters… Contributions and withdrawals are fairly offset and even in case of losses you can secure a part of your capital contribution.

Overview of shareholders’ rights:

• Individual management authority
  • In the case of normal operations
  • On revocation of procuration
• Consent requirement
  • In the case of exceptional legal acts
  • In the event of the appointment of an authorised signatory
• Sole power of representation
  • For all legal transactions
• Right of control
  • For corporate matters
• Reimbursement of expenses
  • In the case of expenditure from private funds
• Capital withdrawal
  • 4 % of your capital share (independent of losses)
• Profit share
  • 4% of your capital share
  • Additional profit according to heads
• Right of termination
  • 6 months’ notice to the end of a financial year
• Liquidation share
  • According to your capital share

Duties of shareholders: non-competition clause, loss & liability

As a general partner, you can make your own decisions in many cases, similar to a sole proprietor, and are not dependent on the approval of your fellow partners in day-to-day business. However, there are some cases in which you cannot avoid the approval of the others. It is therefore important that you are familiar not only with your rights but also with your obligations as a partner: the obligations of the partners primarily safeguard the general partnership itself.

Duties of shareholders at a glance:

• Capital contribution
  • Cash contribution
  • Real assets
  • Right values
• Non-compete
  • Business in the same line of trade
  • Personal liability in similar companies
• Loss share
  • By heads
• Liability
  • Unrestricted
  • Directly
  • Solidarity

Advantages: No share capital, high credit rating, joint and several liability.

After presenting the typical characteristics of a general 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 be active in a team without losing your independence or having to operate with limited turnover and still have the support of your co-founder(s): You make all extraordinary decisions together, bear the liability risk jointly and thus obtain a good credit rating vis-à-vis banks and other financial institutions. The distribution of profits is a percentage of your capital share and only the excess profit is distributed according to heads. In this way, the larger depositors are fairly rewarded for their financing and the associated risk.

• Fast and uncomplicated foundation
• Flexible share capital
• No turnover limit
• High credit rating
• Profit distribution according to capital share and additional profit according to heads
• Liability risk in the team

Disadvantages: Full liability, registration requirement & HGB

The disadvantages that the formation of a general partnership 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. Thirdly, as a general partnership you are obliged to register in the commercial register and are no longer subject only to the BGB. Last but not least: Since the success of a general 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 company.

• Consent requirement in special cases
• Full liability (incl. private assets)
• Obligation to register in the commercial register
• Validity of the HGB
• Endangering the continued existence of the company due to disagreements within the team

Evaluation: Acting & sticking in solidarity as a team

After comparing the advantages and disadvantages, it becomes clear: If you like to act in a small and familiar team in order to trade jointly and do not want to overcome any major bureaucratic hurdles, you can get started quickly and easily as a general partnership. Profits are shared fairly and losses are borne jointly, so that business with manageable risk is particularly suitable as an objective. In addition, an OHG makes sense for start-ups that do not have the necessary share capital for a corporation and/or would like to lift the turnover restriction of a GbR.

Real estate OHG: 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

Of course, you can also first form a partnership under civil law (GbR) and convert your property into 100 percent GbR shares as a one hundred percent share. The next step would then be the change of legal form to a general partnership (OHG) with entry in the commercial register – this turns the GbR into a full company and, above all, into a registered partnership, which is the basic prerequisite for the conversion into a GmbH. Either way: You need another person for the foundation, who temporarily joins the company without any 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 OHG shareholders: ESt, USt, GewSt & KSt

As a partner in a general partnership, you need to know about some types of tax, because when you set up your business, you receive income from your trade and must of course also pay tax on this income. Tax law stipulates that in addition to the income tax of each partner – or the corporate income tax of each legal entity – further sales tax contributions must be paid, insofar as the OHG does not only carry out tax-free sales. For commercial enterprises with an annual income of more than 24,500 Euros, trade tax is also due.

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

Conclusion: General partnership – for whom is it worthwhile?

If you are prepared to join forces with other trustworthy people in order to start your own business quickly and easily, you do not need enormous financial reserves and also pay relatively little tax on your profits. An OHG is therefore ideally suited to young entrepreneurs with an eye to the future who want to take their lives into their own hands, not just dream of self-fulfilment and do not want to wait until they have saved up the necessary start-up capital.

In real estate terms, a general partnership is particularly worthwhile for beginners who would prefer to invest their capital directly in property management or deal in real estate instead of setting up the share capital for a corporation. For BGB partners, a general partnership often means the next step towards business success – if only to reduce the liability risk. From a certain turnover size, however, you should consider converting your trading business into a GmbH or contributing it as a contribution in kind to an existing GmbH.

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

Some prospective business founders ask themselves whether the formation of a general partnership (OHG) really suits their future plans or perhaps a limited liability company & Compagnie Offene Handelsgesellschaft (GmbH & Co OHG) would be better. There are many similarities between the two partnerships – but one significant difference lies in the liability issue. In the conventional OHG, all partners share the full risk and are jointly and severally liable, i.e. for business as well as private purposes. With a GmbH and Co OHG it looks differently: Here, the personally liable 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 partner is only held liable in business terms.

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

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

Commercial enterprise instead of small business: OHG & GbR in comparison

Many prospective entrepreneurs are faced with the question of whether they want to set up a civil law partnership (GbR) or whether they would prefer a general partnership (OHG). The two legal forms of business are very similar in many respects – the background, i.e. the motivation for founding, is the easiest way to find out which legal form is better suited to your entrepreneurial goals. Do you want to run a small business and expect manageable turnover? Then you are on the safe side with the GbR. Do you explicitly want to run a commercial enterprise and do not want to limit your turnover? Then the OHG is a better fit!

You can find out more about civil law partnerships here:

• Civil law partnership (GbR)

Learn for free: Start a company & legal forms

Besides the general partnership (OHG), 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.)
• Civil law partnership (GbR)
• 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

Der Beitrag General partnership (OHG): formation, liability, legal form, management, taxes erschien zuerst auf ℄ Real Estates.