GmbH & Co KG – formation, financing, liability & Co

The limited partnership – in short: Kommandite or KG – is one of the so-called complete companies and, as a partnership, is subject to the German Commercial Code (HGB). The formation process for this legal form of company is quite uncomplicated, as it can be formed informally and requires a minimum of only two founding members. It can be formed by both natural persons and legal entities. A maximum number of permissible shareholders is not specified by law.

If all general partners of a KG consist of limited liability companies (GmbH), they form a so-called Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft – called GmbH & Co KG for short. Such a GmbH is sometimes also referred to as a general partner GmbH, but beware: the general partner GmbH is a corporation and part of the GmbH & Co KG, while the GmbH & Co KG by virtue of its legal form is always a partnership!

Other typical partnerships:

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

Foundation & Company Name

Two persons are required for the formation of a GmbH & Co KG: The GmbH as full partner – i.e. general partner – and a natural person as partial partner – called limited partner. If you are starting from scratch, you must first establish a limited liability company in preparation. To do this, you need the following in a nutshell: a natural person or legal entity as the founder of the company; a tax identification number (tax ID); the confirmation of registration from the trade office; the shareholders’ agreement aka articles of association together with notarial certification; 25,000 euros in share capital; and finally the entry in the commercial register.

You can find out how the process of setting up a GmbH works in detail here:

• Establishment of a limited liability company (GmbH)

You have successfuly founded your GmbH? The limited partner is ready to go? Then the next step is to set up a limited liability company (Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft). Since the GmbH & Co KG is a separate company, you again need a tax ID and must register the company with the trade office. The establishment of articles of association is also mandatory and of course your company needs a suitable company name including the company suffix “GmbH & Co KG”.

Management & power of representation

As a general partner, the GmbH basically has power of representation in the external relationship. However, since a GmbH is a legal entity, the management authority is entrusted to a natural person. This may be a shareholder of the general partner GmbH or the position may be assigned externally to a so-called third-party managing director. In this case, there is often talk of a third party board of directors or external board of directors.

Alternatively, limited partners may also act as managing directors, provided they are expressly appointed to this body. Since limited partners are generally excluded from management, their management authority in this case is, however, limited to the right of objection in the case of extraordinary transactions.

Profit distribution & loss sharing

With regard to the distribution of profits and the sharing of losses, either the statutory principles come into play or corresponding specifications have been anchored in the articles of association. Profits are generally distributed at 4 percent of the capital share plus additional profit “in reasonable proportion”. Losses are also shared appropriately.

It is possible to completely exclude the general partner GmbH from the distribution of profits by means of a declaration in the shareholders’ agreement, whereby higher profits can be distributed to the investors. Insofar as the GmbH has inherent management authority, it can be paid an appropriate remuneration to compensate for its role as managing director, whereby a managing director’s remuneration cannot be deducted in total as a business expense for tax purposes. However, the remuneration is paid irrespective of the profits generated and thereby has the effect, if applicable, that the entire company can save taxes.

General partner, partial partner & tax liability

Usually, the general partners of a limited partnership are liable without limitation and jointly and severally – i.e. with their business assets plus private assets. If, on the other hand, the general partner of a KG appears in the form of a limited liability company (GmbH), he is liable as a legal entity only to the extent of the GmbH’s capital contribution. Limited partners are liable – as in the case of a conventional KG – only to the extent of the mandatory sum that they paid in as a limited partner’s contribution when the GmbH & Co KG was founded.

Like all other legal forms of companies, the Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft is generally liable to pay taxes. First and foremost, they are subject to trade tax and – in the case of taxable turnover – turnover tax. A GmbH & Co KG is generally exempt from income tax and corporation tax… However, profit income is still subject to taxation: corporation tax is applied to the profit share of the general partner GmbH, whereas limited partners must pay income tax on their profit.

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

Tip. All taxes for companies in one list:

• Taxes in Germany

GmbH & Co KG – For whom is it worthwhile?

A significant advantage of a GmbH & Co KG is undoubtedly the limitation of liability to the business assets of the general partner GmbH. This means that founders do not directly risk the existence of their company if an investment turns out to be disadvantageous, and they can quickly increase their equity capital through the flexible and simple admission of new limited partners. They can confidently outsource the organisational effort and the management to an outside body or make deviating succession arrangements in order to maintain the GmbH & Co KG.

So who is the GmbH & Co KG suitable for? This legal form is worthwhile for start-ups who would like to set up their business as a partnership without having to forego the special liability restrictions of a GmbH. A GmbH & Co KG is also conceivable as an asset-managing company and for family businesses.

Alternatives to the GmbH & Co KG: 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

Offers in different price categories

Buying your own farm as a permanent residence or as a weekend home. You need to decide if you want to buy a property in need of renovation. These farms can often be purchased at a very reasonable price. Alternatively, there are properties that have already been refurbished by their previous owner and are in a modern and very good condition. These farms are usually ready for immediate occupation. However, you will have to expect a higher purchase price. This is especially true if the farm is in a very central location with a good infrastructure.

If you have the intention to buy a farm, we are happy to assist you with our experience. Arrange a personal appointment with us, where we can discuss your individual ideas. We are happy to offer you various properties that are located in scenic regions and can be used in different ways.

Buy farm with need for renovation

Many farms are no longer in cultivation due to the changed structures in agriculture, but also due to the lack of offspring. Children and children’s children of the former owners move to the city and look for a new centre of life there. This is one of the reasons why many farms are for sale. With a farm complex, you are in many cases acquiring very large buildings that are already quite old and in need of a lot of renovation. The advantage of buying such a property is that you will be able to design it according to your personal preferences. In addition, you will acquire the farm at a particularly favourable price.

Special real estate with a small circle of interested parties

Because farms are traded as special properties that have a narrower range of buyers than single-family homes or condos, owners often accommodate buyers on price. If you can acquire a property particularly cheaply, you should not underestimate the need for renovation.

Mill, half-timbering, old factory and monument protection

Above all, it is important that they inform themselves about any existing requirements of the protection of historical monuments. This applies in particular to very old farms with historic buildings such as a mill or a small factory. The implementation of conditions imposed by the historic preservation office are often very costly. Even if you are willing to invest high costs for the renovation, it is important to know in advance. We offer you support. We will obtain the necessary information from the authorities on your behalf. In addition, it is advisable for you to commission an expert to provide an estimate of the expected construction costs. This will enable you to plan not only the purchase price but also the renovation costs very well and to know what the total investment will be when buying the farmhouse in need of renovation.

Farmhouses ready for occupancy as sought-after purchase object

In some regions that have a strong rural character, farms are offered that have already been renovated. The advantage is that you can move into the property promptly without much further investment and with little work. However, there are also disadvantages here that you should be aware of.

Need for renovation of the farm

If the renovation of the farm is already completed, you will usually have to pay a higher purchase price than if you decide to buy a renovation property. This is considered an advantage due to the low further investment costs. Sometimes, you will even pay less for a farm without the need for redevelopment than the total cost of the purchase and subsequent redevelopment would be. However, it does happen that the way in which a farmhouse has been refurbished does not meet your expectations. If you still like this property and decide to buy it, you will pay the high cost of the purchase and still have to put money into the renovation.

Caution: double investment

Consider in advance whether you are prepared to make such a double investment. In this case, too, we will be happy to provide you with expert advice. Inform us about your individual ideas and we will present you with properties that come close to these ideas. In many cases we will find a farm that suits you and meets all your expectations.

Where to buy? Location, location, location! Also for country houses

The location determines the price per square metre, but also the purchase price, land transfer tax and ancillary purchase costs. Since the choice of the farm is often relatively free, an analysis of the location is worthwhile in order to find the best yield regions / properties.

• Macro = Where in Germany?
• Meso = Where in the region?
• Micro = Where exactly is the property located?

Buying real estate: Tips from the investor (external)

Buying real estate but also investing in real estate requires a lot of knowledge and expertise. The best way to learn is to draw from the experience of professionals. Therefore, in conclusion, a recommendation for real estate beginners.

External guide (link opens in new tab):

• First property purchase
• Buying real estate: What to look out for?
• Buying mistakes
• Save taxes with real estate

Comparison of cities: Purchase prices in Germany (external)

In these individual guides to the major German cities are the important districts for real estate buyers, information on the infrastructure, as well as prerequisites for the purchase such as income, creditworthiness (credit rating), banks and equity. But much more important: mistakes, risks, rental yields and more. What is decisive for the purchase price and the valuation? Everything about location, building fabric, renovations, equipment and all that, free of charge.

External guides (link opens in new tab)

City / Purchase Price Current:

• Munich ~ 8,993 Euro / m²
• Frankfurt ~ 6,701 Euro / m²
• Stuttgart ~ 6,324 Euro / m²
• Berlin ~ 5,578 Euro / m²
• Hamburg ~ 5,507 Euro / m²
• Düsseldorf / Cologne ~ 5,470 Euro / m²

Real estate as an investment: Special

1. Part: Classic or exotic investment – Which property is suitable as an investment?
2. Part: Real estate as an investment – What do I have to watch out for?

Acquire building land, garden land and farmland

Topic: Buying land. Many farms are sold with larger lands. Here it is important that you know the difference between building land garden land and farmland. In addition, you should know how you may use the respective lands.

Differences in use and development

If you would like to erect further buildings, this is only possible if you acquire building land. Garden land and farmland differ in terms of their use. We will be happy to find out for you before you buy whether there are any conditions attached to the use of the land. Sometimes it is a landscape area that is intended for a certain use. In this case, you should only purchase the property if you plan to farm the land. If you are looking for a property for purely residential purposes, it is only possible to purchase the farm if the lands become your property and are not intended for a specific use.

Not far from Munich, the Alps and the Alpine foothills. Extremely popular, especially in terms of luxury real estate. Old farms are being renovated and extended, with wellness area, carport and much more. Modern life and country air.

Conclusion: Buy Farm

The purchase of a farm should be well thought out in advance, because it is not uncommon that further inventories are required. Cities and municipalities can also determine how the land may be used. Requirements of the protection of historical monuments are not at all uncommon. Lukinski offers professional advice if you want to buy a farm. Please feel free to make an appointment for a first personal meeting, where we can present you first objects.

• Buy a holiday home

Buying a weekend house: Renting as an option

Buying a weekend house – A weekend house can be used in a very diverse way. You can spend your free time and holidays there. In addition, it is possible to rent out the weekend house and thus generate additional income. Weekend houses are quite often on offer in Hesse and Rhineland-Palatinate. There are many beautiful regions in the federal states that are very popular with the people who live there.

Some weekend homes are located in popular holiday regions. Others are considered more of an insider tip and are hidden away on the edge of the mountains, near the Main River or in the middle of nature. If you want to buy a weekend house, you can choose whether you prefer nature, water or mountains. Decide on a location that you individually prefer. Weekend homes are not designed for residential purposes. They are for recreational purposes. For this reason, it is important that you feel comfortable in the area. If you are planning a rental, you should find out which locations are particularly popular. We will be happy to assist you in this and offer you weekend houses that exactly meet your individual requirements.

• Buy weekend house