Two-person company | Lukinski https://lukinski.com Tue, 01 Mar 2022 15:15:35 +0000 en-US hourly 1 https://wordpress.org/?v=6.8.5 GmbH & Co KG – Foundation, Management, Liability & Co https://lukinski.com/gmbh-co-kg-foundation-management-liability-co/ Thu, 11 Mar 2021 14:03:18 +0000 https://lukinski.de/gmbh-co-kg-foundation-management-liability-co/ GmbH & Co KG – The GmbH & Co KG is a German legal form which combines the corporate legal form of the limited partnership (KG) with a limited liability company (GmbH). Thus, the greatest advantages of both legal forms – the separation between general partner & capital provider typical for the KG plus the limitation of liability of the GmbH – intertwine and enable an innovative, new form of organization for start-ups. Learn everything important about it here! In addition, you will find all German company types and legal forms, as well as tips for founding a company, including the special case of real estate GmbH, family foundation & Co.

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:

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:

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.

Tip. All taxes for companies in one list:

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.

Company types in detail:

]]> Two-person limited liability company – formation, equality & protection https://lukinski.com/two-person-limited-liability-company-formation-equality-protection/ Mon, 08 Mar 2021 15:39:34 +0000 https://lukinski.de/two-person-limited-liability-company-formation-equality-protection/ Two-person GmbH – The GmbH model for founding duos! By appointing new shareholders or leaving existing shareholders, the GmbH model you choose can easily change. Whether it is a one-person company, a two-person GmbH or even a company that operates without any shareholders at all… In either case, there are specifics you should be aware of as they deviate from the norm of the traditional limited company. Here you can find all legal forms and here, you can go back to the overview GmbH.

Two-person limited liability company – corporation for 2 persons

If two shareholders jointly establish a GmbH with a 50:50 shareholding, they form an equal entrepreneurial partnership, a so-called two-person GmbH – more rarely also called a two-man GmbH or two-man GmbH. In this case no partner can act against the will of the other, since both opinions are weighted to 50 per cent in each case. This results in some legal peculiarities. In practice, such a partnership-based equality often only works as long as both shareholders are of a similar opinion or one can be convinced by the arguments of the other.

Other GmbH models with special features:

Emergence of founding duos – competencies, qualifications, succession & co.

In the case of a two-person GmbH, both partners each hold 50 percent of the GmbH shares, each possess 50 percent of the voting rights and each may claim 50 percent of the distributed profits of their company. Such an arrangement is particularly suitable if the two partners complement each other in terms of their competences, as is the case, for example, with a partnership between a person with a commercial education and a technically qualified person – an IT specialist, engineer, technician…. – is the case.

In another scenario, the sole shareholder of a one-person GmbH may decide to bring another person with complementary qualifications into the company. This occurs in particular when training an external successor or transferring the business to one’s own children.

Equality & protection: self-contraction, individual liability & joint representation

Equal status of the two partners of a two-man GmbH means that they have equal status with each other in legal, tax and social security terms. In addition, in many cases the entrepreneurial partners agree on an individual power of representation in the external relationship of the GmbH and often also on an exemption from the prohibition of self-contracting. As with the sole shareholder of a single-member company, they are otherwise prohibited by the German Civil Code, section 181, from concluding contracts with themselves as natural persons. Accordingly, if the GmbH uses a property, it may only lease it to one of the shareholders if he is expressly authorised to engage in self-dealing.

Excerpt from the law -$ 181 BGB:

A representative may not, unless otherwise permitted, enter into a legal transaction in the name of the represented person with himself in his own name or as the representative of a third party, unless the legal transaction consists exclusively in the fulfilment of a liability.

In order to avoid that your co-partner alone makes decisions with which you do not agree at all and for which you also do not want to be liable, it is also advisable to stipulate an individual liability in the partnership agreement if one of you acts without agreement. In this way, despite equality and equal participation, each shareholder bears the risk for solo decisions made by him. Alternatively, the freedom to make decisions can also be regulated by an agreement on joint representation, which of course must also be legally binding in the shareholders’ agreement, or a neutral, capable person is appointed as an external advisor.

Establish a GmbH: Legal form and alternatives

  1. No-person GmbH: inheritance, gift, termination
  2. One-person GmbH: Solo founder
  3. Limited liability company (GmbH)
  4. Special case: Real estate GmbH
  5. Legal forms: List

No-person GmbH: inheritance, gift, termination

No-Person GmbH – The model for a GmbH without shareholders! By appointing new shareholders or leaving existing shareholders, the limited company model you choose can easily change. Whether it’s a one-person company, a two-person limited company or even a company that operates without shareholders at all…. In each case, there are specifics that you should be aware of as they deviate from the norm of the traditional limited liability company.

One-person GmbH: Solo founder

One-person GmbH – The GmbH model for solo founders! By appointing new shareholders or leaving existing shareholders, the GmbH model you choose can easily change. Whether it’s a one-person company, a two-person limited company or even a company that operates without any shareholders at all…. In each case, there are special features that you should be aware of, as they deviate from the norm of the conventional limited liability company.

Limited liability company (GmbH)

Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH) – The limited liability company is a German legal form that is founded by at least one person and managed by at least one shareholder. As the name already indicates, this corporate legal form is characterized by a limitation of liability for its shareholder(s).

Special case: Real estate GmbH

Immobilien GmbH / Vermögensverwaltende GmbH / Immobiliengesellschaft – In this article you will learn the basics about real estate companies. Who would think of founding a limited liability company when buying a house or a condominium? Admittedly, this makes no sense for owner-occupation, but it does for renting.

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

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.

]]> Limitation of liability for AG bodies (internal relationship) https://lukinski.com/limitation-of-liability-for-ag-bodies-internal-relationship/ Mon, 08 Mar 2021 15:24:26 +0000 https://lukinski.de/limitation-of-liability-for-ag-bodies-internal-relationship/ Limitation of liability for AG executive bodies – In the event of a loss, the stock corporation as a legal entity under private law is, to a certain extent, subject to a limitation of liability, because the liability – apart from a few rare exceptions – exclusively burdens the business assets of the company. In the external relationship, therefore, only the share capital is liable for any losses. In the internal relationship, on the other hand, the liability claim can vary depending on the executive body of the AG. Here you can find all legal forms and here you can go back to the overview AG.

Limitation of liability for AG bodies

In principle, it is possible to arrange for a limitation of the liability of an AG in the internal relationship. Such a limitation is, for example, the requirement of approval by shareholders, according to which particularly risky projects are to be supported and approved by the shareholders. This spreads the liability risk and relieves members of the management board plus members of the supervisory board.

Alternatively, agreements can be made regarding the limitation of claims. However, the protection of creditors must not be violated by law, which is why this form of limitation of liability does not offer comprehensive legal certainty. In all simplicity, however, it is also possible for shareholders to express a waiver of the liability of the supervisory board and management board in a shareholders’ resolution. However, such a resolution may not be adopted before the end of the third year after the liability claim has arisen.

Limitation of liability in the internal relationship of the AG:

  • Shareholder approval
  • Covenant
  • Waiver of liability by resolution

Liability of the Management Board – breaches of the duty of care

As the management body, the management board takes over the operational business and enjoys a great deal of freedom with regard to the management of the company. This requires a high degree of trust on the part of the other executive bodies, which is why the management board is subject to a duty of care as a basis for liability: After all, it works with the shareholders’ deposits and not with its own finances! Accordingly, the management board is liable for breaches of the duty of care imposed on it and for criminal offences. In the event of liability claims, the management board is held liable by the supervisory board.

Liability of the Supervisory Board – Breaches of Principle & Principle of Confidence

The supervisory board is also subject to a duty of care – more precisely: the principle of careful and orderly management – and must act in accordance with the principle of trust vis-à-vis the management board. It is liable to the stock corporation and its shareholders for damages caused by financial losses, but also to third parties insofar as they are affected by a culpable act on the part of the supervisory board.

Liability of shareholders – individual liability & pass-through liability

Each shareholder is individually liable to the extent of the shares he holds. Creditors can therefore in principle not encumber his private assets should the value of his contributions be insufficient. The only exception to this rule is the so-called “pass-through liability”, in which the strict separation between business and private assets can be waived under certain circumstances. An assessment in this regard must be determined by the respective competent court.

Establish a GmbH: Legal form and alternatives

  1. Limited liability company (GmbH)
  2. Special case: Real estate GmbH
  3. Legal forms: List

Limited liability company (GmbH)

Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH) – The limited liability company is a German legal form that is founded by at least one person and managed by at least one shareholder. As the name already indicates, this corporate legal form is characterized by a limitation of liability for its shareholder(s).

Special case: Real estate GmbH

Immobilien GmbH / Vermögensverwaltende GmbH / Immobiliengesellschaft – In this article you will learn the basics about real estate companies. Who would think of founding a limited liability company when buying a house or a condominium? Admittedly, this makes no sense for owner-occupation, but it does for renting.

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

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.

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