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

The general partnership – OHG for short – is one of the so-called full 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 the personally liable main shareholder of an OHG appears as a limited liability company (GmbH) or if no natural persons but exclusively legal entities are liable in the company as a whole, a so-called Gesellschaft mit beschränkter Haftung & Compagnie Offene Handelsgesellschaft – in short: GmbH & Co OHG – is formed. But be careful: While the GmbH represents a legal entity by virtue of its legal form, a GmbH & Co OHG does not have its own legal personality and is always considered a partnership!

Other typical partnerships:

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

Foundation & Company Name

The formation of a GmbH & Co OHG requires at least two persons, with at least one of the two appearing in the form of a GmbH. A common scenario sees both founding members as limited liability companies that join together to form a GmbH & Co OHG for a joint project. In any case, all legal entities of the company act as general partners.

If you are starting from scratch, you first need to set up a limited liability company. To do this, you need the following in a nutshell: a natural or legal person as the founder of the company; a tax identification number (tax ID); the registration confirmation 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? Then the next step is to set up a limited liability company (Gesellschaft mit beschränkter Haftung & Compagnie Offene Handelsgesellschaft). Since the GmbH & Co OHG is a separate company, you again need a tax ID and must register the company with the trade office. Since one of the partners is a GmbH, the GmbHG also requires a minimum capital of 25,000 euros, in contrast to the conventional OHG. 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 OHG”.

Management & power of representation

Insofar as no other regulation has been established in the shareholders’ agreement, each shareholder of a GmbH & Co OHG has the power of representation in the external relationship. It is possible to agree on a joint representation within the articles of association – and to enter this in the commercial register – or to withdraw the power of representation from individual shareholders. However, this restriction only applies in the internal relationship and is ineffective vis-à-vis third parties, since they cannot view the representation authority of the individual partners.

The same applies to the power to manage: In principle, all shareholders may – and should – act in a managing capacity. Deviations from the legal regulations in the German Commercial Code (HGB) are possible, but only become effective in the external relationship if a corresponding note has been entered in the commercial register and the information is thus accessible to the public. In the absence of a corresponding entry in the commercial register, a transaction is effective even if the shareholder has been excluded from management in the internal relationship.

Excerpt from the law – § 114 HGB:

(1) All shareholders are entitled and obliged to manage the business of the Company.
(2) If the management is assigned to one or more shareholders in the partnership agreement, the other shareholders shall be excluded from the management.

Business letters – offers, order forms, invoices & Co.

In business transactions, the GmbH & Co OHG is bound to a certain presentation. Thus on all business letters – as with the conventional OHG also – information must be given to the legal form addition, the company seat, the responsible register court as well as the commercial register number. Since it concerns with the partners legal entities, a GmbH & CO OHG must indicate additionally the companies of the partners together with legal form addition and further their commercial register number, the responsible register court and the registered office of the companies. The full names of all managing directors and members of the management board – as well as the first name and surname of the chairman of the supervisory board, if applicable – must also be listed on all business letters.

Business correspondence includes all written communications from a company that are specifically adressed to one or more recipients, such as order forms, solicited offers, invoices and payment reminders or dunning letters. General promotional literature and direct mail, on the other hand, are not business letters in form and accordingly do not have to contain any of the above information.

Profit distribution, loss sharing & liability

With regard to the distribution of profits and the sharing of losses, either the statutory principles come into play or corresponding provisions have been anchored in the Articles of Association. Profits are generally distributed “per capita” at 4 percent of the capital share plus additional profit. Loss sharing is also carried out “according to heads”.

A limited liability company & Compagnie General partnership is liable as a company with its business assets. In addition, the individual partners – as with the general partnership – are directly, unlimitedly and jointly and severally liable, i.e.: creditors can not only directly attack the partners independently of the causer, but in case of doubt also raise liability claims beyond the company assets, namely on the private assets of the individual partners.

If, on the other hand, shareholders of a GmbH & Co OHG appear in the form of a limited liability company (GmbH), they are liable as legal entities only to the extent of the GmbH’s capital contribution. The limitation of liability as a legal entity is one of the advantageous features of this legal form of enterprise.

Tax liability of GmbH & Co OHG shareholders – GewSt, USt & ESt / KSt

Like all other legal forms of companies, the Gesellschaft mit beschränkter Haftung & Compagnie Offene Handelsgesellschaft is generally liable to pay taxes. For commercial enterprises with an annual income of more than 24,500 euros, the trade tax obligation applies and, in principle, for all companies, the turnover tax obligation applies, insofar as the GmbH & Co OHG does not only carry out tax-exempt sales.

In addition, partnerships are generally subject to the transparency principle, which states that due to the income tax liability of the individual partners, the payment of income tax for the partnership as a whole is superfluous. Distributed profits are also taxed in the partners’ income tax return as income from business operations. However, this is based on the assumption of natural persons. Income from profits for legal entities, on the other hand, is subject to corporate income tax.

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

Taxes for businesses, all in one list:

• Taxes in Germany

GmbH & Co OHG – For whom is it worthwhile?

A significant advantage of a GmbH & Co OHG is undoubtedly the limitation of liability to the business assets of the GmbH as a personally liable partner. This means that company founders can quickly and easily get off the ground in a team on an equal footing and do not directly risk the existence of their company if an investment turns out to be disadvantageous. In contrast to the GmbH & Co KG, the equal cooperation of the partners is particularly important here and strong hierarchies corresponding to the limited partnership are avoided.

So who is the GmbH & Co OHG 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 OHG is also conceivable as an asset-managing company and for family businesses.

Alternatives to the GmbH & Co OHG: 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

Registered traders (e. K.) – foundation, financing, liability & Co.

With regard to the legal form of sole proprietorships, a distinction is made between freelancers, small traders and registered merchants, with the latter being the only legal form variant that must be registered in the commercial register. However, the obligation to register only applies to merchants who are actively engaged in commercial trading – the so-called “gewerbetreibende Kaufleute”. They are also referred to as “actual merchants” and are generally assessed according to the German Commercial Code (HGB).

If you are a sole trader and own a business but do not trade in it, you are considered an “optional trader” and have the choice of whether or not to have your business registered in the commercial register. If you decide not to register, you are subject to the German Civil Code (BGB) as normal. Typical “Kannkaufleute” are, for example, small traders and freelancers.

You can find out more about the individual legal forms here:

• Sole proprietorship (EU)

Foundation & Company Name

In comparison to the other two legal forms, the strictest requirements apply to the establishment of a company for commercial traders: In addition to applying for a tax identification number (tax ID) at your tax office and registering your company at the trade office, you are also required to have an entry made in the commercial register by a notary. At a cost of around 200 to 300 euros, you can thus secure the title of actual businessman or businesswoman. Only after completing this public registration do you have your own company in the legal sense.

You are free to choose the type of company name in many respects, but it must provide information about your commercial status and also be distinguishable from the companies of other traders. You can form a personal company, which describes you as the owner in more detail, or a material company, which reveals more about your business purpose and the associated services, or even a fancy company… It is obligatory that you add the gender-neutral suffix “e. K.” – or alternatively “e. Kfr.” for registered businesswomen or “e. Kfm.” for registered businessmen – to the contingent liabilities of your sole proprietorship. In addition, you can consider registering your company and/or your business name as a trademark to protect your name or your company.

Financing & profit distribution

No minimum capital is required to set up a business as a registered trader. Of course, it is still advisable to have some reserves and to draw up a financing plan in order to be financially prepared in case of unpleasant surprises. In addition, you will incur some costs for the start-up alone, before you have even begun to make a profit with your company. The positive aspect: Your profits are 100 percent yours and you don’t have to share them with anyone!

Liability, accounting & taxes for registered traders

As a sole trader, you have unlimited liability, i.e. with your business assets as well as with your personal assets. By registering, you are obliged to keep accounts and regularly prepare balance sheets and inventories for your business. However, you are exempt from the obligation to publish your business figures and books. Unless you achieve an annual turnover of more than 130 million euros…

A sole trader is always a natural person at the same time. Consequently, registered traders are, of course, first and foremost subject to income tax. In addition, according to tax law, further levies are provided for turnover tax and trade tax.

• Income tax (ESt)
• Value added tax (VAT)
• Trade tax (GewSt)

Registered trader (e. K.) – For whom is it worthwhile?

Do you love the idea of being your own boss and not having to coordinate decisions with other shareholders or managing directors? Then the legal form of a trader could be just right for you! Uncomplicated formation process, zero minimum capital required and no partners, co-founders or shareholder teams to nag you or interfere…. You take the risk and you reap the rewards – 100%.

Why should you register as a merchant? The legal form of a registered businessman (e. Kfm.) or registered businesswoman (e. Kfr.) is worthwhile for those who are prepared to take manageable risks in order to start their own business quickly and easily. You do not need enormous financial reserves and also pay relatively little tax on your profits. A sole proprietorship is therefore ideally suited for young entrepreneurs who not only dream of self-realization, but also want to take their lives into their own hands.

Alternatives to the e.K.: 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
• 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

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:

• One-person limited liability company
• No-Person-GmbH

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.

• No-Person-GmbH

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.

• One-person 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).

• Limited liability company (GmbH)

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.

• Real estate company

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.

• Legal forms: List

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).

• Limited liability company (GmbH)

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.

• Real estate company

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.

• Legal forms: List

Trade tax (GewSt) – tax for commercial enterprises

As a rule, trade tax – GewSt for short – is levied on the income of every German commercial enterprise and is therefore based on the objective earning power of the respective company. Since limited liability companies, stock corporations and the like are always regarded as commercial enterprises by virtue of their legal form, trade tax is mandatory for corporations – regardless of the composition of the founding team.

Other taxes for businesses:

• Corporate income tax (KSt)
• Income tax (ESt)
• Capital gains tax (KapESt)
• Value added tax (VAT)

If you want to learn more specifically about taxes for real estate companies, you can learn more here:

• Save taxes on real estate

Trade tax in detail – collection, levy & allowances

As an object or property tax, trade tax is by its nature one of the real taxes. Effectively, it belongs to the municipal taxes and contributes significantly to their financial system. The municipalities are entitled to levy the tax and set the tax rate valid for one year by resolution. Trade tax is payable quarterly in equal instalments on 15 February, 15 May, 15 August and 15 November. As of the 2008 tax period, these taxes are no longer deductible as a business expense, but can be offset as a lump sum against the income tax payable.

Dates for advance payment of business tax:

• February 15
• May 15
• August 15
• November 15

According to the Trade Tax Act (GewStG), natural persons and partnerships may offset their tax burden with an exemption amount – currently 24,500 euros; legal entities may reduce their tax burden by a reduced exemption amount – currently 3,900 euros.

Which companies are subject to GewSt?

Most commercial enterprises are charged with trade tax. Since all corporations are in principle considered to be commercial enterprises, this type of tax is particularly relevant for the limited liability company (GmbH) and the stock corporation (AG).

In addition, the general partnership (OHG) and the civil law partnership (GbR) are usually subject to trade tax – at least insofar as their annual income exceeds 24,500 euros. However, a GbR among freelancers remains exempt from trade tax. The same applies to the freelancers themselves: A sole proprietorship only has to pay trade tax levies if the company founder is a small trader or a registered merchant (e. Kfm.).

Overview of company law forms

You can find more information about the different legal forms under the following links. Starting with the sole proprietorship and the registered traders… to the various partnerships and corporations… to other companies such as the family foundation – all the essential aspects of formation, liability, tax burden and more explained simply and understandably! First of all, an overview of the individual legal forms of companies:

• Sole proprietorship (EU)
  • Freelancer
  • Small business
  • Registered traders (e. K.)
• Silent partnerships
• BGB companies / civil law partnership (GbR)
• Partnerships
  • Limited partnership (KG)
  • General partnership (OHG)
  • Limited Liability Company and Company Limited Partnership(GmbH & Co KG)
  • Limited Liability Company and Compagnie General Partnership(GmbH & Co OHG)
• Corporations
  • Stock corporation (AG)
    • AG & Co KGaA
  • Partnership limited by shares (KGaA)
  • Limited liability company (GmbH)
    • GmbH & Co KGaA
  • Entrepreneurial company / UG (limited liability)
  • European Company / Societas Europaea (SE)
    • SE & Co KGaA
• Other companies
  • Foundations / Family Foundations
  • Insurances
  • Partnerships
  • Registered associations (e. V.)
  • Registered cooperatives (e. G.)

Taxes in Germany: List

Corporation tax (KSt), income tax (ESt), capital gains tax (KapESt), turnover tax (USt), trade tax (GewSt) – who pays what? In this overview of the different types of taxes / tax forms in Germany, you will find relevant taxes for you as an individual and for your business, depending on which legal form you have chosen. Also, after the tax list: How does the tax cycle work around month-end closing, year-end closing and balance sheet? A little insight for those starting their first company. What taxes are there? Simple explanations, definitions, tax optimization, an insight into taxes.

• Taxes: List