GmbH & Co. KG

The GmbH & Co. KG, also known as Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft, is a hybrid of the two legal forms GmbH and KG, although as a special form of KG it is classified as a partnership. The special feature here is that the personally liable partner of the KG, i.e. the general partner, is replaced by a GmbH. This means that liability can also be limited for the general partner.

Liability

The GmbH & Co. KG thus consists of a general partner, which is a GmbH, and at least one other natural person, the limited partner. The liability of the general partner, who would normally have unlimited liability, is therefore now limited to the company assets of the GmbH and for the respective partners to their share capital contribution. The liability of the limited partners is the same as for the KG itself and is limited to the respective limited partner's contribution.

Formation of a GmbH & Co. KG

When founding a GmbH & Co. KG, two different companies must be founded. The first is the formation of a GmbH. We have summarized exactly how this works for you here.

The formation of a KG follows on from the formation of a GmbH. The personally liable partner (the general partner) is the GmbH and the non-personally liable partner (the limited partner) is a natural person.

Of course, the formation costs must also take into account that this involves the formation of two different legal forms, which means that there are formation costs for the formation of a GmbH as well as the costs for the formation of a KG. The total formation costs therefore amount to approximately €1,200 - €2,200.

Management & representation

The management of the GmbH & Co. KG is managed by the general partner, as is the case with the KG. As the general partner in this case is a GmbH, the management is the responsibility of the GmbH. Accordingly, the managing directors of the GmbH are automatically also managing directors of the GmbH & Co. KG. Another special feature here is that the managing directors of a GmbH do not necessarily have to be shareholders, so the management can also be provided by third parties.

Taxation of the GmbH & Co. KG

With the GmbH & Co. KG is subject to different taxes. On the one hand, the company as such must pay VAT (unless it is exempt) and trade tax. Corporation tax does not apply, as the GmbH & Co. KG is a partnership. The shareholders of the GmbH & Co. KG are now taxed differently. The limited partners, for example, have to pay income tax on their share of profits, while the general partner, i.e. the GmbH, has to pay corporation tax on its share of profits. In addition, if the GmbH & Co. KG has employees, there is of course also wage tax.

Advantages and disadvantages of the GmbH & Co. KG

The mixed form of the GmbH & Co. KG has the advantage of limited liability. In comparison to the KG, it is possible to limit the otherwise unlimited liability of the general partner to the company assets of the GmbH by appointing a GmbH as the general partner. This is undoubtedly the greatest advantage of this mixed legal form. In addition, a GmbH & Co. KG can easily raise additional equity by adding further limited partner contributions. Borrowing is usually more protracted and difficult.

The main disadvantage of this legal form is the additional bureaucratic work involved, as bookkeeping, annual financial statements and other administrative tasks have to be carried out for two companies. In addition, the limited creditworthiness due to being a partnership is also a significant disadvantage.

Advantages:

• Limited liability of the general partners
• Flexible procurement of equity capital through additional limited partnership contributions
• Enables management by third parties (actually not possible in partnerships)
• Possible tax savings compared to the GmbH, as no corporation tax is incurred in the GmbH & Co. KG is not subject to corporation tax

Disadvantages

• Limited creditworthiness
• Additional expense due to bookkeeping for two companies
• Managing director's remuneration can only be offset against tax within the GmbH, but not in the KG

Why is the GmbH & Co. KG a popular legal form, especially among founders?

The GmbH & Co. KG combines the advantages of both partnerships and corporations. In particular, the limited liability of the general partner is a major advantage compared to a normal limited partnership. But this legal form also has some advantages from a tax perspective. Whether a founder should opt for a GmbH& Co. Kg or a classic GmbH depends on the individual tax rates.

For example, if the individual shareholders have a very low income tax rate (below 42%), the legal form of a GmbH& Co. KG is preferable. However, if the trade tax in the municipality in which the company is based is low (less than 14%), the legal form of a GmbH is more suitable.

Other spellings

GmbH and CO KG, gmbh & co kg, cokg