Limited partner: partner in the limited partnership (KG)
In order to set up a limited partnership (KG), at least one general partner and one limited partner are required. This is regulated by the German Commercial Code (HGB). This means that the establishment of a limited partnership requires two different forms of partnership.
The reason is that the limited partner who has a stake in the company is only liable to the company’s creditors up to the amount of the capital contribution he has made, in contrast to the general partner, who is also liable with his private assets and business contribution. It is precisely here that there is the serious difference between the two forms of partnership in the KG. This is also the biggest difference to a related form of company, the OHG. In the case of the latter, all partners are fully liable, even with private assets.
According to besteducationschools.com, the limited partner of the KG, on the other hand, functions, in addition to partial liability, primarily as a capital provider for the partnership . The capital contribution that he makes increases the equity of the KG and is entered in the commercial register. The terms limited partner contribution or liability contribution are also used as a synonym for this capital contribution. The amount to which the liability is limited must be precisely entered in the articles of association and entered in the commercial register. If these services are not provided, the shareholder concerned is treated like a general partner, so that he is fully liable.
Sonderform GmbH & Co. KG
The GmbH & Co. KG is a special form of the KG. Here, the general partners do not outsource personal liability to a limited partner, but transfer this liability to a company, the GmbH. With its limitation of liability, this serves as a kind of prisoner with a double bottom. The general partners are not liable with their private assets, nor are the GmbH, as they, as a legal person, have no private assets. As a rule, the current assets of the GmbH are invested. This construction is also regulated in the HGB, the commercial code.
The limited partner: He is just a financier for the company
As a rule, the limited partner only acts as the financier of the limited partnership, which means that he is not intended to actively participate in business dealings. Due to the possibility of being able to participate in a partnership without the otherwise associated risks, the KG has taken on an important role in the German corporate landscape. The limited partnerships not only play an important role in the classic production and service sector, but often also serve as capital collection points. For example, aircraft, ship and real estate participation models are structured in the legal form of a KG. In this case, the investor benefits on the one hand from the limited liability (due to his contribution) and on the other that the loss allocation, which is so important for this type of investment, is made directly to the limited partner. In this form of KG, there are often a large number of limited partners who neither know each other nor will ever come into contact with each other.
When does the limited partner have unlimited liability?
The liability of the limited partners is precisely regulated by law. In contrast to a general partner (full partner), a limited partner (partial partner) is only liable for losses with his or her contribution. So he is not liable with his private assets. This limitation of liability protects the private assets of the limited partner only if the limited partner has actually made his contribution. If he has not done so, he is also liable with his private assets for the debts of his company, up to a maximum of the amount of his contribution. Even if the contribution is only partially paid, there is personal liability with regard to the amount still outstanding.
In terms of liability, he is only fully protected when he has made his contribution in the amount shown in the commercial register. Only in this case is it impossible for him to be responsible for the company’s liabilities.
When are limited partners and general partners liable?
Before the entry in the commercial register, the following applies: The limited partner is liable like a general partner (i.e. unlimited), provided that he has agreed that the business can be commenced before the entry. This regulation serves to protect the creditors. Otherwise the business partners of the KG would not be able to recognize and know that the future limited partner should only have limited liability.
This point is often overlooked when establishing the popular legal form of a GmbH & Co. KG . The shareholders often wrongly assume that their economic commitment does not go beyond the contribution made by the contribution. It is not recognized that a limited partner can also be affected by external liability. This is particularly true before the company is entered in the commercial register if the contractual partner did not know that a partner is only a (limited) partner.
The limited partner is entered in the commercial register
If a limited partnership is founded, each individual limited partner is entered in the commercial register with the name and the amount of his contribution. But here, as with the general partnership, the names of the limited partners are not published. Creditors who want to know what the names of the individual limited partners are, must find out more in the commercial register. However, under no circumstances would a creditor have access to the private assets of the limited partners.
When the company is founded or when joining the KG, every limited partner must make a contribution to the company’s capital. As far as the deposit to be made is concerned, a distinction must be made here between the so-called liability deposit and the mandatory deposit.
- The liability deposit: This is the deposit that is liable to both creditors for the obligations of the KG
- The compulsory contribution: This is the amount that has been agreed between the partners of the KG and is written down in the articles of association.
However, these two deposits usually match. However, it may well happen that the shareholders agree to a higher contribution than that which is entered in the commercial register. If this occurs, the mandatory deposit exceeds the liability deposit. What is the compulsory contribution is, the balance sheet or the can of Association be removed.
The limited partner is not subject to any non-compete obligation
In contrast to the general partner, the limited partner is not subject to the non-competition clause. This means that a limited partner can participate in several companies that all have the same business purpose. Even if these are in direct competition, this does not pose a problem. Because the limited partner has no influence on the operational business of the moving companies. Nevertheless, the limited partner is subject to a strict duty of loyalty to the company. This means that he must be liable to society for any damage incurred, should he, for example, divulge business secrets to the competition. However, it may also be that different provisions are agreed in the partnership agreement, such as a general non-competition clause for all limited partners.
The general partner is responsible for managing the company
As far as the management of the limited partnership is concerned, this is the sole responsibility of the general partner. In most cases, the limited partner is excluded from active participation in business activities. In addition, the limited partner is not allowed to contradict the general partner in his decisions about day-to-day management. The limited partner may only file an objection when it comes to undertaking “extraordinary transactions”. This includes, for example, opening branches, buying land at auction or transferring business assets to a third party. The limited partner is also not entitled to represent the company externally; this right can only be granted to him through a power of attorney for certain legal transactions.
However, according to the German Commercial Code, the limited partner has control rights, which are very limited, as is the case with the control rights of the shareholders for other partnerships.
The rights of the limited partner
- To check the accuracy of the annual financial statements by inspecting the business books.
- He can request written notification of the annual financial statements.
The control rights can even be extended by court order, but there must be a demonstrable reason for this. In addition, it is also possible to expand or even restrict the control rights in the partnership agreement. As far as the distribution of the profit or loss of the KG is concerned, this is regulated in great detail in the partnership agreement.