General Partner Explanations

General partner: a personally liable partner of a KG (limited partnership)

The term complementary is derived from Latin and is made up of two words: “plenus” and “complere” or “complementum”. Translated into German, this means something like “full” and “complement” or “fulfillment”. The term general partner is primarily used in relation to certain legal forms – this is how this term in German-speaking countries describes the partner of a limited partnership with personal liability.

The general partner decides in the limited partnership (KG)

In contrast to the other legal forms such as sole proprietorship, silent partnership, BGB-Gesellschaft or OHG (open trading company), liability is limited in a KG – at least for the limited partners in contrast to the general partner, because he has unlimited liability, but he has in the Companies also have freedom of choice.

In a limited partnership, only the personally liable partner or general partner has to be fully responsible for all debts, both with business and private assets. A general partner is completely sufficient for the management, but several people can act as a management body, who then represent the company externally. Both a legal entity and a natural person can be a general partner. The legal form of GmbH & Co. KG is also widespread in Germany . At this point, the GmbH takes on the role of general partner.

The general partner and liability

If a KG (limited partnership) is to be founded, at least one limited partner and one general partner are required. The question is: what is the difference between a general partner and a limited partner?

According to DICTIONARYFORALL, the main difference between the two forms of shareholder is the individual liability that the company has towards its creditors. The limited partner is only partially liable for the company’s liabilities, whereas the general partner is fully liable and that, in addition to his deposits, also with his private assets. This means that he is the personally liable partner of the limited partnership.

Of course, not only natural but also legal persons can appear. The general partner acts as managing director in the company due to his high level of personal involvement and also presents this to the outside world. However, if necessary, another contractual arrangement can be found in which the limited partner is then granted certain rights.

In comparison to the general partner, a limited partner is only liable to the creditors up to a certain amount of assets . This capital contribution increases the equity of the KG and this is also registered in the commercial register. Due to the incomplete liability, a limited partner is automatically legally excluded from the management. He only has the right to object when it comes to business of an exceptional nature. However, it is possible to contractually appoint a limited partner as an authorized signatory or authorized representative. In most cases, however, a limited partner in a limited partnership only acts as a pure financier.

In a nutshell:

  • The general partner (s) manage the business, while the limited partner (s) are excluded from the management. (§ 164 HGB)
  • In addition, the general partner / general partners represent the KG externally, while the limited partner (s) are excluded from the power of representation. (§ 170 HGB)

At least two partners are required

A limited partnership must always consist of at least two partners: a fully liable partner (general partner) and a partially liable partner (limited partner). With regard to the drafting of the articles of association, the partners are not bound by any fixed formal requirements – unless there is a transfer of property in connection with the establishment of a KG. This case often occurs when the general partner lacks cash and he brings in his contribution in the form of building land, a property, his labor or his know-how.

But such a situation leads to the fact that the reputation of the KG at the bank that grants a loan suffers. In the event that a KG does not have enough equity capital and instead only has material assets that are difficult to assess and realize, the credit limit at the bank drops. Because the lending bank must always assume that in the event of bankruptcy, they can only draw the limited partner’s share of the capital from the company.

The KG is particularly suitable for founding or transferring a family business. These transactions are not uncommon, especially in the young and very dynamically growing IT industry. In this case, the company founder, who has fallen for this branch, basically only brings his knowledge with him. The spouse, who is permanently employed, also invests in the newly founded KG as well as the adult son, a brother, an uncle, a sister and two good acquaintances. So that further bank loans are not excluded right from the start, these people do not make their deposits available as loans, but as equity. The KG is ideal for this.

How many general partners and limited partners are there in a KG?

The legal form of the limited partnership (KG) is regulated in the HGB in §§ 161 to 177a.

The KG is, like the OHG, a partnership . In contrast to the OHG, however, the KG has two types of partners: the fully liable general partner and the limited partner with limited liability.

One or a few general partners as well as several or many limited partners are common in the KG. However, the shareholder can also be a corporation, such as a GmbH, AG or another trading company, as well as a GbR .

General Partner