Kommanditgesellschaft

Kommanditgesellschaft, often abbreviated as KG, is a form of commercial partnership used in Germany and some other German-speaking countries. It consists of at least one general partner (Komplementär), who manages the business and has unlimited personal liability, and at least one limited partner (Kommanditist), whose liability is limited to their agreed capital contribution.

In a KG the general partner or partners are responsible for day-to-day management and representation of the company. Kommanditisten usually do not participate in management; active involvement by a Kommanditist can jeopardize their limited liability in certain circumstances. The partnership agreement governs profit distribution, contribution requirements, and governance rules. The name of the company typically includes “KG” or “Kommanditgesellschaft.”

Formation and registration: A KG is created by a partnership agreement and must be registered in the commercial register (Handelsregister). The structure is flexible regarding capital contributions and profit shares, subject to the agreement between partners.

Taxation and accounting: The KG is generally treated as a transparent (pass-through) entity for income tax, with profits and losses allocated to partners in proportion to their shares and taxed at their personal or corporate rates. Trade tax applies to the business activity. If a GmbH & Co. KG is formed, the general partner is a GmbH, and corporate tax applies at the GmbH level, affecting overall tax treatment.

Advantages and drawbacks: The KG enables raising capital from limited partners while retaining management control with the general partner. It offers flexibility in profit distribution and governance. However, the general partner bears unlimited liability, and the structure can be more complex to manage and tax-optimize than other forms.

Common variants include GmbH & Co. KG, where the general partner is a limited liability company, providing broader liability protection.