The partnership limited by shares is known as “Commercial partnership limited by shares”. This company is a limited partnership that has its own legal personality. At least one partner or company is fully liable for the liabilities of this legal personality – the general partner – while the liability risk of the other partners – limited partners – is limited to their contribution to the share capital. The KGaA is a corporation, whereby the regulations of the KG are used for the legal status of the general partners among themselves and also for the rights of the limited partners.
When it comes to the establishment of a KGaA and its administration, the law of the stock corporation (AG) is applied. As a legal person, the KGaA can only participate in legal transactions through its organs and, unlike the AG, the KGaA does not have a board of directors. Rather, the tasks and management as well as the representation of the company are performed by the personally liable partner, with monitoring being carried out by the supervisory board.
The advantages and disadvantages of a KGaA
What are the advantages of a KGaA:
- Raising capital is easier in contrast to a simple KG.
- Despite the high capital contributions, the personal ties of the shareholders to the company are preserved
- In contrast to the AG, the management board of the KGaA has a strong position. For example, it is possible for family members of a family business in the form of a KGaA to retain control even if large parts of the share capital have been sold as shares.
- The partnership limited by shares is very resistant to takeovers.
The establishment of a KGaA has these disadvantages:
- In the case of a partnership limited by shares, the general partner may have to be personally liable for the company with a high capital contribution. This disadvantage is weakened by the possibility of using a GmbH or AG as a general partner
- The limited partnership shareholders have little influence and little decision-making power over the staff and the actions of the management.
- A high share capital is required for the establishment of the KGaA.
- If there is a legal person as a general partner, it is possible to develop a complex corporate structure that is difficult to understand from the outside
Establish a partnership limited by shares
The KGaa – the limited partnership based on shares – is a legal form for companies in which the elements of the stock corporation (AG) are to be combined with those of the limited partnership (KG). In Germany, the legal form of the KGaA is not very widespread and, if it is used, is often used by family businesses to establish a GmbH & Co. KGaA. Even if the KGaA has the characteristics of a partnership, it is still a corporation.
If a limited partnership is founded on shares, then, as in the limited partnership, there are general partners who are personally liable and limited partners who are only liable with their contribution. However, the latter are called limited partners in the KGaA, who are accordingly liable with their shares. As with the AG, the share capital must be at least 50,000 euros when it is founded.
When the company is founded, there must be at least one partner who is then personally liable as a general partner. As far as the number of limited partnership shareholders is concerned, this is arbitrary. Only when the articles of association have been notarized is the establishment of the limited partnership on action legally binding. The articles of association regulate, among other things, all details on the allocation of shares and their distribution among the shareholders. Furthermore, the KGaA must also be entered in the commercial register and the name of the company must contain the addition KGaA.
The management of the KGaA
The partnership limited by shares consists of a management board, a supervisory board and the general meeting, just like the AG. In the case of a partnership limited by shares, however, the management board consists of the personally liable partners, i.e. the general partners. These take over the management of the KGaA. The shareholders of the limited partnership form the general meeting and this has only a very limited influence on the management of the partnership limited by shares.
As far as the KGaA’s supervisory board is concerned, it is similar to the structure of the AG and consists of at least three members. The supervisory board represents the limited partners vis-à-vis the general partners.
The GmbH & Co. KGaA: a little popular legal form.
Due to the personal liability of the general partners, the partnership limited by shares was a legal form that was not very popular. It has been possible to expand the KGaA since 1997. From this point on it is possible to use a GmbH as a personally liable general partner. In this train the GmbH & Co. KGaA was created. In this case, no personal person is liable, but the GmbH as a legal entity whose liability is limited to the contribution.
If a GmbH is used as a general partner in the KGaA, then the company name must have the addition GmbH & Co. KGaA. Another form is the AG & Co. KGaA, which is a partnership limited by shares, where a legal person is registered as a general partner – in this case an AG.