Definitions of Partnership


The term partnership describes the amalgamation of at least two natural persons within the framework of a company in order to achieve a common, defined goal.

  • In a partnership, the partners do not necessarily contribute a share to the share capital, but are liable to an unlimited extent with their personal assets.
  • The distribution of profit and loss is generally uniform among all shareholders, but a different allocation can be made in the partnership agreement.
  • A partnership is ideal for communities of heirs, married couples who have large estates or real estate, or larger purchases of goods that are not possible for one person alone, but financing is not an option.

What is a partnership?

The generic term partnerships include:

  • Partnership
  • Civil Law Society (GbR)
  • Open trading company (OHG)
  • Limited partnership (KG)

A clear distinction must be made here from the silent society, since here a union only exists internally, but is not visible to the outside.

The legal basis of the partnership

In contrast to the corporation, the shareholders do not necessarily contribute a share to the share capital, but are liable to an unlimited extent with their personal assets. As a result, the decision-making is not based on the level of participation in a vote, but on the principle of “one person, one vote”.

The basis for the partnership is the partnership agreement, which, however, may well impose the basic features of a corporation in its design for the partnership. There is no prescribed form for the partnership agreement. However, notarial certification is required if real estate is brought into the company. While a partnership within the framework of a civil law partnership is also possible for liberal professions, the law requires a general partnership that the operation of a commercial trade must be the subject of the business.

The distribution of profits in the partnership

Paragraphs 722 et seq. Of the German Civil Code regulate that profit and loss are distributed uniformly to all shareholders. With this, the legislature assumes that all those involved in the partnership are equally committed to achieving the business objective. Deviating from the legal regulation, however, a different assignment can be made in the partnership agreement. This circumstance can take effect if the shareholders hold different shares in the contributed company capital.

The tax treatment of the partnership

Depending on the type of tax, partnerships are seen as a unit or broken down to the respective partner.

The sales tax

In the context of sales tax, the partnership is seen as an economic unit. Section 2 of the Sales Tax Act defines a partnership as an independent entrepreneur, while the shareholders themselves only remain “third parties”.

The income tax

The partnership does not play a role for income tax. Profit or loss is assigned to each shareholder in line with their participation quota and must be stated in the personal tax return. The same applies to inheritance or gift tax.

The business tax

If the partnership exercises a trade, trade tax may apply. The perspective of the partnership is somewhat more critical here. On the one hand, it is a legal entity subject to trade tax. On the other hand, the trade tax is determined from the income of the respective partner.

Retention of profits

Since 2009, partnerships have also had the option of applying a lower tax rate to profits that have not been withdrawn, similar to corporations.

Purpose of a partnership

In contrast to a corporation, the partnership entails the risk for the partners that they have unlimited liability with all of their assets. The question therefore arises when a partnership makes sense.

  • For communities of heirs, a GbR offers itself as an administrative organ of the inheritance.
  • Married couples who have large property or real estate can also outsource this to a GbR in order to create clear relationships in advance with regard to the assets in the event of a separation.
  • Open trading companies are ideal when larger purchases of goods have to be made that are not possible for one person alone, but financing is not an option.
  • In the context of a GmbH & Co KG, the liability risk of the partners is limited to the liable equity of the GmbH as general partner. The establishment of a KG presupposes, similar to the OHG, the operation of a commercial business. Members of the liberal professions can only use this legal form under certain conditions.