Partnerships Flashcards
Partneships are…
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…companies with no own legal personality.
- partners usually have been individuals
- legal entities can also be partners in a partnership
What is a general Partnership? (OHG)
- comes into existence when two or more persons get together to establish a commercial business under a common business name
What are steps of founding a General Partnership?
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- name: can be any kind of name (personalized, objective, artificial, fixed)
- no minimum capital required
- no special form e.g. in writing required
- need a partnership agreement
- entry into commercial register is mandatory
What are the rights and obligations of a general partneship?
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- each partner has individual right to run and manage the partnership and to represent it (but partnership agreement can deviate from this rule)
- profit: 4% of own capital contribution, rest on per-capita basis
- losses: per-capita rule
Obligations of a general partneship.
What are aspects of the liability?
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- joint and several liability (=Gesamtschuld), meaning one for all and all for one
- unlimited liability from every partner - includes both business and private asstes
- directly (each creditor can turn to every partner)
- retroactively, meaning every new partner will be liable for existing debts
- continuing effect (partners are liable for up to 5 xears after leaving the partnership)
- liability for acts of other partners
What are advantages of a genereal partnerhsip?
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- partners are free to design and agree on their own, individual partnership agreement possible
- more than one owner menas: additional expertise and experience to share between partners
- large incentives (owner = senior management) and direct profits to partners
- good creditworthiness due to full liabilit of all partners
- flexibility in terms of management, as long as every partner puts equal work into it
What are disadvantages of a general partnership?
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- high degree of dependency on the partners due to management and representation rules)
- often not signifianctantly larger base for financing the company (compared to sole trader)
- high economic risk for the partners due to unlimited liability even with private assets
- differing goals, possibly resulting in conflict
What is a Limited Partnership? (KG)
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- formed when two or more people get together to establish commercial business under a common business name
- in contrast to OHG: at least one partner with unlimited liability (general Partner) and at least one partner with limited liability
What are the steps to founding a limited partnwerhsip?
- name can be any kind of name
- no special form in writing
- no minimum capital required
- need a partneship agreement
- enter into commercial register mandatory
What are the rights and obligations of a limted partnerhsip?
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- general partners, like OHG
limited partners:
- only liable up to their capital contribution, not liable with private assets
- no right ot manage or run the business, no right to represent business and no right to withdraw privately
- right to access companys books and a copy of the annual balance sheet
- share of profits: up to 4% of capital contribuiton, any remaining profit in an approporaite way
- sharing of losses: in any appropriate proportion to the limited partners capital contribution
What are the advantages of a limited Partnership? KG
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- partners free to design and agree their own, individula partnership agreement
- can take on additional financiers w/o them interfering with the running or representatioj of the business
- no fixed interest payments
- possibility, esp. for family- run businesses, to take on children as co-owners
- if contribution of capital, it can remain within company without the panter wokring for the company
- for limited partners: limted liability while still being able to work for the company, e.g. with procuration (could also be a disadvantage, though)
What are the disadvantages of a limited Partnership?
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- same as general partnership (OHG)
Summary -
Key aspects to Partneships
- OHG and KG are trading companies and hence are merchants by legal forms
What are the main differences between a OHG and KG?
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- Management (equal rights - only provide capital but not participate in management activities)
- Liability
- profits and losses (shared equally - vs shared in proportion to capital contribution, depended on partnership agreement)
- control vs no control
