A German KG has one general partner and one or more limited partners. In the majority of cases, the general partner of a German KG is a limited company (i.e. Gesellschaft mit beschrÃ¤nkter Haftung, hereinafter âGmbHâ). The general partner usually manages the KG. The limited partners may be participating in the KG directly or via a trustee. Often the KG has an advisory board representing the investors by monitoring the management of the general partner.
By establishing a GmbH as general partner, the overall exposure of the investment is limited to the equity invested by the limited partners, plus the equity of the GmbH (minimum equity amounts are EUR 25,000). In such cases investors participate in a so-called GmbH & Co. KG. For private investors who are limited partners of the KG, the risk of each investor is generally limited to the amount of his single investment. Each private investor is participating in the profit and losses of the KG in proportion to his equity stake compared with the total equity.
The purchase of the assets acquired by the KG is usually partly financed by the equity provided by the investors and partly leveraged by bank loans. In most cases the syndication of the equity starts after the purchase of the asset, so in addition to the senior loan, the KG needs an equity bridge loan at the beginning. The syndicated equity will be used to pay back the equity bridge.
The investment of the limited partners is bound until liquidation (closed-end fund). The KG is then liquidated after the assets have been sold. There are various platforms for a secondary market where KG shares can be traded.
With the exception of VAT and German trade tax which is directly imposed on the KG in the case it carries on a trade or business, the KG is tax transparent. Thus, the individual partners are the taxable entities rather than the KG itself.