General partnership (oHG)
I. General information
The oHG is a corporate form, the purpose of which is aimed at operation of trading business or a joint company, in which all the partners are liable towards the creditors without limitation. It is particularly suited for small and medium-sized companies.
According to the German Commercial Code (HGB), enterprises exercising the typical trading activities are deemed trading companies (formerly: basic commercial trades):
e.g. wholesale and retail trade, the manufacturing trade, the bank and insurance sector, transport trade, trade representatives etc.. But people running a craft or any other kind of industrial enterprises are also deemed merchants.
The law of oHGs has been regulated in §§ 105-160 of the German Commercial Code (HGB). As a supplement, the directives on the basic form of any company, the civil-law partnership (GbR) (§§ 705-740 BGB), are applicable. From the view of the corporate form, the oHG can also be regarded as a special form of a GbR for a trading company with a commercial scope of business.
The oHG is a partnership. Unlike a capital company, it is not the inclusion of capital which is in the foreground, but the personal commitment of the partners. As a rule, they use their own working power, from which a certain personal connection to the enterprise results. Forming of the partnership is not dependent of a certain minimum capital.
Constitution, executive organs
The oHG does not possess its own legal personality distinct from the partners themselves. Nevertheless, it is similar to a legal entity in that it can sue and be sued before a court of law. It can acquire rights and enter into liabilities, acquire possession and other in rem rights to real estates. Each partner has the authorisation to manage and to represent alone. However, deviating situations can also be agreed.
Legal relationships of the partners, liability
The partners themselves are fully-fledged merchants. The oHG is liable for corporate debts with the corporate assets (joint assets). Alongside this, all the partners are personally liable, also with their private assets. Limitation of liability to the corporate assets is not possible. Each partner is liable towards third parties to the complete amount. But if a third party makes claims against him, he can also make claims to compensation against the other partners in accordance with the partnership agreement.
As freelance workers, the partners in an oHG are normally not liable to social insurance (pension, health and unemployment insurance). Voluntary further insurance in statutory health insurance is possible for former salaried employees. There is also the possibility of applying for compulsory insurance or voluntary insurance in statutory pension insurance schemes. In some branches, an entrepreneur is also subject to insurance in statutory accident insurance (employers’ accident insurance scheme) if he does not have any employees.
II. Forming an oHG
An oHG originates with a partnership agreement of no less than two partners. Partners in an oHG can be national and foreign natural and legal entities (e.g. in a GmbH & Co. oHG - limited partnership with a general partnership as a partner). In addition, other partnerships can also have holdings as partners. A change of partners is only possible with the consent of all partners unless the agreement determines otherwise.
The amount of the capital can be freely agreed. A minimum capital is not necessary.
The oHG is a trading company, i.e. according to the definition in the German Commercial Code (HGB) its purpose of business is aimed at operating trading business. Apart from a typical, traditional trade business (wholesale, retail trade), an oHG can, like any other merchant entered in the Register of Commerce, pursue all the other purposes admissible in the form of a trade (in particular and also industry, crafts and miscellaneous services).
If a company’s business operation demands a business operation set up in a commercial way with a view to its nature and scope, the enterprise is always deemed a trading company, regardless of whether it has been entered in the Register of Commerce or not. For the assessment of whether an enterprise is managed commercially, the annual turnover, nature and scope of the business processes, taking of loans, business premises, number of employees, nature of accountancy etc. are of particular importance.
Enterprises running a business operation by its nature and scope which does not have to be set up in a commercial way can have themselves entered in the Register of Commerce voluntarily and are thus deemed merchants with all rights and duties. The entry means that a GbR is turned into an oHG.
The corporate name is the name of an enterprise with which it appears in legal and business dealings. The corporate name of the oHG can contain a partner’s surname, fantasy additions or factual additions, as long as it possesses a distinctive power and thus the function of a name. It can also be formed as a combination of these elements. The legal form “general partnership” (German: "offene Handelsgesellschaft") must always be stated. It can also be abbreviated as "oHG".
However, the components of the corporate name may not be suited to causing deceit about the nature or the scope of the business or the situation of the proprietors. The corporate name must be clearly distinct from other corporate names already entered in the Register of Commerce at the same location or in the same borough.
Only an enterprise entered in the Register of Commerce can bear a corporate name which can be sold, inherited and leased together with the business operation.
III. Formal and publication directives
The partnership agreement should regulate the following: object, corporate name, nature and scope of the partners’ contributions, management and representation power, allocation of profits and losses, ending of the company and departure of partners.
No formal directives exist for the conclusion of the partnership agreement. However, conclusion of a written agreement is recommended. If nothing else has been agreed, the German Commercial Code (HGB) applies.
The corporate assets accrue to all partners jointly. Each partner has a holding in an oHG with his share of the capital, the amount of which can be seen from the balance sheet and is a specific amount of money.
The contribution can entail cash, contributions in kind or the rendering of services. The modalities of the payment can be freely agreed.
Appointment of executive organs
Alongside the partners, no specific executive organs exercising the management exist.
Fulfilment of publication directives
The oHG is to be notified to the Register of Commerce for entry via a Notary Public. The partnership agreement does not have to be submitted to the Register of Commerce.
The application to the Register of Commerce is to be done by all partners. It must contain the surname, first name(s), profession and residence of the partners, the company’s corporate name and the location of its headquarters as well as the time of the start. The application is made electronically by the Notary Public in a publicly certified form. The partners entitled to representation must sign the corporate signature alongside the signatures of their names.
Founders not known to the Notary Public must prove their identity by valid identity papers. In the event of a person appearing not acting on his own, but on a third party’s behalf: written power of attorney or a subsequent approval in a notarially certified form is necessary. If the signature under a power of attorney is certified by a foreign Notary Public, a legalisation (or apostille) is necessary, depending on the country of origin. The former can be granted by a Consul of the Federal Republic of Germany.
If a legal entity is one of the founders, its existence must be proven by a certified extract from the Register of Commerce (for foreign enterprises: corresponding official registration documents).
The entries in the Register of Commerce are made known by publication in the Electronic Federal Gazette.
IV. Mode of function of the oHG
Management of the oHG
Management to the inside
Management is attended to jointly (principle of self-organisation). A power of single management applies. The partnership agreement can also provide for other regulations and, for example, exclude individual partners totally or partly from management. The single management power provided for by law only applies to actions which the customary operation of the commercial trade of this oHG entails. For out-of-the-ordinary transactions, a resolution passed by the partners shall be necessary.
Partners’ resolutions are to be passed unanimously as a matter of principle. The procedure has no formal directives.
Representation to the outside
Representation to the outside towards third parties is done by the partners themselves (executive organ representation). As a matter of principle, each partner is entitled to representation with a single representation power. However, the partnership agreement can provide for deviations pursuant to § 126 sub-section 3 HGB. Accordingly, the representation power can be limited to one of a plurality of branch establishments. For the limitation of the representation power to take effect, an entry to this effect in the Register of Commerce is necessary.
Non-partners can be granted a representation power with a limited commercial power of attorney. Granting of such a power must be entered in the Register of Commerce.
The following is to be stated on the letterheads: corporate name, legal form, location of the branch, Local Court of the Register of Commerce, Register of Commerce number.
For a company in which no partner is a legal entity, all the information about the partners prescribed by law must also be given.
V. Control and annual financial statements
Control and information right of the partners
Each partner can inform himself personally and have insight into trade books and papers as well as a balance sheet and annual financial statements. This applies even if he has been excluded from management.
Accountancy and annual financial statements
As a commercial enterprise, the company is obliged to keep trading books and to state its trading business and its asset situation in them according to the principles of proper accountancy. At the close of each and every fiscal year, a balance sheet (annual balance sheet) and a profit and loss account are to be produced in the German language and in Euro.
Auditing of the annual financial statements and disclosure or publishing of the annual financial statements are likewise not planned, except for loan institutes or companies covered by the Act concerning Accounting of Certain Enterprises and Groups of Companies.
An OHG is a partnership. Partnerships themselves are not subject to either income tax or corporation tax. Instead, the profits are established separately in a standardised way and directly ascribed to the partners. The partners’ shares of the profits are subject to income tax or also corporation tax, depending on their legal form.
Further information can be found in our brochure Accounting and Taxes – Information for People Setting Up a Business.