BFH creates legal certainty - Commercial character of "Einheits-GmbH & Co. KG " still possible

The German personal company called KG has always at least two shareholders: One general partner with unlimited liability (in a GmbH & Co. KG this is a GmbH) and one limited partner, whose liability is limited to his capital. In a so called “Einheits GmbH & Co. KG” the shares in the general partner GmbH are not held by the limited partner(s) but by the KG itself. This arrangement holds the potential for conflicts of interest: The managing directors of the general partner GmbH would be able to decide on their own appointment or dismissal in their capacity as representatives of the sole shareholder (the KG) at the shareholders' meeting of the general partner GmbH. It is therefore customary to transfer the exercise of the KG's shareholder rights to the limited partner(s) at the shareholders' meeting of the general partner GmbH.

So far, it has been controversial whether this transfer of control constitutes management authority of the limited partner(s) within the meaning of section 15 (3), no. 2 EStG, which opposes the commercial character of the Einheits GmbH & Co. KG. The Federal Fiscal Court has now decided (article 13 July 2017, file no. IV R 42/14) that this is not the case. The regulations described above for the avoidance of conflicts of interest directly affect only the legal circle of the shareholder’s meeting of the general partner GmbH and not the business activities at KG level.

The decision of the BFH is pleasing in practice, because the Einheits GmbH & Co. KG can help to reduce design effort. This eliminates the time-consuming interlocking of the two articles of association of the KG and the general partner GmbH. However, anyone wishing to acquire an Einheits GmbH & Co. KG should ensure compliance with the requirements of the decision in order to avoid undesirable tax consequences - regardless of whether the commercial character or (e. g. in the case of private equity funds) the lack thereof is aimed for.