It is clearly visible that in this case a capital company is associated with a personal company, so we talk about two companies. The capital company is the one that negotiates and signs the contracts. The personal company will act, thus execute the works, issue the invoices, produces income and expenses and pays taxes. (Of course, the capital company also pays taxes but in a different form, as if it was by itself).
What is the advantage of this legal form?
Its biggest advantage is that the capital company (namely the Ltd, GmbH or UG) takes off the complete financial liability of the personal company (namely the KG); this way the liability is limited to the assets of the company.
Its advantage is that the KG as a personal company is exempted from business tax up to 24 500 euros.
Its advantage is that you as the owner of the KG is free to withdraw money from the KG’s bank account.
Its advantage is that if you as the owner of the KG wish to work in your company, you do not have a monthly obligation of social contribution to the German state (as you will pay tax on the withdrawn amounts at the end of the year, when you submit your personal income tax return).
Its advantage is that all your family members, relatives can be the member of the KG and you can distribute the profit among your family members at the end of the year.
The number of the KG members is not limited but a member must be at least 7 years old and all his/her rights must be exactly determined in the articles of association at the notary.
What is the disadvantage of this legal form?
This legal form has only one disadvantage. As the company is only liable with its deposited assets, it is more difficult to get credit from the banks. Although in the first three years, independently of the legal form, the companies do not receive a credit. From third year, the turnover and profit of the company will prevail for the banks, and not the legal form.
To whom this company form is recommended? To everyone who wishes to protect his/her personal wealth. To everyone who would rather distribute the profit of the company among his/her family members than paying it to the tax authority. To all medium-sized and large enterprises.