According to Section 161 of the German Commercial Code (HGB), a limited partnership (Kommanditgesellschaft, or KG) is a special form of general partnership (offene Handelsgesellschaft, or OHG). However, there is a key difference between these two partnerships regarding liability. In an OHG, the partners’ liability is not limited, and their personal assets are at risk. On the other hand, a KG consists of at least one general partner (Komplementär) who bears unlimited liability and at least one limited partner (Kommanditist) whose liability is limited to their capital contribution. This difference in liability—and the regulations on managing the business—both impact how the profits of a KG are shared.

This article explains profit distribution for a KG and the impact it has on the profits and losses of individual partners. We also provide examples that demonstrate how to calculate KG profit distribution.

What’s in this article?

• How are profits distributed in a KG?
  
• What governs profit distribution between general and limited partners?
  
• How are the profits of a KG calculated?
  
• How are the losses of a KG distributed?
  
• How Stripe Revenue Recognition can help
  

How are profits distributed in a KG?

In general, a KG’s profits are distributed according to the provisions of the partnership agreement. If this agreement does not contain specific provisions, HGB regulations apply.

Distributing profits without a partnership agreement

Until the end of 2023, KG partners were entitled to an annual share of profits equal to 4% of their capital contribution—as long as annual net profits allowed this (according to the previous version of Section 121 of the HGB). The remaining profits were then divided up equally.

Because this regulation was rarely used in practice, legislative changes were introduced as part of the Act to Modernize the Law on Partnerships (MoPeG). These new provisions took effect on January 1, 2024.

Since then, Section 120.1 of the HGB refers to Section 709.3 of the German Civil Code (BGB). According to this, profits or losses are distributed primarily in accordance with the ownership structure agreed upon in the partnership agreement. If this agreement does not establish an ownership structure, profits or losses are shared according to the ratio of the agreed capital contributions. If no agreement has been made on this either, profits or losses are divided according to headcount. In practice, this regulation is frequently supplemented by an alternative provision in the partnership agreement concerning profit distribution in the KG.

Distributing profits with a partnership agreement

A partnership agreement gives KG partners the flexibility to establish an individual policy on profit distribution using a variety of different models. For the most part, partners’ shares of profits are determined by the agreed ownership structure. However, partners can also stipulate in the agreement that the general partners are entitled to a larger share of the profits because of their higher risk. On the other hand, limited partners with lower liability risk tend to receive a smaller portion of the profits.

The partners can also use the partnership agreement to establish rules on additional compensation for the general partner. This is awarded on top of their share of the profits and can be a way of compensating for management activities, for example. Other criteria can also be taken into account when dividing up a KG’s profits, including work performed, specific duties, or financial contributions. Distributing profits according to these factors ensures the distribution fairly reflects the partners’ differing needs and responsibilities.

What governs profit distribution between general and limited partners?

A KG’s profits are generally divided among the partners based on the levels of liability they assume and their involvement in managing the partnership. The general partner is usually entitled to a greater share of the profits because their liability is not limited, and they manage the partnership. They also tend to receive additional compensation for their management activities.

Limited partners are not usually involved in managing the partnership, and their liability is limited to their capital contribution. For that reason, their share of the profits tends to be lower and is based predominantly on how much capital they have put into the partnership. However, additional activities or investments can be taken into account in the partnership agreement to increase a partner’s share of the profits.

How are the profits of a KG calculated?

Below, we provide examples of profit distribution calculations in a KG. Many KG partnership agreements still provide compensation of 4% of a partner’s capital stake, despite the legislative change introduced by MoPeG. This is taken into account in these examples.

Profit distribution in a KG: Example 1

This KG has annual profits of €100,000. It has two partners: General Partner A and Limited Partner B.

• General Partner A contributed €50,000 in capital to the KG and draws an annual salary of €40,000.
  
• Limited Partner B also contributed €50,000 in capital but does not receive any compensation.
  

First, the annual salary of General Partner A (i.e., €40,000) is deducted from the profits (i.e., €100,000), which leaves €60,000.

Next, the partners receive a return on their capital contributions of 4%:

• General Partner A receives €2,000 (i.e., 4% of €50,000).
  
• Limited Partner B also receives €2,000 (i.e., 4% of €50,000).
  

Then, the remaining profits (i.e., €56,000) are divided according to the capital contributions (i.e., €50,000 each):

• General Partner A receives €28,000.
  
• Limited Partner B receives €28,000.
  

This results in the following:

• General Partner A
  €40,000 (Annual Salary) + €2,000 (Return on Capital) + €28,000 (Share in Profits) = €70,000
  
• Limited Partner B
  €2,000 (Return on Capital) + €28,000 (Share in Profits) = €30,000
  

Profit distribution in a KG: Example 2

This KG has three partners: General Partner A, Limited Partner B, and Limited Partner C. Its annual profits are €200,000.

• General Partner A contributed €50,000 in capital to the KG and receives an annual salary of €60,000.
  
• Limited Partner B contributed €30,000 in capital but does not receive any compensation.
  
• Limited Partner C contributed €20,000 in capital and also receives no compensation.
  

First, the annual salary of General Partner A (i.e., €60,000) is deducted from the profits (i.e., €200,000), which leaves €140,000.

Next, the partners receive a return on their capital contributions of 4%:

• General Partner A receives €2,000 (i.e., 4% of €50,000).
  
• Limited Partner B receives €1,200 (i.e., 4% of €30,000).
  
• Limited Partner B receives €800 (i.e., 4% of €20,000).
  

The total return on capital contributions is €4,000. This amount is subtracted from €140,000, which leaves €136,000. This amount will be divided up between the partners based on each partner’s capital contribution:

• General Partner A receives €68,000 (i.e., 50% of profits).
  
• Limited Partner B receives €40,800 (i.e., 30% of profits).
  
• Limited Partner B receives €27,200 (i.e., 20% of profits).
  

This results in the following:

• General Partner A
  €60,000 (Annual Salary) + €2,000 (Return on Capital) + €68,000 (Share in Profits) = €130,000
  
• Limited Partner B
  €1,200 (Return on Capital) + €40,800 (Share in Profits) = €42,000
  
• Limited Partner C
  €800 (Return on Capital) + €27,200 (Share in Profits) = €28,000
  

How are the losses of a KG distributed?

In general, KG losses are distributed according to the same principles as profits. If the partnership agreement does not contain a provision about losses, then the statutory regulations of the HGB and BGB apply.

Distributing losses without a partnership agreement

According to the statutory regulations, losses are divided among the partners proportionately. If partners have contributed different amounts of capital, they bear any losses in line with their respective stakes. If no agreement has been made regarding these stakes, then losses are divided equally, meaning that partners who have invested more in the partnership bear a greater share of any losses.

Distributing losses with a partnership agreement

The partnership agreement can provide for alternative provisions. For example, partners can establish that losses will be distributed according to a specific ratio or that certain partners will bear more or less of any losses.

How Stripe Revenue Recognition can help

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