According to the Federal Statistical Office, there were more than 400,000 partnerships in Germany in 2023, including civil law partnerships (GbR), general partnerships (OHG), or limited partnerships (KG). These entities are an ideal legal structure for many entrepreneurs in the country, mainly due to their flexibility and tax benefits. As business operations grow, however, so do demands on accounting, taxes, and payment processing.

This article explains how German law defines and organizes partnerships, outlines the different types, compares them to corporations, and highlights key regulatory, fiscal, and organizational considerations. We’ll also provide some practical examples of such structures.

What’s in this article?

• What is a partnership?
  
• What are the common forms of partnerships in Germany?
  
• What is the difference between a partnership and a corporation?
  
• Practical examples of partnership formation
  
• Advantages and disadvantages of partnerships
  
• How are partnerships taxed?
  
• Financing options for partnerships
  

What is a partnership?

A partnership is a form of business in which at least two individuals or legal entities carry out economic activity together. The focus is on the personal participation of the shareholders, who are usually liable with all their private assets. This unlimited liability and the intensive obligation to cooperate mean that the organization itself is not an independent legal entity.

Partnerships are prevalent in the German small and medium-sized enterprise (SME) sector. This is in part due to the relative ease and speed of setting one up. It also has less red tape than other kinds of businesses. At the same time, German tax law permits profit distribution at the shareholder level, which can be particularly attractive from a fiscal perspective for those with low incomes.

What are the common forms of partnerships in Germany?

In this market, founders and entrepreneurs have several forms of partnership to choose from, depending on the industry, scope, and degree of liability that members are willing to assume.

Partnership

The partnership (PartG) is a special legal formation for certain professions, such as doctors, lawyers, and architects. The PartG combines elements of the GbR with professional requirements, allowing for a merger on an equal footing. It must be entered in the partnership register. Typical instances of this type of structure are joint law firms or practice groups.

Civil law partnership

The GbR is well suited for smaller initiatives, project communities, or freelance activity. Partners can establish this entity informally without registering it in the Commercial Register. That said, advisors typically recommend drafting a written agreement. All participants are personally and jointly liable, without limitation. A simple income statement (cash-basis accounting) is usually sufficient for record-keeping purposes.

General partnership

The OHG operates as a vehicle for running a commercial venture. Partners must enroll in the Commercial Register and are fully responsible with their assets. In contrast to the GbR, the OHG is required to keep double-entry bookkeeping by the German Commercial Code (HGB). The OHG is especially suitable for medium-sized trading businesses.

Limited partnership

The KG distinguishes between general partners, who have unlimited liability, and limited partners, who have limited liability. The latter are typically pure investors with no say in management. Entry in the Commercial Register is also required for KGs. General partners manage the business, while limited ones do not. A typical example of this structure is the GmbH & Co. KG, in which a limited liability company acts as the general partner.

The DIHK-Report 2023 indicates that hybrid models, such as those of GmbH & Co. KG, are gaining popularity, as they combine the flexibility of a partnership with the limited liability of a corporate entity. At the same time, the number of cooperative startups in the freelance sector is on the rise.

What is the difference between a partnership and a corporation?

Corporations, such as public limited corporations (AGs) and limited liability entrepreneurial companies (UGs), are separate legal entities with their own capacity. They are solely responsible for the business’s assets and have to meet stricter bookkeeping and tax standards. Partnerships, on the other hand, are less independent, and the members are generally personally liable.

Is a GmbH a partnership?

No, the GmbH is a corporation. It offers limited liability, requires a minimum share capital, and is subject to corporate tax and formal accounting requirements.

Practical examples of partnership formation

Anyone who wants to establish a partnership in Germany benefits from comparatively low barriers to entry, a flexible legal framework, and direct pass-through taxation. Below, we’ll go over some typical scenarios in which founders might form such an entity:

• Two architects established a GbR to plan and implement construction projects in Berlin jointly—the business is based on an informal agreement
  
• A regional bakery chain is organized as an OHG to operate several branches in Lower Saxony and make joint investments
  
• A GmbH & Co. KG serves as a real estate operation, with the GmbH acting as a limited liability general partner
  
• Three IT freelancers form a PartG to jointly work on software assignments, with a clear division of tasks and registration in the partnership register
  
• Two farmers run a family business in Bavaria as a KG to incorporate capital from external limited partners
  
• An artist cooperative operates a studio as a GbR to sell artworks digitally on-site
  

Advantages and disadvantages of partnerships

Partnerships offer both opportunities and challenges. Here is an overview of the most important advantages and disadvantages:

Advantages

• Low start-up and administrative costs
  
• Customization of the articles of association
  
• No minimum capital requirement
  
• Tax allocation of profits at the shareholder level
  

Disadvantages

• Unlimited personal liability of the partners
  
• Limited options for external financing
  
• Less appealing to external investors
  
• More complex succession arrangements when one member leaves
  

How are partnerships taxed?

Tax authorities assess levies at the partner level rather than on the partnership itself. The following basic principles and duties apply:

Transparency principle

Partnerships are considered fiscally transparent in Germany. That means the business itself is not subject to corporate tax; instead, profits are allocated to the individual shareholders and assessed at their respective income tax rates. This so-called pass-through or transparency system affects all forms of such structures.

Obligations for commerce, VAT, and employment

Generally, partnerships are subject to trade levies if they are considered a commercial enterprise. The only exception is businesses that are solely self-employed, such as groups of doctors, architects, or lawyers—in such cases, trade levies are not payable.

Value-added tax (VAT) is also charged on the offerings provided, unless the business qualifies for the small-scale entrepreneur rule under Section 19 of the German VAT Act (UStG). This can quickly hinder growth-oriented operations, however, as it does not entitle them to input tax deduction.

As soon as employees are hired, the business must also register and pay employment tax. It will also need to comply with additional wage-related requirements, such as social security contributions.

Digital solutions such as Stripe Tax can help here. They facilitate the automatic calculation, collection, and payment of VAT, both domestically and for cross-border services. Tax automatically accounts for applicable rates, registration thresholds, and documentation standards across various countries and states, providing a significant administrative advantage, especially for growing or internationally operating businesses.

Legal and accounting considerations

OHGs and KGs have to enroll in the Commercial Register. There is also an obligation to keep double-entry bookkeeping depending on sales and profit amounts. If the yearly turnover exceeds €800,000 or the annual earnings exceed €80,000, the accounting duty applies according to Section 141 of the German Fiscal Code (AO), in conjunction with the HGB. When it comes to the termination of the business, Sections 723 ff. of the German Civil Code (BGB) apply.

How digitalization promotes successful partnerships

As business processes become increasingly digitized, the demand for legally compliant, integrated, and user-friendly payment solutions continues to grow. Partnerships in particular—which often have lean structures and limited resources—benefit from digital tools that bundle and automate central tasks and workflows, such as Stripe Payments and Stripe Billing.

Payments makes it straightforward and secure to accept charges via various channels, including credit card, SEPA Direct Debit, or wallets. This platform features quick integration, scales easily with your business, and meets modern security and compliance standards. On the other hand, Billing automates the management of recurring payments, simplifies invoicing, and ensures GoBD-compliant processes, making it ideal for services with subscription-based structures or regular billing cycles.

Financing options for partnerships

Compared to corporations, partnerships are often considered less attractive to traditional investors because they cannot issue shares in a legal sense, and liability is not limited to the members. Nevertheless, there are numerous options available for raising capital:

Classic financing

Bank loans remain among the most common financing instruments, especially when collateral is available or the creditworthiness of the shareholders is solid. A business’s relationship with its financial institution can be a decisive factor in this regard.

Public funding programs at the federal and state levels also provide targeted support. The German state-owned investment and development bank, KfW, offers particularly relevant avenues for startups, outlays, and digitalization projects. State banks and chambers of commerce also extend support for SMEs, including many partnerships.

Participation models with limited partners

An alternative way to raise equity is to involve limited partners within the framework of a KG, for instance. They contribute capital, are only liable up to the amount of their investment, and usually have no say in the management. This model suits entrepreneurs who need equity but want to retain control over their operational business.

Leasing, factoring, and other flexible forms of financing

Other financing options are available through leasing contracts (e.g., for machinery, vehicles, or IT infrastructure), which enable the business to remain liquid while making strategic investments. Factoring—that is, the sale of outstanding receivables to a service provider—also enables rapid liquidity and reduces the risk of payment defaults. Still, both methods usually require a certain degree of maturity and stable sales.

Digital financing solutions

Services such as Stripe Capital offer straightforward and rapid liquidity based on actual sales data. In select markets, users of Stripe can apply for funding directly, without undergoing traditional credit checks or providing collateral. Users repay automatically through future income. Such solutions are particularly suitable for businesses in their growth phases or with highly seasonal operations.

Crowdfunding and angel investors

Crowdfunding platforms can also be a route for innovative projects, creative products, or target group–oriented approaches. These efforts place less emphasis on traditional backer returns than on community spirit and market validation.

Angel investors—that is, experienced private individuals with capital and know-how—can be appealing partners for early-stage financing. To get funding from an angel investor, you typically need a convincing concept, a scalable approach, and an entrepreneurial team.