A general partnership, or GP for short, is the amalgamation of at least two shareholders to operate a commercial trade. As part of this partnership, the partners are fully liable with their private and business assets for the company’s debts.
The main features of the general partnership
It is possible to set up a general partnership through an oral agreement. However, it is usually advisable to draw up a partnership agreement that is confirmed in writing and notarized by a notary – because this can prevent later disputes.
Through the establishment and entry in the commercial register, a legally competent GP is able to acquire and sell rights and property, can conclude contracts, enter into obligations and liabilities. However, the general partnership is not a legal person.
According to howsmb, The company can be represented externally by each individual partner , as long as no deviating regulations have been made in the partnership agreement. The regulations with which the individual representation is abolished must be entered in the commercial register so that the business partners are also aware of them.
The management and liability
As part of the individual management, the management is the responsibility of the individual shareholders, with each shareholder having great powers. Within the GP, the partnership agreement can stipulate the individual responsibilities of the partners, but externally each partner is liable for the entire company with their private assets if necessary.
Even if the unlimited liability for the business partners is very attractive, the shareholders are heavily burdened by it. The spread of the GP has decreased significantly in recent years and other forms of company such as the GmbH are preferred.
The establishment and dissolution of an GP
If an GP is to be founded, at least two partners are required, whereby these can be natural persons or also legal persons, such as a limited partnership , a company under civil law or another GP. If the shareholders are natural persons, then with a few exceptions they must be businessmen.
The legal form GP is founded by a partnership agreement , whereby the GP is then registered with the responsible local court and the entry is made in the commercial register. When registering, the full names and places of residence of the partners are recorded, the company name and the company headquarters and also the individual power of representation of the individual partners.
An GP can be dissolved if, for example, the articles of association have expired, the shareholders decide to dissolve it, insolvency proceedings are opened over the assets of the GP or a court order is available. A partner leaves the GP if he dies, if his assets are subject to insolvency proceedings or if he is terminated, if the decision to leave is decided by the shareholders’ meeting or if another reason for the cancellation as agreed in the articles of association applies.
The advantages and disadvantages of the GP
No minimum capital contribution is required from the shareholders for the establishment of an GP. If the GP is compared with a sole proprietorship, then the open trading company has a higher creditworthiness and thus has a higher reputation with the credit institutions. Every partner has the right to represent the GP and also has the right to co-determination. How the articles of association are designed is the responsibility of the shareholders themselves. For this reason, flexible corporate management is also possible and that without having to comply with major regulations. But the GP also has disadvantages:
- The obligation to keep accounts
- entry in the commercial register is mandatory
- There is a full, unrestricted liability of all shareholders with their private assets
- Disputes can have an impact on the continued existence of the OHG
- great trust is necessary because of the power of individual representation
- A partnership agreement must be concluded
- The GP is a legal form only for full merchants
Is there a non-competition clause?
When establishing an GP and for the cooperation of the partners (§ 242 BGB), a mutual trust relationship is an indispensable prerequisite. This is reflected in the non-competition clause. This means that no partner may act on his own account or participate as a personally liable partner in another company in the same industry (§ 112, 113 HGB). Should a shareholder violate this, the GP can demand compensation from him or take over the business results. The company can also be dissolved with the consent of the other shareholders (Section 133 (2) HGB).
The loss sharing at the GP
If there is a loss of the GP, then this is divided per capita, whereby the capital costs of the individual shareholders are charged. Regardless of this, each partner is entitled to remuneration. Regardless of whether a profit or a loss was achieved – the remuneration is 4% of the respective capital share (§ 120, 121, 122 HGB).