If two or more freelancers work together in a partnership, they can form a partnership company (Partnerschaftsgesellschaft - PartG). In contrast to an OHG or KG, this can only be founded by members of the so-called “liberal professions”, for example doctors, writers, accountants or tax consultants (see our Starting a business page to learn more about the distinction between freelance and trade professions under German law).
Key features of a PartG
- Establishment: Registration in partnerships registry
- Capital: None required
- Governance: Usually all partners, although individual partners can be excluded by the article of association
- Liability: Unlimited with business assets of the company and private assets of the partners; for professional errors, only the partner who caused them is liable.
- Taxation: Each partner is subject to income tax; partnership is subject to VAT but not trade tax.
How to establish a partnership company in Germany
Only people who are in freelance professions are able to found a PartG. There is no minimum capital requirement (but entrepreneurs are able to apply for government loans and start-up grants to give their new ventures an initial cash injection. It is also a good idea to draw up a partnership agreement to avoid disputes in future. This agreement should cover the following points:
- Object of the PartG
- Termination of the company
- Names, addresses and professions of the partners
- Respective shares of the partners
- Regulations for the distribution of profits and losses
- Regulations for a partner leaving
- Regulations for the entry of new partners
- Settlement scheme for outgoing shareholders
- Ruling on liquidation of the company
- Management regulation
Once the agreement has been finalised, a notary needs to register the partnership in the partnerships register. If any new partners enter or exit, this must also be registered. The founders also need to register with the tax office and employment office (if employing staff).
PartGs & Liability
In addition to the assets of the company, all partners have unlimited liability as joint debtors for all liabilities. However, the PartG business form offers special protection for freelance professionals - if damage is caused by a professional error, only the partner at fault would be liable.
Tax liability of partnership companies in Germany
As collectives of freelancers, PartGs enjoy the same exemptions from certain types of business taxes. They are not therefore liable to pay trade tax, regardless of their turnover. Income tax is deducted from the profits of the shareholders and VAT must also be paid. If the partnership employs waged staff, it must also pay payroll tax.
Naming a PartG
The surname of at least one of the partners needs to be included in the company’s name; it is not permitted to include the name of someone who is not a partner. The professional titles of all partners must be included in the name of the company.
Within a PartG, each partner is entitled to act and represent the company externally on their own. The agreement of all the partners might be required for more major decisions, such as the purchase of real estate.
How to do accounts for a PartG in Germany
A PartG is entitled to determine its profits and losses using a simple income surplus calculation. It is not subject to commercial law and is therefore not required to use double-entry bookkeeping or balancing.
PartG, GbR or GmbH?
A PartG is especially designed for freelancers as it protects individuals from the professional mistakes of their partners. If part of a GbR, all partners would be fully liable. It is also possible to reduce personal liability even further by establishing a GmbH. However, in doing so you would lose many of the benefits that the status of freelancer brings, including exemption from trade tax, double-entry bookkeeping and fees to the Chamber of Commerce.