When we set up a fund in Germany, the conversation about structure is usually short. The answer is almost always a GmbH & Co. KG. It is the market standard for private equity and venture capital funds in the DACH region, and for good reason: it gives you tax transparency, limited liability, and the flexibility to set up governance the way institutional investors expect [4].
But "market standard" does not mean simple. There are real setup costs, notarisation requirements, register filings, and structural decisions that first-time managers need to understand before they sign anything. I have seen managers waste months and tens of thousands in legal fees because they made avoidable mistakes at the structuring stage.
What the structure actually is
A KG (Kommanditgesellschaft) is a German limited partnership. It has two types of partners:
- Komplementar (general partner): Carries unlimited personal liability for the partnership's obligations and manages its affairs.
- Kommanditisten (limited partners): Liable only up to their registered capital contribution. They invest but do not manage.
The problem with a plain KG is that the general partner is exposed to unlimited liability. No fund manager wants personal liability for a fund vehicle. The solution is the GmbH & Co. KG: you interpose a GmbH (Gesellschaft mit beschrankter Haftung, a German limited liability company) as the general partner. The GmbH's liability is limited to its own assets, which are typically just the minimum share capital of EUR 25,000 [4].
You end up with a structure where no individual has unlimited liability, the fund is tax-transparent, and investors participate as limited partners with clearly defined rights and obligations.
Why tax transparency matters
Germany does not tax partnerships at the entity level. Income flows through to the individual partners, who pay tax according to their own tax status and rate. For a fund, this means:
- No double taxation. Corporate investors are taxed at corporate rates on their share of fund income. Individual investors are taxed at personal rates. There is no additional tax layer at the fund level [35].
- Capital gains treatment. Portfolio company exits can be structured so that the capital gains treatment at the investor level is preserved. This matters especially for German corporate investors who benefit from the 95% participation exemption on qualifying equity disposals.
- Loss allocation. Losses flow through to investors as well, although German tax law limits how losses from limited partnerships can offset other income (the loss allocation rules under Section 15a EStG).
Tax transparency is the main reason the KG structure dominates. A fund structured as a German corporation (GmbH or AG) would face entity-level taxation, making it uncompetitive for investors who can access tax-transparent vehicles in other jurisdictions.
The GP entity: getting the GmbH right
The GmbH that serves as general partner is a separate legal entity with its own formation process. Here is what is involved:
- Notarisation. Formation of a GmbH requires a notarised articles of association (Gesellschaftsvertrag). You need to appear before a German notary or use a power of attorney for someone to appear on your behalf [15].
- Minimum capital. The GmbH requires EUR 25,000 in registered share capital. At least half (EUR 12,500) must be paid in before registration. The remaining half is a liability of the shareholder [15].
- Commercial register filing. The GmbH must be registered in the German Commercial Register (Handelsregister) at the competent local court (Amtsgericht). This involves submitting the notarised articles, a list of shareholders, and appointment documents for the managing director (Geschaftsfuhrer) [25].
- Managing director. The GmbH must have at least one managing director. This person does not need to be German or resident in Germany, but they must be a natural person with no disqualifying criminal convictions.
In practice, most fund managers either use a dedicated GP entity that they control or engage a professional GP service provider. We see both models.
The fund entity: the KG itself
Once the GmbH is in place, the KG is formed through a limited partnership agreement (Gesellschaftsvertrag der KG). Key points:
- No notarisation required for the KG agreement itself, unless real estate is being contributed. The partnership agreement is a private contract between the partners [35].
- Commercial register filing. The KG must also be registered in the Handelsregister. The registration discloses the general partner (the GmbH), the name and seat of the KG, and the registered capital contributions of each limited partner [25].
- Haftsumme. Each limited partner's liability is capped at their registered capital contribution (Haftsumme) as recorded in the commercial register. This amount is public. Many funds register a nominal Haftsumme (for example, EUR 1,000 per LP) that is lower than the actual capital commitment to limit public disclosure of investment amounts.
- Partnership agreement. This is the equivalent of the LPA in Anglo-Saxon fund structures. It covers capital commitments, drawdown mechanics, distribution waterfalls, management fees, carried interest, governance rights, and transfer restrictions. German LPs expect the same level of detail and investor protections as any institutional fund document.
Transparency register obligations
Since 2017, Germany has required all legal entities to report beneficial owners to the Transparency Register (Transparenzregister). For a fund structured as a GmbH & Co. KG, this means:
- The GmbH must report its beneficial owners, typically the individuals who ultimately own or control 25% or more of the GmbH's shares, or who exercise control through other means [4].
- The KG must also report its beneficial owners, which includes any limited partner holding 25% or more of the capital or voting rights.
- Updates must be filed promptly when beneficial ownership changes.
Non-compliance carries fines of up to EUR 150,000 for a first violation, and much more for repeat offences. This is an area where I see managers get sloppy, especially when LP transfers happen mid-fund life.
The fund manager entity
The GmbH & Co. KG is the fund vehicle. The fund manager (AIFM) is typically a separate entity, usually another GmbH, that manages the fund under a management agreement. This separation matters for a few reasons:
- The fund manager GmbH is the entity that registers with BaFin as a sub-threshold AIFM or holds the full AIFM licence [6].
- Management fees flow from the KG to the manager GmbH under the management agreement.
- Carried interest is typically structured as a special profit allocation to a carried interest partner within the KG, separate from the manager entity.
Getting the relationship between the GP, the fund manager, and the carried interest vehicle right at formation saves a lot of pain later. Restructuring is possible but means additional notary costs, register amendments, and potential tax consequences.
Timeline and costs
A realistic timeline for setting up a GmbH & Co. KG fund from scratch:
- Weeks 1-2: Draft and negotiate the GmbH articles, KG partnership agreement, and management agreement.
- Week 3: Notarisation of the GmbH articles. Open a bank account for the GmbH and pay in the initial capital.
- Weeks 3-5: File the GmbH for commercial register entry. Processing time varies by court but typically takes two to four weeks.
- Week 5-6: Once the GmbH is registered, file the KG for commercial register entry.
- Parallel: File BaFin sub-threshold AIFM registration (approximately four weeks processing time) [6].
Total time from kick-off to a fully registered, BaFin-notified fund: roughly six to eight weeks if everything runs smoothly. Legal costs for the full set of documents, including notary fees, typically run between EUR 15,000 and EUR 40,000 depending on complexity and counsel.
Variations on the theme
GmbH & Co. KG is the standard, but a few variants come up in practice:
- UG & Co. KG: Instead of a GmbH, you use an Unternehmergesellschaft (UG), which is a limited liability company with a minimum capital of just EUR 1. This saves the EUR 25,000 upfront but looks less institutional and may raise questions from sophisticated LPs.
- Parallel fund structures: For funds targeting investors in multiple jurisdictions, you might have a German GmbH & Co. KG alongside a Luxembourg SCSp or Cayman LP, with parallel investment and co-investment arrangements.
- Management KG: Some managers set up a separate KG for the management company itself, particularly for carried interest structuring purposes.
How we handle fund structuring at Infra One
We set up GmbH & Co. KG fund structures regularly for emerging managers across Germany and Austria. Our team handles entity formation, commercial register filings, transparency register obligations, BaFin registration, and all the fund documentation. We work with a network of German notaries and tax advisers to make sure the structure is right from day one.
Our fund formation service covers everything from initial structuring advice through to a fully operational fund ready for first close. If you are thinking about launching a fund in Germany, let's talk about what the setup looks like for your specific situation.
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