The Limited Partnership with Share Capital (KGaA)
The legal form of the limited partnership with a stock corporation (KGaA) offers clear advantages, especially for family-owned businesses. The most important advantage: outside shareholders have only limited influence.
For a long time, the KGaA was something of an exception in the German corporate landscape. But this has changed in recent years. Four DAX-listed companies—Fresenius SE & Co. KGaA, Fresenius Medical Care AG & Co. KGaA, Merck KGaA, and Henkel AG & Co. KGaA—have now adopted this legal form. Other prominent companies operating as KGaAs include, for example, the media group Bertelsmann SE & Co. KGaA and the medical and safety technology company Drägerwerk AG & Co. KGaA.
Advantages of the KGaA for Family-Owned Businesses
A key factor behind this growing popularity—not only among DAX companies but also among renowned family-owned businesses—is a ruling by the Federal Court of Justice (February 24, 1997, Case No.: ZB 11/96). According to this ruling, the sole general partner of a KGaA may be not only a natural person but also a corporation.
“In principle, the KGaA is a large limited partnership (KG) whose share capital is freely tradable on the stock exchange in the form of shares; the general partner—that is, the personally liable partner—is often a GmbH, an SE, or an AG. This means that the management of the general partner company manages the KGaA,” explains Marcel Hagemann, a lawyer specializing in corporate law at the law firm CMS Hasche Sigle in Düsseldorf. In contrast, the limited shareholders have only very limited influence over management. Their decision-making body, through which they can exert influence, is the general meeting, as is the case with an AG.
The supervisory board of a limited partnership with shares has fewer powers
The KGaA is particularly well-suited for upper-mid-sized (family-owned) companies. “A key advantage of the KGaA legal form is the ability to access the capital market while separating corporate management from financing, so that families or existing owners can permanently retain their influence over the business—without the risk of personal liability—even when raising capital through the stock exchange. In addition, the extensive flexibility allows corporate governance to be tailored to the company’s specific needs—a fundamental advantage over the stock corporation,” says Hagemann’s colleague Christoph von Eiff, describing the structuring options.
Furthermore, the KGaA enjoys special privileges under co-determination law: “Although the supervisory board of a KGaA is subject to the provisions of the Codetermination Act (MitbestG) and the One-Third Participation Act (DrittelbG), its powers are significantly reduced,” Hagemann emphasizes. “For example, the supervisory board of a KGaA can neither appoint nor dismiss members of the management board, nor can it establish rules of procedure or a list of matters requiring management board approval.” Furthermore, the KGaA’s supervisory board lacks the authority to approve the annual financial statements, a power reserved for the annual shareholders’ meeting. “Essentially, it only has the authority to oversee and advise the management board,” says Hagemann. In addition, no labor director is to be appointed at a KGaA.
“The capital market has accepted the KGaA legal form, as prominent examples from the recent past demonstrate,” says von Eiff. “The KGaA is an attractive legal form, particularly for major, predominantly family-owned companies. For these companies, converting to a KGaA—for example, through a change of legal form that preserves their identity—is an extremely interesting option that can be carried out in just a few months and at moderate cost.”