When two or more entrepreneurs or companies get together to operate a trade under a common company, they can create a general commercial partnership or offene Handelsgesellschaft (OHG). This business structure is not, however, designed for freelancers. All shareholders of an OHG are fully liable for their business and private assets. An OHG is entered into the commercial register.
Key features of an OHG
- Establishment: Article of association; registration in commercial register
- Capital: None required
- Governance: Jointly by shareholders unless otherwise stipulated
- Liability: Unlimited with private and business assets of all shareholders
- Taxation: Shareholders liable for income or corporation tax plus solidarity surcharge; company is liable for trade tax (not freelancers), VAT and income tax
How to establish a general commercial partnership in Germany
An OHG arises when an article of association is drawn up between its partners. This contract should contain the following details:
- Names and addresses of the shareholders
- Amount and type of deposits
- Purpose of the OHG
- Termination of the company
- Right to withdraw from the company assets
- The distribution of profits and losses
- Regulations after the departure of a shareholder
- Settlement scheme for outgoing shareholders
- Management regulation
- Scheme for taking out loans
Once this article of association has been drawn up, the OHG must be entered into the commercial register by a notary. After this has been done, the founders need to complete additional steps to set up the business, including registering with the trade office, tax office and Chamber of Commerce.
Liability of OHGs
All partners of an OHG are directly, unrestrictedly and personally liable with the business assets of the company as well as their private assets. Should one shareholder default, then the remaining shareholders have to take over their debts. If you are founding an OHG, you should consider this potential liability risk. Founding a limited liability corporation such as a GmbH offers your personal assets better protection. If one partner would like to limit their liability, a KG might be a more suitable legal form.
OHGs & German business taxes
OHGs are liable to pay business taxes such as trade tax. However, as partnerships they qualify for a tax-free allowance of 24.500 euros. OHGs must also pay income tax and VAT to the tax office.
How to manage a general commercial partnership
If no other agreement is made in the article of association, each shareholder of the OHG is in principle also its managing director. If, on the other hand, one or more managing directors are appointed in the article of association, the non-named shareholders are excluded from management.
OHG accounting in Germany
An OHG is subject to commercial law, and is therefore obliged to carry out double-entry bookkeeping and to publish its annual accounts. In addition, the OHG’s business records must be preserved for at least 10 years.
GbR or OHG?
There is not a great deal of difference between an OHG and a GbR. It is more of a question of the size of the business operation. An OHG must be registered in the commercial register, while a GbR can register voluntarily. However, a GbR that reaches a certain size or turnover is automatically converted into an OHG.
There is no set limit at which point this happens; rather, it is checked on a case-by-case basis, considering the company’s sales, transactions, loans, number of employees and size of business premises or number of branches. Typically, this threshold is assumed to have been reached when the business’s turnover exceeds 250.000 euros and it employs more than five members of staff.
