Tax advisor in ... with For whom: Small business / GbR / OHG / KG / PersG

Tax advice for partnerships (small business owners, GbR, OHG, KG, PersG)

As a start-up, you are faced with a lot of questions regarding the formal classification of your activity. Incorrect information or ill-considered steps can quickly end in financial disaster. If you have joined forces with other entrepreneurs to work together, you can set up a GbR, an OHG or a KG; as a freelancer, you can also set up a partnership. The various company forms differ in terms of liability issues and accounting obligations; they also differ from capital companies in terms of tax treatment. In order to avoid any pitfalls when setting up a company and to find the best legal form for your company, a tax advisor can advise you on GbR and OHG. A tax advisor can also help you with your company's accounting and with subsequent income tax returns.

How tax advisors help with choosing the legal form

If you have decided to earn money as a self-employed person, the question soon arises as to which legal form makes the most sense for your company. The differences lie, for example, in the number of founders involved, i.e. whether you open a sole proprietorship alone or work together with several partners. The remaining options for legal forms for your company differ particularly in terms of liability, but also in the required start-up capital and the costs of setting up. The various partnerships and companies also have different requirements for accounting, conditions for finding investors and the right to have a say, as well as in handling the taxation of sales and profits.

You can read up on the rights and obligations associated with different types of company in legal texts, for example in §§ 705-740 of the German Civil Code on civil law partnerships (GbR). However, as a legal layman, it is often difficult to judge how a GbR differs from an OHG or a GmbH, and whether one of the two is even an option. Self-employed people can ask tax advisors about GbR and OHG to discuss with them exactly what the differences are and what advantages and disadvantages are associated with the two legal forms in a specific case. In particular, tax advisors can also carry out sample calculations before founding a company that take different taxes into account, and thus find the best financial solution for you.

Tax advice for the self-employed

The first and most important classification of self-employment is commercial work, crafts or freelance professions. The latter are scientific, literary, artistic and educational professions, but also include doctors, auditors and architects, for example. Freelancers have the advantage of not having to pay trade tax. So if you are able to work as a freelancer, you can benefit financially from this regulation. Freelancers can also join together to form a GbR or a partnership.

If your work is not considered a freelance profession, you must register a business and become a member of the Chamber of Industry and Commerce (IHK) or - in the case of a craft business - join a Chamber of Crafts as a member. This regulation applies regardless of the size of your company. If your annual turnover is less than 17,500 euros, you can also be classified as a small business owner. As a small business owner, you are exempt from VAT. Please note, however, that a small business owner is not an independent legal form, but merely an exception to tax law.

If you are the only founder, you are running a sole proprietorship. The legal forms of partnerships such as GbR, OHG and KG are therefore no longer an option for you. However, you can still set up a corporation such as a UG or a 1-person GmbH. Find tax advisors for the self-employed...

Differences between GbR, OHG or KG: which partnership makes sense when?

If there are other people involved in setting up the company besides you, a partnership is a good legal form. The advantage over a corporation: you do not need any start-up capital to set up a GbR, OHG or KG. However, all partners are liable with their private assets. A GbR is a partnership under civil law and the basic form of partnerships, i.e. associations of several entrepreneurs. All partners involved are equally liable with their personal assets for any losses incurred by the company.

If your company also takes out loans or incurs other liabilities, it is usually necessary or at least advisable to register it in the commercial register. Your GbR will then become an OHG, a general partnership. This entails higher requirements for your bookkeeping, which are set out in the Commercial Code. Furthermore, all partners are liable with their private assets.

One possible way to reduce personal liability is to form a limited partnership, a KG, which offers the option of becoming a partner as a limited partner. As a limited partner, you can contribute capital to the company with a deposit and are only liable for this share. However, compared to the other partners with full personal liability, the so-called general partners, limited partners usually have a less strong position within the company.

There are also some special forms of partnerships: the establishment of a partnership is reserved for freelancers, for example. In terms of liability law, such a partnership is equivalent to an OHG, but it is still exempt from trade tax and there is no obligation to keep accounts. In order to limit liability with private assets, it is also possible to set up a corporation such as a GmbH or a UG, but only with sufficiently high start-up capital. Special forms are also possible, such as a GmbH & Co. KG, in which a GmbH is used as a general partner, so that only this bears full liability. However, the effort involved in keeping double-entry accounts for the GmbH and the KG is only really worthwhile in rare cases.

Tax treatment of GbR and OHG

In contrast to a corporation, partnerships such as GbR, OHG and KG are not independent tax entities. This means that the GbR does not pay its own taxes on its profits. Instead, all partners involved must declare the profits from the GbR pro rata in their individual tax returns and pay trade tax and income tax including the solidarity surcharge on them. The GbR's pro rata profits count as income from a commercial enterprise, unless it is a group of freelancers.

A major advantage of partnerships is that, from a tax perspective, profits from GbR and OHG can be offset against any losses. These do not even have to be losses incurred by the company, but can also be private losses, such as negative rental income or losses from stock market transactions. The total tax burden on income from the GbR can be significantly reduced in this way, depending on the specific situation. In order to achieve the greatest possible tax savings, it is advisable to assess the overall situation with a tax advisor. It is best to find a tax advisor for your GbR or OHG who can assess the financial situation of your company as a whole.

What questions do tax advisors answer about GbR?

You can contact tax advisors before you set up your company to discuss together which legal form makes the most sense in your case. Estimate beforehand what sales and operating expenses you can expect in order to have an indication of the profits in the first few years and to be able to work through different scenarios. After setting up the GbR, preparing the tax return can be difficult. A tax advisor will help you to enter and tax the profits correctly and to achieve the greatest possible benefit by offsetting them against any loss items. Also note that information about your company must be consistent among all partners involved.

How do tax advisors help you with your general partnership?

Similar to a GbR, a tax advisor can help you set up an OHG. They will be able to answer questions about whether this legal form is the right one for you and your co-partners, and provide an overview of the tax payments to be expected in the first year. A tax advisor will also be able to help you correctly complete all registrations and entries in the commercial register that are required when setting up an OHG. Because tax advisors also have good business knowledge, they can also help you with bookkeeping. This support is particularly useful for OHG and KG, because entry in the commercial register creates high legal requirements for correct bookkeeping. By transferring these accounting activities to a tax advisor, you can reduce your liability for accounting errors.

Sources

1. https://www.gesetze-im-internet.de/bgb/BJNR001950896.html#BJNR001950896BJNG006502377
2. https://www.fuer-gruender.de/wissen/unternehmen-gruenden/unternehmens Formen/gesellschafts Formen/
3. https://www.fuer-gruender.de/existenzgruendung-planen/recht-und-steuer/rechtsform/personalgesellschaft/
4. https://persaldo-steuerberatung.de/wp-content/uploads/2014/03/unternehmens Formen_vergleich.pdf
5. https://www.steuerberaten.de/tag/gesellschafter/ x