“A KG for my real estate project! That’s unusual, isn’t it? Everyone uses a GmbH…” Statements like these are widespread assumptions. However, the following lines will briefly explain why they are incorrect.

The decision as to which type of company to use for your real estate business should not be given too little attention. In this context, the advantages of the KG in the area of real estate transactions will be discussed below.

The GmbH & Co KG in the narrower sense consists of a GmbH as the sole general partner. In terms of liability, this form of company is similar to a corporation, as no natural person is liable with their private assets. Limitations of liability are particularly advantageous in the real estate sector, which often involves transactions with a higher capital investment and risk.

In contrast to a GmbH, the articles of association of a GmbH & Co KG are not subject to any particular form, although the drafting of a written agreement is strongly recommended.

In the case of a GmbH & Co KG, both a KG and a GmbH must first be founded. This initially involves more effort, as two companies have to be founded, and also requires double the effort on an ongoing basis. However, the general partner GmbH can then take on the function of liability and working partner in a number of KGs at the same time. Especially for a number of project companies, the initially increased effort is very quickly offset by the synergy and savings effects of this approach.

Another advantage of the GmbH & Co KG is that the real estate project operator can include pure investors as limited partners in the company, although they have less pronounced co-determination rights than comparable GmbH shareholders.

In accordance with Section 142 UGB, which also applies to GmbH & Co KG, the company ceases to exist without liquidation if only one partner remains in the company and the company assets are transferred to the last remaining partner by way of universal succession. The advantage of this is that the rights and obligations are transferred to the remaining shareholder in one act and not every right has to be transferred separately.

Although the GmbH & Co KG in the narrower sense is treated in the same way as corporations for the purposes of the return of capital contributions, a further advantage of this type of company is that the regulations on the return of capital contributions do not apply if a natural person acts as a general partner alongside the GmbH. This means that there are better financing options for share deals, as the risk of a repayment of contributions is eliminated and the company’s property can be used as collateral for the purchase price of the company shares after all.

With regard to VAT, the deductibility of borrowing costs is less limited in the case of the acquisition of shares in a partnership owning real estate than in the case of the acquisition of a property by means of a shareholding in a corporation.

If you acquire a property, this transaction generally triggers real estate transfer tax; this also generally happens if you acquire a company that owns a property. However, in accordance with Section 1 (2a) GrEStG, a change in the shareholder structure is only subject to real estate transfer tax if at least 95% of the shares in the company’s assets are transferred to new shareholders within five years.

With regard to income taxes, there are further advantages due to the transparency or pass-through principle, according to which profits and losses of operating partnerships are generally allocated directly at shareholder level. Losses can be offset against positive income of the partner in the year in which they arise. In this respect, the partner is treated like a sole trader.

The GmbH & Co KG can also be advantageous under tenancy law, because only the change of power in the general partner GmbH triggers a right to increase the rent in accordance with § 12a MRG, not usually the change of limited partners. The choice of company form for real estate projects should therefore be carefully considered and we are always available to answer any questions and provide individual and comprehensive advice on 01/505 77 00 (or by e-mail to office@toplaw.at).