Fund Formation in Germany
Fund Formation in Germany – Forms of vehicle
What legal form of vehicle is typically used for private equity funds formed in your jurisdiction? Does such a vehicle have a separate legal personality or existence under the law of your jurisdiction? In either case, what are the legal consequences for investors and the manager?
The most common legal form is a closed-ended fund organised as a German limited partnership (KG) as it is tax transparent, allows fexible structuring and provides limited liability to investors. KGs have separate legal personality.
The general partner (GP) of the KG is personally liable for the debts of the KG. To reduce liability risks, typically a company with limited liability (GmbH) serves as GP (GmbH & Co KG). The investors join as limited partners. The fund manager is typically acting as managing limited partner of the KG. Besides the KG, several other legal forms are available for German private equity funds (eg, investment KG, investment AG, UBG). However, the KG is the market standard (in particular for registered, ie, ‘sub-threshold’, fund managers).
Forming a private equity fund vehicle
What is the process for forming a private equity fund vehicle in your jurisdiction?
The formation of a KG is simple. The KG comes into legal existence with the signing of the limited partnership agreement (LPA) by the GP and the limited partners. To ensure limited liability for investors, the KG and its partners will be registered in the German commercial register. Also, the benefcial owners must be reported to the transparency register. Notarisation of the LPA is not required, but the fling with the commercial register must be effected by a notary.
Signatures of investors must be notarised by a notary public (if taking place outside Germany, generally an apostille in accordance with the Hague Convention has to be provided by the notary public). Limited partners in the form of an entity must provide proof of their valid existence and due representation by the signatories. The fees and expenses for the notarisation of fling with the commercial register and the registration fees are fairly small and generally do not exceed €2,000. Filings can usually be effected within two to four weeks. The KG itself has no minimum capital requirements. A minimum registered capital of €25,000 applies to a GmbH serving as GP.
Fund Formation in Germany – Requirements
Is a private equity fund vehicle formed in your jurisdiction required to maintain locally a custodian or administrator, a registered ofce, books and records, or a corporate secretary, and how is that requirement typically satisfed?
A separate custodian is necessary if the fund is managed by a fully licensed manager under the KAGB (the German implementation of the Alternative Investment Fund Managers Directive (AIFMD)). A custodian is not necessary in the case of a registered (sub-threshold) manager. A fund in the form of a KG requires a domicile in Germany and must comply with the commercial law requirements regarding book-keeping. The fund manager typically serves as managing limited partner of the fund and also performs corporate secretarial and administrative tasks. A separate administrator is rather uncommon (as opposed to other jurisdictions).
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Getting the Deal through 2022_Private Equity_Fund Formation_Chapter Germany
This article was first published in: Private Equity – Fund Formation, Getting the Deal through, Lexology, Law Business Research, 2022