The term extended growth model means a conversion of a GmbH & Co. KG into a GmbH. This conversion takes place through an addition of the partnership to the capital company, which serves as a general partner. This is achieved by contributing all shares in GmbH & Co. KG to the GmbH as a limited partner. In this way, the GmbH remains as the sole shareholder of the partnership. However, since a partnership must always have at least two partners, this means the termination of the partnership. So the GmbH remains alone.

1st Advanced Growth Model – Introduction

We have often reported on how to successfully convert a sole proprietorship into a GmbH. We have also already informed about the opposite path. However, in conversion tax law there is a constellation to which we have not yet provided a detailed description, namely what is referred to as the extended growth model. This is exciting because here a partnership suddenly disappears and thus a GmbH remains. In German tax law, we have something that particle physicists are constantly looking for, namely that something can disappear almost without a trace.

2nd growth in partnerships

The technical term extended growth model may very likely be unknown to you, but you may have heard of the growth before. This is also a process of conversion, and it concerns partnerships. Therefore, we first look at this aspect in order to understand the overall context with the extended growth model holistically later.

An increase occurs when the co-entrepreneur shares in one partnership are transferred from one shareholder to another. For example, if an OHG has three shareholders and one wants to leave, then on the one hand he could sell the participation to an external interested party. But one of the other co-shareholders (or both) might just as well want to take over his shares. So when the co-shareholders acquire the stake of the outgoing shareholder, they grow to theirs.

This is the normal case when growing up. A reduction in the number of partners in a partnership is therefore characteristic. Although it would also be conceivable to dissolve the participation of the outgoing shareholder, the remaining shareholders would have to be redefined. However, there may be different distribution rates in the transfer of the outgoing shareholder's shareholding. For example, one OHG shareholder receives 10% of the shares and the other 90%. Therefore, the growth as a conversion process in such a situation makes sense.

Extended growth model at a GmbH & Co. KG

The special case for growth is the conversion of a GmbH & Co. KG into a pure GmbH. This is understood as the extended growth model, because usually a GmbH & Co. KG has only two partners, a natural person as a limited partner and a legal person as a general partner. The shareholding structure is usually structured in such a way that Komplementär-GmbH holds only 0 % of the shares in GmbH & Co. KG and the limited partner has 100 % of the shares. If the limited partner now wants to convert the GmbH & Co. KG into a GmbH, he can use the extended growth model for the conversion.

And this is what happens: The limited partner transfers his entire shares in GmbH & Co. KG to the previously empty complementary GmbH. The GmbH thus becomes the sole shareholder of the partnership, because the limited partner practically withdraws from the partnership through the complete transfer of his shares. However, since a partnership must necessarily have at least two partners (this is implicit in § 705 BGB), this is the end point of its existence. Without there being any explicit decision or registration in the commercial register in this direction, GmbH & Co. KG ceases to exist. What remains is only the GmbH, which had previously assumed the role of general partner.

Extended growth model: legal consequences

Legally, the end of the partnership’s existence is indirectly stated in § 738 (1) sentence 1 BGB. There is also the requirement that the termination of a company registered in the commercial register requires a corresponding entry in the commercial register. At the latest then you must also enter the expiry of the GmbH & Co. KG in the commercial register.

For the GmbH, it also applies that its purpose must be adapted in the social contract. As a rule, Komplementär-GmbH only served one purpose, namely the holding and management of company shares. However, by increasing the operating part of the partnership, the GmbH has now itself become an operating company. In fact, a commercial register extract also informs about the purpose of a GmbH. For this reason, the change of the purpose of the GmbH must be included in the company contract and submitted to the register court, so that the change of purpose is also recorded in the commercial register. If necessary, the company must also be changed.

The transfer of the limited partnership shares to the General Ltd requires a further legal consequence. In return, the outgoing shareholder receives shares in the GmbH. As a rule, the equivalent value of these new portions corresponds to the value of the limited portions which have changed over here. One also speaks of the application of the mirror image method (§ 39 paragraph 2 no. 2 AO).

And with that, a final point on the legal consequences of a conversion by means of an extended growth model: The conversion is tax-neutral possible. However, this only applies if the former limited partner is granted new shares in the GmbH (§ 20 UmwStG).

5th Advanced Growth Model – Conclusion

There are many ways to convert a GmbH & Co. KG into a GmbH. One of them is the extended growth model, which we wanted to introduce you in detail in this article. In fact, this is one of the most elegant conversion processes to form a GmbH from a GmbH & Co. KG. The reason for this is in particular that you only have to make little legal effort to achieve this goal. This is also tax-neutral.