5.6 Legal Aspects of Equity Provided by Shareholders 173Co. KG is a limited partnership with, typically, a limited-liability company
(“GmbH”) as the sole general partner and limited partners (“& Co.”) whose liabil-
ity is restricted to their fixed contributions to the limited partnership (“KG”).
Depending on the governing law, the limited partnership (LP) either is or is not
regarded as a separate legal person. Under English law, a limited partnership gov-
erned by the Limited Partnerships Act 1907 is not a legally separate entity,^165 but
an LLP governed by the Limited Liability Partnerships Act 2000 is a legal entity
independent of its members.
The rights of partners. Partners with unlimited liability (general or unlimited
partners) typically have the same rights and obligations as partners in a general or
unlimited partnership (such as the OHG). However, partners with limited liability
(limited partners) also have limited rights. The partners may regulate their rights
in the partnership agreement. For example, they may agree on the distribution of
profit and loss.^166
The extent of management discretion to raise equity by issuing shares and to
reduce equity. A limited partnership is managed by general partners. A limited
partner usually cannot take part in its management.^167 The partnership agreement
can lay down to what extent the firm may raise new equity.^168 Although the
limited partnership is a flexible business form, there may be legal constraints on
the repayment of the capital investment of limited partners.^169
The transferability of shares. Shares in a limited partnership are not freely
transferable. A limited partner may not assign his share without the consent of
general partners, unless the partners have agreed otherwise.^170
Duties of disclosure. As in a partnership, partners have access to books^171 and
have mutual disclosure duties.
5.6.5 Shares in Private Limited-liability Companies
In a limited-liability company, the limited liability of all shareholders can increase
the potential conflict of interest between the firm and its shareholders. The firm
should manage both the firm v controlling shareholder relationship as well as the
firm v non-controlling shareholder relationships.
The firm may try to better align the interests of the controlling shareholder with
those of the firm. For example, the controlling shareholder may undertake a con-
tractual liability for the obligations of the firm, give a security, or provide other
(^165) See The Law Commission, Partnership Law (Report) [2003] EWLC 283(9) (15 Novem-
ber 2003).
(^166) For German law, see §§ 121 and 168 HGB.
(^167) For English law, see section 6(1) of the Limited Partnerships Act 1907.
(^168) See section 6(5) of the Limited Partnerships Act 1907: “Subject to any agreement ex-
pressed or implied between the partners ... (d) A person be may introduced as a partner
without the consent of the existing limited partners ...”
(^169) See section 4(3) of the Limited Partnerships Act 1907.
(^170) See section 6(5) of the Limited Partnerships Act 1907.
(^171) See section 6(1) of the Limited Partnership Act 1907.