Swiss Limited Partnership (Kommanditgesellschaft): Guide

The Swiss limited partnership (Kommanditgesellschaft, or KG) occupies a distinctive niche in Swiss corporate law. While the AG and GmbH dominate the landscape for most commercial enterprises, the limited partnership remains a useful vehicle for specific business configurations — particularly where investors wish to participate in a venture without assuming unlimited personal liability.

Legal Framework

The Swiss limited partnership is governed by Articles 594–619 of the Swiss Code of Obligations (CO). It requires at least two partners:

• General partner (Komplementär): Bears unlimited personal liability for the partnership’s obligations and is responsible for management.
• Limited partner (Kommanditär): Contributes capital and participates in profits but is liable only up to the amount of their registered contribution.

This dual structure makes the KG a hybrid entity — combining elements of a general partnership with the limited liability protections more commonly associated with corporate entities.

Formation Requirements

Partners and Capacity

At least one natural person must serve as a general partner. Legal entities (such as an AG or GmbH) may serve as general partners, creating a structure similar to the German GmbH & Co. KG. Limited partners may be natural persons or legal entities.

Partnership Agreement

While Swiss law does not strictly require a written partnership agreement, drafting one is strongly advisable. The agreement should address:

• Capital contributions of each partner
• Profit and loss allocation ratios
• Management authority and decision-making procedures
• Admission and withdrawal of partners
• Non-compete obligations
• Dissolution triggers and procedures

Commercial Registry Enrolment

The limited partnership must be registered with the cantonal commercial registry. The registration filing includes:

• The partnership name (which must include the surname of at least one general partner, followed by an appropriate designation such as “& Co.” or “KG”)
• The registered office address
• The purpose of the partnership
• The names and details of all general partners
• The names of limited partners and the amount of each limited partner’s contribution
• Specimen signatures of persons authorised to represent the partnership

The partnership comes into legal existence vis-à-vis third parties upon registration. For company name rules, the partnership name must comply with general Swiss naming requirements.

Liability Structure

General Partners

General partners bear joint and several unlimited liability for all partnership obligations. This means personal assets may be seized to satisfy partnership debts if partnership assets are insufficient. This liability extends to obligations incurred before a general partner joined, unless otherwise agreed with existing creditors.

Limited Partners

Limited partners’ liability is capped at their registered capital contribution. However, there are important caveats:

• If a limited partner participates in management or acts on behalf of the partnership without proper authorisation, they may lose their limited liability protection.
• If the limited partner’s contribution has not been fully paid in, they remain liable for the outstanding balance.
• If profits are distributed that reduce the limited partner’s capital below the registered amount, the limited partner may be required to return the excess.

Taxation

The limited partnership is a fiscally transparent entity in Switzerland — it does not pay corporate income tax. Instead, income and losses flow through to the individual partners and are taxed at their personal or corporate level.

Income Allocation

Partnership income is allocated according to the partnership agreement. In the absence of specific provisions, Swiss law provides default rules based on an “appropriate” split determined by the nature of each partner’s contribution.

Withholding Tax

The partnership is not subject to Swiss withholding tax on profit distributions, unlike an AG or GmbH that pays dividends. This can be advantageous for certain structuring purposes.

Social Insurance

General partners who are natural persons are treated as self-employed for social insurance purposes and must register with the cantonal compensation office. Limited partners who do not participate in management are generally not subject to self-employment social insurance contributions on their partnership income.

Practical Use Cases

Private Equity and Investment Funds

The limited partnership is the traditional vehicle for private equity and venture capital fund structures in Switzerland, mirroring the LP structures used in the United States, United Kingdom, and Luxembourg. The general partner (or a management company controlled by the general partner) manages the fund, while institutional and high-net-worth investors participate as limited partners.

Family Businesses

Swiss family enterprises sometimes use the limited partnership to involve family members in the business with varying levels of risk exposure. Senior family members may serve as general partners, while younger generations or passive family members contribute as limited partners.

Joint Ventures

Where two parties wish to undertake a specific project with one party contributing management expertise and the other providing capital, the limited partnership offers a straightforward framework without the overhead of incorporating a separate company.

Real Estate

Property development projects occasionally use the KG structure, with a developer acting as general partner and investors as limited partners. The flow-through taxation eliminates double taxation on rental income and capital gains.

Advantages

• Flow-through taxation: No entity-level corporate tax, avoiding double taxation.
• Flexibility: The partnership agreement can be tailored to the specific needs of the venture.
• Lower formation costs: No minimum capital requirement (unlike the AG or GmbH), and notary requirements are less onerous.
• No audit requirement: Limited partnerships are generally not subject to the audit requirements applicable to AGs and GmbHs, unless they exceed certain size thresholds.

Disadvantages

• Unlimited liability for general partners: The general partner’s personal assets are at risk, which may be mitigated by interposing a GmbH or AG as the general partner.
• Limited transferability: Partnership interests are not freely transferable; admission and withdrawal of partners typically require the consent of all existing partners.
• Less recognised internationally: Foreign counterparties and investors may be less familiar with the KG structure compared to the AG or GmbH.
• Regulatory constraints: Certain regulated activities (e.g., banking, insurance) cannot be conducted through a partnership structure.

GmbH & Co. KG Structure

To mitigate the unlimited liability of the general partner, Swiss practitioners often employ a structure where a GmbH serves as the sole general partner of the limited partnership. This arrangement:

• Limits the exposure of natural persons to the amount of their GmbH capital contribution
• Preserves the flow-through taxation benefits of the partnership
• Allows professional management through the GmbH’s directors

This structure requires careful drafting to ensure that the GmbH’s articles of association and the partnership agreement are properly aligned. The GmbH itself must comply with all standard GmbH formation requirements, including the CHF 20,000 minimum capital.

Conversion and Dissolution

A limited partnership may be converted into an AG or GmbH through a statutory merger or conversion under the Swiss Merger Act (FusG). This is sometimes pursued when a venture grows beyond the scale where a partnership structure is optimal.

Dissolution of a limited partnership occurs upon:

• Expiry of the agreed term
• Unanimous resolution of the partners
• Bankruptcy of the partnership
• Death or bankruptcy of a general partner (unless the partnership agreement provides otherwise)
• Court order

Upon dissolution, the partnership enters liquidation. Partnership assets are used to satisfy creditors, with any surplus distributed to partners according to the partnership agreement.

Formation Checklist

1. Identify at least one general partner and one limited partner
2. Draft a comprehensive partnership agreement
3. Determine the registered office and company name
4. Prepare commercial registry filing documents
5. File for registration with the cantonal commercial registry
6. Register general partners for social insurance
7. Open a business bank account
8. Register for VAT if applicable

Donovan Vanderbilt is a contributing editor at ZUG BUSINESS. This article is informational and does not constitute legal, tax, or financial advice.