Profit Distribution Before the Sale of a General Partnership (OHG): Strategic Tax Optimization for Maximum Sale Proceeds

The strategic structuring of profit distribution before the sale of a General Partnership (Offene Handelsgesellschaft, OHG) is a crucial success factor that can significantly impact the net proceeds for the partners. A well-thought-out profit distribution strategy not only enables optimal tax advantages but also enhances the attractiveness of the company to potential buyers. This comprehensive guide covers all relevant aspects—from the legal foundations to concrete calculation examples and proven practical optimization strategies.

Table of Contents

1. Legal Foundations of Profit Distribution in a General Partnership (OHG)
2. Statutory vs. Individual Profit Distribution
3. Practical Example: Calculation of OHG Profit Distribution
4. Tax Optimization Through Strategic Profit Distribution
5. Capital Account Structure and Withdrawal Strategies
6. Timing of Profit Distribution Before the Sale
7. Impact on Company Value and Sale Price
8. Common Mistakes and How to Avoid Them
9. Conclusion and Recommendations for Action

Legal Foundations of Profit Distribution in a General Partnership (OHG)

Profit distribution in an OHG is subject to clear statutory regulations but also offers considerable scope for individual agreements.

Statutory Regulation According to the German Commercial Code (HGB)

The statutory default rule for profit distribution is found in § 121 of the German Commercial Code (Handelsgesetzbuch, HGB). According to this:

1. 4% preliminary profit on each partner’s capital contribution
2. Per capita principle for the remaining profit (equal distribution)
3. Consideration of contributions and withdrawals during the fiscal year

This statutory rule applies if no deviating agreements are made in the partnership agreement.

Importance of the Partnership Agreement

The partnership agreement forms the central legal basis for individual profit distribution models. Partners can specify:

• Alternative distribution keys (e.g., based on capital shares)
• Performance-related components (e.g., remuneration for services)
• Special provisions for specific types of profits
• Retention quotas (retained profit shares)

Important: Changes to profit distribution in the partnership agreement generally require the consent of all partners unless simplified amendment rules have been agreed upon.

Statutory vs. Individual Profit Distribution

The choice between statutory and individual profit distribution has far-reaching consequences—especially regarding a planned company sale.

Statutory Profit Distribution

Advantages:

• Simple application without design effort
• Clear rules in case of disputes
• Legal certainty due to established case law

Disadvantages:

• Does not account for differing performance contributions
• Often not optimal from a tax perspective
• Can lead to inequities (e.g., with strongly divergent work contributions)

Individual Profit Distribution

Advantages:

• Tailored to individual circumstances
• Optimal tax planning opportunities
• Takes different performance contributions into account
• Flexibility in preparing for a company sale

Disadvantages:

• Higher design and documentation effort
• Potential scrutiny from tax authorities
• Possible source of conflict among partners

Comparison Table: Statutory vs. Individual Profit Distribution

Aspect	Statutory Distribution	Individual Distribution
Legal Basis	§ 121 HGB	Partnership Agreement
Flexibility	Low	High
Design Effort	None	Medium to High
Tax Optimization	Limited	Numerous possibilities
Documentation Requirements	Standard	Increased
Adaptability Before Sale	Hardly any	Very good

Practical Example: Calculation of OHG Profit Distribution

To illustrate the different profit distribution models, we consider a concrete calculation example:

Initial Situation:

• OHG Annual Profit: €300,000
• Partner A: Capital contribution €150,000, actively involved in the business
• Partner B: Capital contribution €100,000, actively involved in the business
• Partner C: Capital contribution €250,000, not actively involved in the business

Calculation According to Statutory Regulation (§ 121 HGB):

Step 1: Preliminary profit of 4% on capital contributions

• Partner A: €150,000 × 4% = €6,000
• Partner B: €100,000 × 4% = €4,000
• Partner C: €250,000 × 4% = €10,000
• Total preliminary profit: €20,000

Step 2: Remaining profit distributed per capita

• Remaining profit: €300,000 - €20,000 = €280,000
• Per partner: €280,000 ÷ 3 = €93,333.33

Step 3: Total profit distribution

• Partner A: €6,000 + €93,333.33 = €99,333.33
• Partner B: €4,000 + €93,333.33 = €97,333.33
• Partner C: €10,000 + €93,333.33 = €103,333.33

Alternative: Performance-Based Profit Distribution

For a sale-oriented profit distribution, the following individual arrangement might be appropriate:

Step 1: Preliminary profit of 4% on capital contributions (as above: €20,000)

Step 2: Remuneration for active partners

• Partner A: €60,000
• Partner B: €60,000

Step 3: Remaining profit distributed according to capital shares

• Remaining profit: €300,000 - €20,000 - €120,000 = €160,000
• Distribution key: A (30%), B (20%), C (50%)
• Partner A: €160,000 × 30% = €48,000
• Partner B: €160,000 × 20% = €32,000
• Partner C: €160,000 × 50% = €80,000

Step 4: Total profit distribution

• Partner A: €6,000 + €60,000 + €48,000 = €114,000
• Partner B: €4,000 + €60,000 + €32,000 = €96,000
• Partner C: €10,000 + €80,000 = €90,000

This individual arrangement accounts for both active involvement and capital contributions and can be optimized for tax purposes.

Tax Optimization Through Strategic Profit Distribution

One of the most important preparations for a company sale is tax-optimized profit distribution. Skillful structuring can yield significant tax advantages.

Core Strategies for Tax Optimization

1. Utilize Progressive Income Taxation

Income tax in Germany is progressive, meaning the higher the taxable income, the higher the tax rate. This creates the following optimization opportunities:

• Even distribution over multiple years to avoid tax rate spikes
• Utilization of lower tax brackets for partners with lower other income
• Distribution to family members (if they are partners)

2. Retention vs. Distribution of Profits

The choice between retaining profits (thesauration) and distributing them has significant tax consequences:

• Retained profits increase the capital account and potentially the sale proceeds
• Distributed profits are immediately subject to income tax but reduce the taxable gain upon sale

3. Use Loss Offsets and Allowances

• Loss carrybacks and carryforwards can reduce tax burdens
• Allowance under § 16 EStG (€45,000) can be strategically utilized upon sale
• Fünftelregelung (one-fifth rule) for extraordinary income may provide tax relief

Typical Scenarios Before the Sale

Scenario	Strategy	Tax Effect
Sale within 1 year	Short-term profit reduction via provisions and depreciation	Lower company profit, reduced current tax burden
Sale in 2-3 years	Medium-term restructuring of profit distribution	Optimal use of allowances and tax brackets
Sale in 5+ years	Long-term asset buildup and reserves formation	Increased substance, higher sale price

Capital Account Structure and Withdrawal Strategies

The capital account structure and withdrawal strategy are important levers for preparing a company sale.

Optimal Capital Account Management

In an OHG, the following capital accounts are typically maintained:

1. Fixed Capital Account (initial capital)
2. Variable Capital Account (for profits and losses)
3. Private Account (for withdrawals and contributions)
4. Loan Account (for partner loans)

For the sale, the design of capital accounts is particularly relevant:

• High capital accounts increase the asset value and potentially the sale price
• However, they also increase the tax burden on sale
• A balanced structure is advisable

Strategic Withdrawals Before the Sale

Withdrawal strategies should be aligned with the planned sale timeline:

Short-term sale perspective (1-2 years):

• Increased withdrawals to reduce capital accounts
• Taxed as income currently but reduce later capital gains

Medium-term sale perspective (3-5 years):

• Balanced withdrawal strategy
• Gradual adjustment of capital accounts

Long-term sale perspective (5+ years):

• Lower withdrawals to strengthen substance
• Building reserves to enhance the company

Practical Withdrawal Table

Time Before Sale	Recommended Withdrawal Rate of Profit	Objective
> 5 years	30-50%	Build substance, strengthen market position
3-5 years	50-70%	Balanced strategy
1-2 years	70-90%	Reduce capital accounts, tax optimization
< 1 year	To be evaluated individually	Targeted measures for sale preparation

Timing of Profit Distribution Before the Sale

The right timing for adjustments to profit distribution is critical for a successful company sale.

Multi-Year Planning Horizon

Ideally, the profit distribution strategy should be planned over several years before the sale:

5+ years before sale:

• Establish basic profit distribution structure
• Plan capital account buildup
• Develop long-term retention strategy

3-5 years before sale:

• Initial adjustments to profit distribution
• Initiate tax-optimizing measures
• Implement medium-term withdrawal strategy

1-3 years before sale:

• Targeted tax optimization
• Sale-oriented profit distribution
• Adjust capital accounts

< 1 year before sale:

• Fine-tune balance sheet structure
• Final tax optimizations
• Prepare for sale negotiations

Typical Milestones Before the Sale

Timeframe	Action	Objective
5 years before sale	Review partnership agreement	Establish legal basis for optimal profit distribution
3 years before sale	Engage tax advisor	Develop individual tax optimization strategy
2 years before sale	Adjust profit distribution model	Realize tax advantages
1 year before sale	Involve company valuator	Optimize sale price
6 months before sale	Prepare due diligence	Create transparency for buyers

Impact on Company Value and Sale Price

The profit distribution strategy directly affects the achievable sale price.

Influence on Common Valuation Methods

Different company valuation methods are affected differently by profit distribution:

Income Approach:

• Higher retained profits = higher expected future earnings
• Stable profit development positively influences valuation multiples

Asset-Based Approach:

• Higher capital accounts = higher asset value
• Larger reserves positively affect valuation

Multiplier Approach:

• EBIT/EBITDA multiples are influenced by profit distribution
• Industry-standard metrics can be improved through optimized profit structure

Optimizing the Sale Price

To optimize the sale price, consider the following:

1. Ensure profit continuity

   • Avoid erratic fluctuations in the years before sale
   • Present stable, ideally increasing profit trends

2. Balance sheet optimization

   • Clear separation between operating and non-operating assets
   • Transparent capital account structure

3. Adopt the buyer’s perspective

   • Present an attractive business model with understandable earnings structure
   • Highlight future potential

Common Mistakes and How to Avoid Them

The following mistakes are frequently made in profit distribution before the sale of an OHG:

1. Short-Term Optimization Instead of Long-Term Strategy

Mistake: Making drastic changes to profit distribution shortly before the sale.

Solution: Early planning over several years. Moderate, comprehensible adjustments appear more credible to buyers and tax authorities.

2. Insufficient Documentation

Mistake: Changes to profit distribution are not adequately documented or justified.

Solution: Careful recording of all changes with economic rationale. Properly pass and document partner resolutions.

3. Lack of Tax Expertise

Mistake: Tax consequences are not comprehensively analyzed.

Solution: Early involvement of specialized tax advisors experienced in company sales.

4. Ignoring the Buyer’s Perspective

Mistake: Optimizing profit distribution solely from the seller’s viewpoint.

Solution: Consider the buyer’s perspective. Transparent, plausible profit structures build buyer trust and justify higher multiples.

Conclusion and Recommendations for Action

Strategic structuring of profit distribution before the sale of an OHG is a complex but rewarding endeavor. With proper planning, significant tax advantages can be realized, and sale proceeds maximized.

Key Success Factors

1. Early planning is key—ideally start 3-5 years before the planned sale
2. Embed individual profit distribution in the partnership agreement
3. Engage tax expertise early
4. Optimize capital account structure
5. Consider the buyer’s perspective

Concrete Recommendations for Action

• Immediately: Review current profit distribution rules and identify optimization potential
• Short term: Consult tax advisors and M&A experts
• Medium term: Adjust partnership agreement and implement profit distribution strategy
• Long term: Build documentation and develop the sales narrative

With a well-designed profit distribution strategy before the sale, you lay the foundation for a successful and tax-optimized company sale. Investing in professional advice usually pays off multiple times.

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Frequently Asked Questions About Profit Distribution Before the Sale of an OHG

How long before the sale should I optimize profit distribution?

Ideally, you should start optimizing 3-5 years before the planned sale. This allows sufficient time for tax-recognized, organic adjustments and avoids the impression of short-term structuring that tax authorities might scrutinize critically.

What profit distribution is optimal for a sale?

There is no one-size-fits-all "optimal" profit distribution, as it depends on individual factors such as partner structure, tax circumstances, and industry. Generally, profit distribution should be economically plausible, tax-optimized, and transparent to potential buyers.

How can I tell if my current profit distribution is suitable for a sale?

Have your profit distribution reviewed by a specialized tax advisor and M&A consultant. Pay particular attention to the proportionality between capital contribution, work input, and profit share, as well as the tax implications upon sale.

Can I change the profit distribution shortly before the sale?

In principle, yes, but with significant limitations. Short-term changes may be viewed critically for tax purposes and reduce buyer confidence. A long-term, organic adjustment over several years is preferable.

Which tax aspects are especially important?

Key considerations include income tax on ongoing profits, taxation of capital gains (including allowances under § 16 EStG), and trade tax. Retention relief and the one-fifth rule may also be advantageous in certain situations.