How to Establish a General Partnership
Similar to a limited liability company, the capital of a general partnership is referred to as the partners’ capital contributions.
Negotiable instruments do not represent these capital contributions and are not transferable except with the consent of all partners.
If the transfer occurs by operation of law, such as upon the death of a partner, the remaining partners have the discretion to dissolve the partnership or to continue it.
In a general partnership, all capital must be contributed by the partners. Each partner’s capital contribution may be made in cash or in kind. If the contribution is in cash, it must be fully paid at the time of incorporation, unlike joint stock companies, where payment commitments may suffice. If the contribution is in kind, the assets must first be fully delivered and then properly valued.
Unlike joint-stock companies, for which the law specifies a minimum capital requirement, no such minimum capital is prescribed for general partnerships.
The partnership agreement governs the relationships among partners in this type of company.
Conditions and Required Documents for Registering a General Partnership
Liability of Partners in a General Partnership
Pursuant to Article 116 of the Commercial Code, each partner in a general partnership bears joint and several liability for all debts of the company.
Creditors of the partnership may seek recourse only against the partners when:
- First, the partnership has become bankrupt or dissolved.
- Second, the liquidation process has been completed, and the partnership’s assets are insufficient to satisfy its debts.
The liability of partners in a general partnership is unlimited, as partners do not know at the time of formation the extent of the debts for which they may ultimately be liable.
Each partner’s liability toward creditors is joint and several, and this rule is mandatory. Any agreement among partners to the contrary is valid only among themselves and is ineffective against third parties.
Partners have joint and several liability to creditors and proportional liability among themselves. As long as the partnership has not been dissolved, the personal creditors of the partners, meaning creditors whose claims are against the individual partner rather than the legal entity of the partnership, have no right to the partnership’s assets.
If the partnership is dissolved and its assets are insufficient to satisfy its debts, neither the partnership’s creditors nor the partners’ personal creditors have priority over the partners’ personal assets, and each may pursue recovery from those assets.
A personal creditor of a partner has no direct claim against the partnership’s assets. However, such a creditor may seek satisfaction of the debt from the partner’s share of the partnership’s profits.
This is achieved by requesting the court to order the attachment of the partner’s share of profits, after which the enforcement authority issues an order to the partnership’s managers. As of that date, the managers may not distribute those profits to the partner or apply them to any other purpose.
Number of Partners in a General Partnership
A general partnership must be formed by at least two persons and exclusively for commercial purposes. Therefore, the minimum number of partners required under Article 116 of the Commercial Code is two, and no maximum number is specified. The existence of at least two partners is required both at the time of formation and for the continued existence of the partnership.
Partners may be natural or legal persons. Due to the personal liability of partners, some legal scholars believe that persons lacking legal capacity, such as minors or legally incapacitated individuals, cannot be partners. However, in light of Articles 139 and 140 of the Commercial Code, this view is not universally accepted.
If one of the partners dies, the partnership continues only with the consent of the remaining partners and the deceased’s legal successor. If the remaining partners decide to continue the partnership, the successor of the deceased partner must, within one month of the date of death, declare in writing whether to continue the partnership.
Subject Matter of a General Partnership
According to Article 116 of the Commercial Code, the activities of a general partnership must be limited to commercial acts. Commercial acts are those enumerated in Article 2 of the Commercial Code. Therefore, if a general partnership is formed and its articles of association specify non-commercial activities as its subject matter, an application may be submitted to the court seeking the dissolution of the company.
Management of a General Partnership
Pursuant to Article 120 of the Commercial Code, a general partnership may be managed by a single manager. The term of management may be limited or unlimited. Unlike joint-stock companies, which require a board of directors and a chief executive officer, a general partnership is managed by one or more managers. Nevertheless, the articles of association may provide for the establishment of a board of directors or the appointment of a managing director.
Managers may be salaried or unsalaried. They may be appointed either within the partnership agreement or articles of association, or outside of them.
If managers are appointed outside the partnership agreement or the articles of association, they are generally removable at will, like an agent. However, if a manager is appointed under the partnership agreement, some legal scholars argue that such a manager cannot be removed unilaterally, as the partnership agreement constitutes a binding contract whose provisions cannot be revoked by any party. In such cases, removal of the manager requires the consent of the partners.
Managers may be selected from among the partners or from outside the partnership.
Frequently Asked Questions About Establishing a General Partnership
A general partnership is a company formed by at least two persons for commercial purposes, in which the partners provide all capital. Capital contributions may be made in cash or in kind and are transferable only with the consent of all partners.
Under Article 116 of the Commercial Code, partners are jointly and severally liable for all partnership debts. Creditors may pursue the partners only after the partnership has been dissolved. Its assets are insufficient.
The minimum number of partners required to form and maintain a general partnership is two.
The subject matter must consist exclusively of commercial activities. A partnership formed for non-commercial purposes may be subject to dissolution by court order.
Capital contributions may be made in cash or in kind. Cash contributions must be fully paid upon formation, and non-cash contributions must be delivered and valued.
Management may be entrusted to one or more managers, who may be partners or non-partners. The term of management may be limited or unlimited.
No. The law does not prescribe a minimum capital requirement for general partnerships.
Personal creditors of a partner may not directly claim partnership assets but may seek attachment of the partner’s share of profits to satisfy their claims.
Although some argue that minors or legally incapacitated persons cannot be partners, this view is not conclusively accepted and depends on the circumstances and applicable legal provisions.
Continuation of the partnership depends on the consent of the remaining partners and the legal successor of the deceased partner, who must declare consent or refusal in writing within one month of the death. What is a general partnership?
How is partner liability determined in a general partnership?
What is the minimum number of partners required?
What must be the subject matter of a general partnership?
How are capital contributions determined?
How is a general partnership managed?
Is there a minimum capital requirement for a general partnership?
How can a partner’s personal creditors recover their claims?
Can persons lacking legal capacity be partners?
What happens if a partner dies?
