Operation of General Partnership Companies
Commercial companies facilitate a wide range of industrial, service, and financial activities in an era of globalized trade. Upon registration, companies acquire legal personality and, as a result, possess both rights and obligations. Among the types of companies recognized under Iranian Commercial Law are general partnership companies, which are established under a specific name for commercial purposes by two or more persons who assume joint and unlimited liability.
Method of Operation and Management of General Partnership Companies
What Is a General Partnership Company
A general partnership company is a commercial agreement under which two or more persons agree to jointly participate in all profits, debts, and financial and legal assets of a business, while expressly accepting unlimited liability. The debts of such companies are unlimited, and creditors may seek satisfaction by attaching the assets of any partner. If the company’s assets are insufficient to settle its debts, each partner is required to contribute toward payment of the company’s obligations.
Including the name of at least one partner, together with the term “general partnership,” in the company name is mandatory. All capital of the general partnership, whether in cash or in kind, must be fully contributed and delivered. Division or transfer of non-cash contributions requires the consent of all partners. Any significant transfer carried out without the consent of even one partner is unlawful. In these companies, if the company’s assets are insufficient to satisfy creditors, third parties may refer to any individual partner and demand payment of their claims.
Note that company debts must be claimed from the company itself first. Only in the event of bankruptcy or dissolution may creditors pursue individual partners to recover debts.
Characteristics of General Partnership Companies
- Existence of at Least Two Partners: A general partnership requires at least two persons who must contribute their resources. In certain legal frameworks, the maximum number of partners may be limited to ten.
- Partnership Agreement: A general partnership is created through an agreement among persons legally capable of contracting. This agreement may be written, oral, or implied, provided that its terms are clear and comprehensive.
- Lawful Activities: Partners in a general partnership must conduct lawful activities.
- Company Registration: Although registration of general partnerships is not mandatory in some jurisdictions, it is necessary to benefit from legal protections, including the ability to resolve disputes between partners in court.
- Profit and Loss Distribution: The method of distributing profits and losses must be specified in the partnership agreement. Partners hold ownership interests in the company’s assets, and upon dissolution, remaining assets are distributed in proportion to the partners’ capital accounts.
- Unlimited Liability: All partners bear joint and several unlimited liability for the company’s activities. If company assets are insufficient to satisfy creditors’ claims, the partners’ personal assets may be used.
- Transfer of Interests: A partner may not transfer their interests or benefits to a third party without the consent of the other partners.
- Mutual Trust and Confidence: Mutual trust, confidence, and cooperation among partners are fundamental principles of general partnerships. Each partner is expected to act in the collective interest. Loss of trust among partners may lead to the company’s failure.
Scope of Managers’ Authority and Liability in General Partnerships
If the scope of a manager’s authority is specified, the partners’ liability may also be addressed accordingly. Otherwise, third parties must rely on general legal principles when dealing with the manager. For this reason, it is advisable for individuals engaging in transactions with general partnership companies to review the company’s articles of association and familiarize themselves with the manager’s authority. If the company initiates legal action against a former manager, the current manager may file a claim on the company’s behalf.
Dissolution of General Partnership Companies
According to Article 136 of the Iranian Commercial Code, a general partnership company may be dissolved under the following circumstances:
- Unanimous Consent of All Partners: Given the legal respect accorded to the partners’ will, the company may be dissolved by unanimous agreement. Dissolution cannot be effected by majority vote alone.
- Request by One Partner: If a partner applies to the court for dissolution and the court finds the reasons persuasive, a judgment may be issued ordering dissolution of the company.
Termination by a Partner Under Article 137
If the right of termination has not been waived in the company’s articles of association, a partner may terminate the partnership by providing written notice at least six months in advance. The termination becomes effective at the close of the annual accounting period.
Death of a Partner
Bankruptcy of a Partner
A partner’s bankruptcy is another ground for dissolving a general partnership. In such cases, the creditors of the bankrupt partner may seek recovery only from the debtor partner’s share in the company or its profits.
Frequently Asked Questions About the Operation of General Partnership Companies
A general partnership is a business entity formed by at least two persons who jointly participate in profits, losses, and assets, with all partners bearing unlimited liability for the company's debts.
The minimum number is two partners, and the maximum is generally ten, unless otherwise provided by law.
All company capital must be contributed by the partners and may consist of cash or non-cash assets. Transfer of non-cash contributions requires unanimous consent.
Partners have unlimited and joint liability. If company assets are insufficient, creditors may pursue any partner for payment.
Management is carried out by one or more managers appointed in accordance with the articles of association, which define the scope of their authority.
Dissolution may occur through unanimous consent of partners, a court order at the request of a partner, death or bankruptcy of a partner, or termination in accordance with the articles of association. What is a general partnership company?
What is the minimum and maximum number of partners?
How is capital contributed in a general partnership?
What is the extent of partners’ liability?
How is management conducted in a general partnership?
What causes the dissolution of a general partnership?
