A 'partnership' is a partnership between persons who jointly practice a profession or business. Examples include the partnership and general partnership. In contrast to capital companies – such as private limited companies – which are established and thus acquire legal personality, a partnership is based on an agreement that is entered into. On 10 October 2022, a new preliminary draft of bills to modernise partnership law was submitted for consultation ("Bill"). The second consultation closed on 10 February 2023.
Reason for the Bill
The current legislation dates from the 19th century and does not sufficiently meet the needs of contemporary entrepreneurs. Furthermore, the current legislation contains various ambiguities. With this Bill, the government aims to facilitate entrepreneurship and to offer a clear and simple arrangement that contributes to the certainty of trade. With this Bill, the government also aims to provide partners and creditors with appropriate protection. Given the size of the Bill, we will limit ourselves in this article to the main points of the Bill.
New legal forms
In the Bill, the partnership and the general partnership (“VOF”) will disappear in terms of content and will be replaced by the public partnership (“Public Partnership”). The limited partnership (“CV”) will continue to exist as a silent partnership (“Silent Partnership”).
Legal personality
The Public Company has legal personality. This means that the Public Company can act independently in commercial transactions under a common name. In this way, the Public Company can be the owner or rightful claimant of goods and enter into agreements. Furthermore, the Bill introduces the Silent Company. Unlike the Public Company, a Silent Company has no legal personality. Partners of a Silent Company act in their own name.
Legal personality means, among other things, that the Public Company has its own assets: this makes it easier to transfer goods, establish securities and obtain financing.
Registration in the Trade Register
Registration in the Trade Register is not required for the creation of legal personality of the Public Company. Registration by the joint partners of the Public Company in the Trade Register does give it full legal capacity.
Joint and several liability
For all partnerships, both professional and business activities can be performed. Because the distinction between the exercise of professional or business activities is no longer made, the distinction in liability between partners of a partnership and a general partnership will no longer apply. The Bill stipulates that partners of a Public Company (in addition to the public company itself) are jointly and severally liable for all obligations of the Public Company towards third parties.
Representation of the board
A partnership is in principle managed by all partners jointly (except by the limited partners in a CV). In a Public Company, each partner is in principle authorised to represent the Public Company. Any restrictions on the power of representation must be registered in the trade register for third-party effects. A limited partner may only represent the Silent Company on the basis of a power of attorney. A limited partner acting on the basis of a power of attorney is not jointly and severally liable. A Silent Company may only be represented by means of a power of attorney.
Entry and exit of partners
The current law does not provide for an entry or exit arrangement. In practice, the old partnership agreement must be dissolved and a new one concluded or the partnership agreement provides for complicated stay clauses.
The Bill makes it easier for the Public Company registered in the Trade Register to enter and exit, based on the existing partnership agreement. Furthermore, a retiring partner is released from obligations towards third parties from five years after retiring. A retiring partner is better protected against claims on the company that arose before his/her entry. This lowers the threshold for running a business through a partnership. In the event of retiring, the retiring partner will also be entitled to a retiring compensation, based on the value of the partner's share in the company.
Protection of creditors
Creditors are protected in several ways. Creditors have the option to consult public registers to see which registered assets the Public Company may have in its name. The Bill also provides clarity on who may act on behalf of the Public Company. Partners must be registered in the trade register, whereby any restrictive conditions on the actions of partners must also be registered. Finally, creditors of a Public Company have an additional possibility of recovery: in addition to the company, any of the partners can be held liable.
Entry into force of the Bill
The Bill clarifies and simplifies partnership law in several respects compared to existing legislation. We emphasise that the Bill must still be dealt with and adopted before the new rules will apply as law. It is quite possible that the Bill will not be adopted as law or will be adopted in an amended form. Vestius will closely monitor the further developments.
In any case, for the time being, the existing legislation on (entering into) partnerships (general partnership, general partnership, limited partnership) will remain in force.
If you have any questions about this Bill, please contact Sabine Chan (06-578 911 13) or Sander Pieroelie (06-222 878 65) of Vestius, partner of FHI Advies.
This article appeared in the Vestius Newsletter of April 2023.
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