February 02, 2025
Partnership agreement, is a legal instrument by which two or more persons undertake to pool their labor and/or assets in order to achieve a common goal. This form of business cooperation is regulated by the Civil Obligations Act, in particular Articles 637-64. A partnership is a community of persons and goods without legal personality, which distinguishes it from companies. The partnership agreement can be concluded orally or in writing. The partners can be natural and legal persons.
Partnership agreement and Partner Stakes
Peer stakes represent each partner’s contribution to the partnership. Stakes may be in the form of labor, money, property, or rights. The stakes become the common property of the partnership. The partners are responsible for the material and legal defects of their stakes. Stakes are acquired and determined according to the rules for the acquisition of individual property rights. Unless otherwise agreed, the partners are obliged to perform equal roles.
Management & Representation
The right to conduct the affairs of the partnership belongs jointly to all partners. It can be differently stipulated in the contract. Partners may authorize one or more partners for management. Authorized partners are considered proxies. No partner has the right to entrust the management of affairs to a third party without the consent of the other partners. The partners who have entrusted the management retain the right to supervise the business.
Partnership agreement and Relations with third parties
The partnership does not have legal personality. The partners are jointly and severally liable for obligations towards third parties. This means that each partner is liable with all his assets for the obligations of the partnership. A partner cannot legally bind the partnership by a legal transaction with a third party without the consent of the other partners. Claims of partnership belong to all partners together, unless otherwise agreed.
Profit and loss
Profit and loss are divided according to the agreed ratios, and if the ratios are not agreed, they are divided into equal parts. A partner who has invested only labor is entitled to a share of the profits, but not in the principal of the partnership. A closing statement and profit distribution cannot be required before the completion of the transaction, unless it is a long-term transaction.
Withdrawal and expulsion of partners
A partner may withdraw from the partnership under the terms of the contract, and other partners may exclude a partner if there are justified reasons for doing so. By withdrawing or expelling, the partner is restored the stake and the share in the property is paid. A partnership agreement concluded for an indefinite period of time may be cancelled at any time, except in bad weather or at the expense of other partners.
Partnership agreement and Termination of partnership
The partnership is terminated upon the achievement of the goal, the expiry of time, the agreement of the partners or in other ways provided for by law. After the termination of the partnership, the division of joint property is carried out, whereby the debts of the partnership are first settled, and then returned to the stake. The rest of the assets are divided according to their profit shares.
Tax aspects of partnerships
A partnership is not a separate tax entity, so profits are taxed at the level of partners according to their shares. Partners pay income or profit taxes, depending on their status. Entering stakes into a partnership, such as real estate, can have tax implications depending on the type of stake and the tax status of the partner. When paying out profits, the partners are required to pay income or profit tax, and the division of assets upon the termination of the partnership can also have tax implications, depending on the type of assets and the tax status of the partners.
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