Civil law partnership - the sphere of internal and external relations (part 3)
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The partners are free to shape the rules for managing civil partnership matters, so they are free to regulate this issue in the partnership agreement. However, if these rules are not specified by the partners, the code regulations will apply. It should be emphasized that running the company's affairs, and thus managing it, refers to making decisions that have effects inside the company, therefore we are not dealing here with legal actions such as concluding contracts. How does a civil law partnership work?
Civil law partnership - the sphere of internal relations
Principles of conducting cases in a civil partnership
The partners are free to shape the rules of managing the civil law partnership, so they are free to regulate this issue in the partnership agreement. However, if these rules are not specified by the partners, the code regulations will apply. It should be emphasized that running the company's affairs, and thus managing it, refers to making decisions that have effects inside the company, therefore we are not dealing here with legal actions such as concluding contracts.
According to the basic principle resulting from the Civil Code, each partner is both entitled and obliged to run the partnership's affairs, and this obligation results from the very fact that he is a partner. Consequently, it is not allowed for a partner to conduct the partnership's affairs as part of employment on any basis.
As part of the performance of this obligation, which is also a right, each of the partners may independently, i.e. without a prior resolution of the shareholders, conduct matters that do not exceed the scope of the ordinary management of the company. In order to determine whether a given activity exceeds the scope of day-to-day management, it should be examined in relation to the specific facts in which it is to occur, taking into account factors such as assets or the scope of activities carried out by a civil law partnership. However, if an activity performed by a partner in the course of managing the partnership's affairs exceeds or does not exceed the ordinary management board, but an objection has been raised against its performance, then a resolution of the partners is required to conduct such a case. Regardless of the principles indicated, each of the partners may perform an urgent action, the omission of which could expose the company to significant losses. In such a case, a resolution of the shareholders is not required.
Deciding on the matters of the partnership in the form of a shareholders' resolution should be regulated in the articles of association. Shareholders may freely shape the voting rules. However, due to the personal nature of a civil law partnership, where the element of personal trust plays a special role, it is assumed that resolutions are adopted unanimously, and therefore require the consent of all partners. This does not mean, however, that it is prohibited to regulate this issue differently in the articles of association.
Civil law partnership - rules of participation in losses and profit distribution
The issue of distribution of profit and share in losses of a civil law partnership may, in principle, be freely formulated by the partners in the partnership agreement. This freedom is limited by the principle according to which the articles of association cannot exclude a partner from participation in the profits, and in principle it is assumed that the share of the partners in the profits of the civil law partnership is equal. On the other hand, within the scope of discretion, partners are allowed to exempt some of them from participation in the company's losses.
If the partners do not take advantage of the free regulation of the issue of participation in the company's profits and losses or if they do not regulate it at all, then the code rule applies. This principle states that each of the partners is entitled to an equal share of the company's profits and participates in the same proportion of losses, without taking into account the type and value of the contribution made. It is the value and object of the share made by a partner that is a reference often used in the articles of association to define a share in profits and losses.
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Important!
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As a rule, a shareholder may demand division and payment of profits only after the dissolution of the company. However, if a civil law partnership has been entered into for a period longer than 1 financial year, then the distribution and payment of profits may also be demanded at the end of each tax year. However, this issue may also be freely regulated by the partners in the articles of association or may be changed by a resolution of the partners.
Although, as a rule, partners are free to pay advances on the profit earned in a given year, it is worth including provisions regulating the principles of their payment in the civil partnership agreement. One should follow the rule according to which the sum of advances collected by the shareholder did not exceed the corresponding part of the profit for a given year, also increased by profits from previous years.
Civil law partnership - the sphere of external relations
Representation of a civil partnership
The concept of representation of a company should be understood as making on its behalf declarations of will having legal effects. Each partner is entitled to represent a civil law partnership. Importantly, representation refers basically to the partners of the company themselves.
Important!
A civil law partnership does not have legal personality, so the partners acting on its behalf do not have the status of a body. A partner representing the company is its statutory representative.
In the articles of association, partners may define the scope of the right to represent the partnership, and in particular require the joint actions of all or designated partners. However, if the contract does not regulate this issue or a separate resolution has not been adopted, the partners are authorized to represent the civil law partnership within the limits in which they are entitled to conduct its affairs.
Example 1.
If the scope of authorization of a partner to run the partnership's affairs, resulting from the partnership agreement, is limited to ordinary management activities, and the agreement does not specify the scope of authorization to represent the partnership by this partner, then these scopes are equal.
Moreover, each of the partners may independently take legal actions of an emergency, the omission of which could expose the company to irreparable losses.
There is no uniform position with regard to legal transactions which go beyond ordinary management and require a resolution to be adopted by the shareholders. There are opinions according to which such actions require adopting a resolution of the shareholders expressing the will to conclude the contract by the authorized partner and such opinions that there is also a requirement of joint representation. For this reason, it is desirable that the civil law partnership agreement should clearly define what activities go beyond ordinary management and the partner's authorization to do so.
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Civil law partnership - liability for the company's obligations
The partners of a civil law partnership are jointly and severally and personally liable without limitation for the obligations of the partnership, which are the joint obligations of the partners. The solidarity character means that each partner is responsible for the entire debt, so the creditor may demand payment from one partner or from all of them jointly. On the other hand, the personal and unlimited nature of the partners' liability is manifested in the fact that the partners are liable with all their assets at their disposal at the time the creditor demands satisfaction of the claim.
The solidarity of liability has consequences in terms of civil proceedings. The creditor may sue only one of the partners on account of the obligations of the civil law partnership and in such a case the writ of execution will entitle the creditor to satisfaction only from the debtor's personal property. When the defendant partner satisfies all or part of the claim, he will be entitled to the so-called a recourse claim against other partners, i.e. a claim to reimburse a proportional part of the receivable. If, on the other hand, the creditor wants to satisfy himself with the joint property of the debtors, he must obtain an enforcement order against all partners, which means that he must sue all of them.
The unlimited nature of liability for the company's obligations is revealed when the company's debt exceeds its financial capacity. Then the liabilities must be met from the private assets of the partners. Moreover, there is no monetary limit, therefore liability, which may result in the loss of private property.
Attention!
Due to the joint and several liability in a civil law partnership, it does not matter which of the partners is directly responsible for the debt. The consequences of the debt are borne by all co-owners. The liability for the debt of the company will be borne even by the partner who withdrew from it, if the debt arose before the withdrawal
On the other hand, a partner joining an indebted company takes responsibility for debts on an equal footing with other co-owners.
Attention should also be paid to the situation in which a partner in a civil partnership has a debt that arises without connection with the company's operations, because in accordance with Article 863 § 3 of the Civil Code: During the partnership, the partner's creditor may not demand satisfaction from his share in the common property of debtors or from participation in individual components of this property.
