The current rules on partnerships date back to the 19th century and are no longer deemed to meet present-day needs. To this end, on 21 February 2019, new rules on partnerships were submitted for consultation. An earlier draft was withdrawn in 2011, and an initiative was subsequently launched for a new proposal which culminated in the September 2016 report by the partnerships working group. This report largely forms the basis for the current bill ("the bill"). This newsletter covers the most important provisions of the bill and indicates differences with the current legislation, where relevant.
Maintenance of the names and formation requirements for partnerships
The bill does not distinguish between private partnerships (maatschappen), general partnerships (vennootschappen onder firma) and limited partnerships (commanditaire vennootschappen). Rather provision is made for only two legal forms, namely the partnership (vennootschap) and the limited partnership (commanditaire vennootschap), with no distinction based on whether the entity is intended for the conduct of a business or a profession. It should be noted that parties can still opt to designate their partnership as a general partnership or a private partnership, for business or professional activities, respectively. The bill does distinguish, however, between partnerships that are registered with the trade register and those that are not (with the exception of limited partnerships, which must be registered). The bill makes no changes to the formation requirements for partnerships.
Introduction of legal personality
One noteworthy new feature of the bill is the principle that partnerships are endowed with legal personality upon entry into the partnership agreement. Registration with the trade register is not required to this end but failure to register will result in limited legal capacity. There is no limited liability. The parties can choose not to opt for legal personality by acting solely in their own name and entering into agreements which provide that the partnership's profits shall be allocated to the assets of one or more partners.
Under current law, it follows from Supreme Court decisions that general partnerships and public partnerships must hold separate assets. In the bill, this requirement applies to all partnerships. There is a restriction, however, with regard to unregistered partnerships, which cannot receive registered property (such as real estate) and in general cannot inherit. If the parties have entered into a partnership but have not registered it with the trade register, there will be no separate assets. In case there are joint or common assets, however, the partners are deemed to form an indivisible community to which Title 7 of Book 3 of the Dutch Civil Code applies.
Management and representation of partnerships (directory rules of law)
Responsibility for the partnership's management would, in principle, continue to be vested in all of the partners (with the exception of limited partners in the case of a limited partnership). In principle, each partner is authorised to represent the partnership. Any possible restrictions on this power should be recorded with the trade register in order to be enforceable against third parties. As opposed to current law, this also applies to private partnerships (maatschappen) as the bill does not distinguish between private and general partnerships. Moreover, all partners are now jointly and severally liable. After much criticism of the Biek Holding decision, it is proposed, upon the acceptance of an assignment, that only those partners entrusted with performance of the assignment be jointly and severally liable along with the partnership.
Obligations of new and departing partners
As a new arrangement, it is proposed that joining partners be bound only by obligations contracted by the partnership prior to their arrival which become due and payable after the partner joins the partnership. Exiting partners remain liable for the partnership's obligations for a period of up to five years following their departure. The concept of obligations includes all obligations arising from legal acts, legislation and wrongful acts.
Financing of partnerships
New rules are proposed regarding the creation of usufruct and the pledge of a partner's rights arising from the partnership agreement. Connected control rights can be granted to the usufructuary or pledgee. In this way, the bill intends to align the possibilities available to partnerships with those available to private limited liability companies (besloten vennootschappen).
Dissolution, liquidation and continuation
The bill expands on and clarifies current law. There is a new provision regarding the dissolution of an irregularly formed partnership. This is linked to the rules for Book 2 legal entities and also applies to the liquidation of a partnership. The starting point remains that liquidation is handled jointly by all partners. There is the possibility for the court to appoint a liquidator, but the liquidator is always accountable to the partners or their successors. In addition, the bill provides for the possibility for the remaining partner to continue the business as a sole proprietorship. Here as well a distinction is made between registered and unregistered partnerships.
Special provisions on limited partnerships
According to the bill, limited partnerships will have to be registered as an unregistered limited partnership creates too much uncertainty for third parties. In the event of failure to register, third parties may assume that all partners can be held liable without restriction. In the absence of registration, each partner is fully liable and there can be no limited partner. Under current law, a limited partner is prohibited from acting on behalf of the partnership, even if the partner is granted a power of attorney for this purpose. In practice, however, this prohibition is nuanced in the case law. The bill opts for a fundamentally different approach: a limited partner is allowed to act on the partnership's behalf pursuant to a power of attorney.
We wholeheartedly welcome the initiative to reform the legislation on partnerships. Although many issues regarding partnerships are arranged by contract, practice benefits from an under-standable and comprehensive statutory framework that provides guidance to partners and third parties. The bill is, in our opinion, clear and pragmatic and makes understandable amendments to the report. It would have been better had restructuring arrangements been included, as there is clearly a need for such provisions, but it is expected that the bill will nonetheless make restructuring easier in practice, given that partnerships will have legal personality.