General partnership

What it means

A general partnership is a partnership of at least two persons who trade under a common name and are jointly and severally liable for its debts with all their property. The Commercial Code requires no registered capital of it.

The difference from a limited liability company lies in that liability: a creditor picks any partner and demands the whole debt from them. Unlike in a limited partnership, nobody here has capped exposure.

A general partnership differs from a joint-venture agreement under the Civil Code, which sole traders sometimes sign for a shared project, in that it is a separate legal person: it has a business name, an entry in the commercial register, its own assets, and it enters into contracts itself.

How it works in practice

The partnership itself pays no income tax: it files a return, but the tax base in it is divided among the partners under the partnership agreement and taxed in their hands. For an individual this is business income in their own return.

For the Social Insurance Agency and the health insurer such a partner counts as a self-employed person, so the share brings a levy liability of its own. The partnership keeps double-entry books and files its accounts with the Register of Financial Statements like any other company.

A partner is taxed on their share of the tax base regardless of how much they actually took out during the year. We therefore plan ahead with the client so there is money for the tax balance and the tax advances even in a year when the profit stayed in the business for investment.

What to watch out for

The form is chosen for its low cost and simplicity, yet the liability cannot be capped by agreement among the partners: that agreement binds them, not the creditor. One unpaid loan the second partner never heard of reaches their private account and their house.

Leaving the partnership does not end liability: a former partner remains liable after departure for debts that arose while they were a partner. Anyone leaving should have a list of liabilities drawn up as at the exit date and agree the settlement of their share with those in mind.