The Characteristics of Partnership
Partnership is one of the most popular types of enterprise in Vietnam. A partnership is an unincorporated association of two or more individuals to carry on a business for profit. Many small businesses including retail, service, and professional practitioners, are organized as partnerships.
Like the other types, partnership contains its own features and characteristics which help to differentiate itself from the others. First of all, in terms of the number of partners, there are no less than two partners who are joint owners of the company and carry out business.
In addition to general partner, there may also be limited partners. General partner is required to be individual and will be liable to all obligations of the partnership with his entire property, while limited partner will be liable to debts of the partnership only to the extent of their capital contributed to the partnership. It should be pointed out that there are restrictions on the rights of general partners. General partner cannot be sole proprietor or general partner of another partnership, unless otherwise agreed by remaining general partners.
Besides, general partner is not allowed to act on his own behalf or on behalf of other persons in implementing the same business activities of the partnership for the benefit of himself or other. Also, general partner is not permitted to transfer a part or whole of his capital contribution to others. It is necessary to mention that a partnership will be given legal status from the issuing date of the certificate of business registration and that partnership is not entitled to issue any type of securities. The next characteristic of partnership is limited life.
The life of a partnership may be established as a certain number of years by the agreement. If no such agreement is made, the death, inability to carry out specific responsibilities, bankruptcy, or the desire of a partner to withdraw automatically terminates the partnership. Every time a partner withdraws or is added, a new partnership agreement is required if the business will continue to operate as a partnership. With proper provisions, the partnership’s business may continue and the termination or withdrawal of the partnership will be a documentation issue that does not impact ongoing operations of the partnership.
Unlimited liability is another feature relating to partnership. This is the prominent feature of partnership that the liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations. Partners may be called on to use their personal assets to satisfy partnership debts when the partnership cannot meet its obligations. If one partner does not have sufficient assets to meet his/her share of the partnership’s debt, the other partners can be held individually liable by the creditor requiring payment.
There must be agreement between the parties concerned. This is the most important characteristics of partnership. Without agreement partnership cannot be formed. But only competent persons are entitled to make a contract. There are some provisions contained in the partnership agreement. These are determined clearly before the commencement of business. But it differs from business to business. These documents may be written or oral. But it must be written so that disputes may be settled according to the provisions of agreement.
Moreover, in terms of capital contribution, it is stated that general partner and limited partner are required to make capital contribution fully and promptly as committed. General partner who does not make capital contribution so fully and promptly that cause losses to the company must compensate for those losses. If a limited partner does not contribute capital fully and promptly as committed, deficiency in the capital contribution will be considered as his/her debt to the company; in this case, such a limited partner may be expelled from the partnership by a decision of the partners’ council.
By contrast, with a full capital contribution, partners will be granted a certificate of capital contribution. Another characteristic that belongs to partnership is the division of profits or losses. It is not essential that all the partners must share the losses also. There may be a provision in the partnership deed that a particular partner or partners shall not bear losses. The profit is arrived at after providing for salaries to the partners and interest on capital, if agreed and stated in the agreement.
That last but not least feature of partnership is about the business management. Firstly, it is specified that all general partners are entitled to act as legal representative of the partnership in carrying out business activities. Any restriction applicable to general partners in relation to conducting day-to-day business activities of the partnership will be effective to the third party if this party is informed. Secondly, general partners will agree on division of their duties in relation to management and running of the company.
If a business activity is carried out by several partners, the decision will be adopted on the principle of majority. Additionally, the partnership will not be liable to any activity that is conducted by general partner and outside the scope of business activities of the partnership, unless otherwise agreed by the partners. Thirdly, the partnership can open one or several accounts with a bank. The partners’ council will appoint one partner who is required to deposit and withdraw money from those accounts.
Lastly, chairman of the partners’ council, director or general director of the partnership is obligated to: manage and run the day-to-day business operation as a general partner; convene and organize meetings of the partners’ council, sign decisions of the partners’ council; make arrangement of business activities and coordination between partners, sign decisions promulgating internal rules and other working regulations of the partnership, retain fully and honestly all accounting books, invoices and other documents in pursuant to the laws, act on behalf of the partnership in working with state authority, play the part as a plaintiff or defendant in lawsuits or other commercial disputes as well as other duties as stipulate in the company charter.