Business Law - Partnerships (Prof. Veronese)

COMPANIES LEGAL PERSONALITY PERFECT PATRIMONIAL AUTONOMY

• 

PARTNERSHIP IMPERFECT PATRIMONIAL AUTONOMY

In particular, in partnerships:

• Personal creditors of the partners cannot attack the assets of the company in order to be satisfied;

• At the same time, partnership’s creditors cannot attack directly the personal assets of partners with

unlimited liability. First the creditor has the duty to attack the capital of the partnership, then, if not

satisfied they can get the money from the partner.

14

Data in the Documents and Correspondence:

Italian C.C. provides that documents and correspondence shall disclose the following information:

• The company headquarters or seat

• The office of Business Register where the company is registered and the relative registration

number

• Cause of dissolution and stage of liquidation, for the company in liquidation

• In case of a sole trader company, indication of such status

• Whether it is subject to activities of management and coordination

Simple/Informal Partnership (SS):

Even if in UK the law does not contemplate this particular type of partnership, In Italy it has a systematic

importance: It is called Società Semplice (SS):

• Partnership

• Unlimited liability entity

• Personal factor plays a key role

• With a certain autonomy degree and Imperfect Patrimonial Autonomy

• Without legal personality and without full and perfect patrimonial autonomy

• Exclusively valid for agricultural activities

• No commercial purpose

It maintains a systematic importance because the Civil Code uses this simplified type as model for all other

partnerships. The Simple Company represent the prototype of Partnerships’ regulation, because the rules

laid down for the Simple Company are also applicable to the other types of Partnerships.

All other Partnerships and all companies can, instead, perform and be used both for commercial and non-

commercial activities.

About the Business Name (=ragione sociale) of the Simple Company, it must meet several requirements:

• it must compulsory encompass the name of one or more partners

• it must compulsory encompass the indication of the Partnership relationship.

• It may contain the name of a withdraw or deceased partner (only if he or his heirs agree).

About the Formation of the Simple Company, the Italian Civil Code does not establish a specific form for the

agreement or Deed of Incorporation (=atto constitutivo) so, means that it is admissible for the parties to

finalize their agreement either in verbal or writing form. Oral deed is valid between the members but not

for third parties; for them it is necessary a written form authenticated or public deed (and so the

registration in the Business Register).

Unregistered Partnership:

In any case, any failure of the Simple Partnership to enrol in the Business Register does not affect either the

existence or the regulation of the Simple Partnership itself: in this case we have an unregistered Simple

Company, which is an irregular partnership. The IRREGULAR partnership is born anyway, even if it is not

9

registered . Here we care about the declarative effect.

9 For company we have the constitutive effect, so once you register it in the business register, all the individuals

recognize at the same time the existence of the company. 15

The consequences of an unregistered partnership is that it is not possible to presume that third parties

know the discipline of that partnership.

In case of unregistered General Partnership (SNC) is treated as an Informal/Simple Partnership.

Exceptions to the principle of freedom of form:

1. The act of incorporation of an SS must be in written whenever the partners confer a real estate or

beneficial real estate rights on property for undefined period of time or for a period that goes over

9 years.

2. In any other case the freedom of form is the principle to be followed.

Moreover, according to Italian case-law, a company similarly to any other contract is deemed to exist also if

there is evidence that the business is being run as corporation by its partners.

Società di Fatto:

If two or more individuals perform an economic activity in order to share the related profits, the Court

recognizes that a De Facto Partnership exists. But there is no agreement within them.

Società Apparente:

When two or more individuals who have never signed any agreement to form a Simple Partnership (nor

explicit or tacit) nor they consider themselves to be Partners (not even De Facto) behave in such a way to

make third parties believe, from their conduct, that they do constitute a company.

Unanimity Principle:

The partnership agreement can be amended – during the life of the partnership – only with the consent of

all shareholders, unless otherwise stated in the deed.

This is for the application of the Unanimity Principle that operates for the partnership, while as far as

concerned limited liability companies, the majority principle is generally applied.

Who can or cannot be a partner?

All persons and entities, physical and juridical now (after 2003 reform) can.

Contents of the agreement of Incorporation:

Art. 2295 c.c. about the General Partnership states that the deed must determine, mainly:

• Name of the partners

• Name of the partnership

• Partners with management and representation powers

• Seat of the partnership

• Object clause

• Consideration contributed by each partner

• Rules for profit-distribution and losses-bearing

• Duration of the partnership 16

Contributions – Consideration:

We know that by signing the partnership agreement, the partners commit to perform the Contribution or

Considerations determined by the contract itself.

They represent property or rights, originally brought into the partnership’s stock. They may be made:

• In cash

• In kind (including personal work and services)

Among the contributions in kind which may be transferred, there are also credits claimed by shareholders

toward third parties and for which a special rule applies: “the credit is not considered to be contributed for

its value, but for the value set in the partnership agreement”.

Contributions in kind:

In case of contributions in kind, they may be conferred:

• In Property:

o the ownership of the goods is transferred to the partnership.

• In Use:

o Partners preserves the ownership and the partnership only acquires the right to use them.

o The assets must be used exclusively within the company.

o For the achievement of the business goal.

o Partners may not exploit the contributed assets for purposes that fall outside the scope of

the Partnership, unless they have obtained the consent of all the other Partners.

This distinction is essential for the purpose of regulating losses or damages of the asset after the transfer:

✓ If the asset was transferred as a property, the risks of its deterioration is on the company and the

Partners will not suffer any consequence of the loss.

✓ If the asset was conferred in use, the risks associated to its deterioration will remain in the

shareholder, who will be liable for the loss or losses and could also be withdrawn from the

Partnership.

If the amount of the due contributions is not determined by the partnership contract, it is assumed that all

the partners are bound to contribute equally with their assets in order to achieve the aim and object of the

Simple Partnership, the specific economic activity that they agreed to carry out in common.

Participation to profit and losses:

In the Partnership, each member is entitled to collect the profits, in the degree established by the Deed of

Incorporation, after the approval of the financial statement, that is the one including the balance sheet and

income statements from which the profit of the year clearly emerge.

So, each member has the right to dividend (unless derogated), contrary to what happens in companies.

If nothing different is specified in the Deed of Incorporation, we have to apply the rule of equal proportion

for profits and losses participation: the percentage of participation in profits and losses is proportionate to

capital participation, so to the value of contributions.

And if the value of contributions is not specified in the contract, they are presumed to be an equal value for

each member.

However, the Deed of Incorporation may provide for a participation in profits and losses which is not

proportional to the contributions. 17

In the case of a member conferring services, his percentage of participation to profit and losses shall be

established in the Deed of Incorporation, if it is not, it must be set by the Judge.

When the Deed of Incorporation only determines the amount of the profit-sharing, it is assumed that the

Partner would participate in the losses within the same threshold.

Lastly, the Italian Law forbids – for all the companies – the “Leonine Pact” (=patto leonino) as specified in

Art. 2265 c.c. “the pact with which one or more partners are excluded from any participation to profits

and/or losses is void”.

In this regard, it must be pointed out that any other participation agreement conceived in such a way to

determine the substantial exclusion of one or more partners from the participation in profit or losses is to

be considered null and void, as well.

Liabilities in Simple Partnership:

In Simple Partnership, we have to distinguish between:

• Responsibility for company obligations toward Partnership’s creditors.

• Responsibility toward personal creditors of a Partner.

Here it’s of great importance to take into consideration the difference between legal personality/legal

entity.

Liability for company obligations and Partnership’s creditors:

• Partners are personally, jointly and severally responsible for the obligations of the Partnership,

without limitation with all their present and future assets (except for limited partners in Limited

Partnership – SAS).

• The new partners are considered as liable for all the partner’s obligations, even for those that arose

before their access into the partnership.

In Simple Partnership (SS) the rule is that: creditors can ask partners (even only one of them) for money

before they ask the partnership itself and creditors may satisfy themselves asking for payment either to

company or to a Partner.

There is an exception to this rule: The Partner to whom is asked the payment of the company’s debt is

allowed to invite the creditor to satisfy himself on the company’s assets, so he may obtain that the

partnership is sued before them, if he indicates liquid partnership’s assets upon which creditors may easily

satisfy their claims with the conversion into cash.

This is the general rule applicable to General partnership (if registered) where the partnership must be sued

before partners are asked for money. For this