Since the abolition of the capital requirement for the limited liability company, this form of company has gained in popularity. The (relatively high) capital injection that had to be provided at the start-up of activities was abolished after all. Nevertheless, the limited partnership remains a frequently used solution to avoid further formalism. However, such a company cannot be set up alone: at least two partners are required.
Limited partner versus general partner
The law stipulates that, on the one hand, a limited partner is required (who, in principle, only runs the risk of his contribution to the company) and, on the other hand, a general partner. The general partner always acts externally and will represent the company in law. The limited partner stays in the background, as the name already suggests.
The general partner is, pursuant to Article 4:14 of the Companies and Associations Code (hereinafter: ‘CAC’), jointly and severally liable for the debts of the company to third parties with his own assets. In this respect there is thus a breach of the company’s legal personality.
Liability of the limited partner?
In principle, a limited partner runs much less risk. Only his capital contribution to the company is at stake.
However, a limited partner can also be jointly and severally liable for (certain) debts of the limited partnership. Article 4:25 §1 of the CAC stipulates that a limited partner may not perform any acts of management. The sanction for this is laid down in the second paragraph of this article: if the limited partner breaches this provision, he is jointly and severally liable for the obligations of the partnership that he has entered into or participated in while breaching this prohibition.
However, Article 4:25 §2 CAC also contains a second paragraph, which increases the liability of the limited partner. If the limited partner makes a habit of breaking the passivity he is obliged to have according to the law, he will be jointly and severally liable together with the general partner for all the company’s obligations.
The above mentioned liabilities of the limited partner are obvious and a sanction for his acting in breach of the legal provisions of the CAC that apply to his position. However, there is another reason for the joint and several liability of the limited partner for all the obligations of the partnership, the fulfilment of which is independent of the actions of the limited partner. If the name of the limited partner appears in the name of the partnership, he too will be jointly and severally liable for all the obligations of the partnership towards third parties.
It is therefore advisable to think twice about the name of your limited partnership. It is often the case that a family member will be asked to take on the role of limited partner after all. Including the family name in the company name would then obviously have an undesirable effect.
The establishment of a limited partnership remains attractive due to the absence of a capital requirement, the lack of formalism and the guaranteed discretion. However, the limited partnership does entail some risks, with the liability of the partners at the centre. The liability of the general partner is virtually unlimited, but the limited partner also runs a great risk if he acts thoughtlessly.
Legalis Advocaten was recently involved in a case where a limited partner was successfully held liable for the debts of the limited partnership due to the fact that his name was included in the name of the partnership. Forewarned is forearmed.