The Commercial Act defines the limited partnership as a legal structure formed with a contract between two or more persons for performing commercial activity under a common trade name, with one or more of the partners being jointly and unlimitedly liable for the obligations of the company, and the remainder being liable to the amount of the negotiated contribution. The limited partnership is a legal entity – a trader according to legal and organizational form and the law determines it as a personal company, i.e. defining is the personal participation of the unlimitedly liable partners. It is important to make the distinction between the limited partnership and the limited partnership with shares. The latter is an equity company with differentiated company organs and represents a modification of the joint-stock company, hence applicable are the provisions pertinent to the latter.
A basic distinctive characteristic of the limited partnership is the obligatory participation of two types of partners. The first type (called general partner) is unlimitedly, jointly, but subsidiary liable for the obligations of the company. This means that creditors of the limited partnership first confiscate the property of the company. In case it is insufficient, the creditors then may demand payment of the whole debt by any of the unlimitedly liable partners held accountable with all their property. What is more, they bear responsibility for all the obligations of the company from before the time they became partners. The other type of partner (limited partner) is limitedly liable, and their property in principle cannot be used for paying off the obligations of the company, consequently the economic risk for them extends to the amount of their contribution.
The limited partnership is an evolutionary development and modification of the general partnership whereby the need for resources of the unlimitedly liable partners is met through the participation of limitedly liable partners; the latter having made their contributions distance themselves from the management of the company, i.e. they pursue a purely investment goal, performing a supporting function. This is why in cases of unresolved issues the Commercial Act makes reference to provisions on the general partnership.
The company is established with a Memorandum of Association, which to be valid must be in written form, with notarized signatures, and entered by the general partners with the Commercial Register. The name of the limited partnership must obligatorily include at least one of the names of the general partner.
The difference in the regime of liability of the two types of partners is reflected in their respective roles in the company. In principal the management and representation is entrusted to the unlimitedly liable partners, whereas the partners with limited liability have a secondary role – they cannot participate in the management and do not have the right to stop decisions made by the general partners. The latter bear the bigger risk for the activity of the company which makes logical their leading position in the company. By virtue of an express reference the ban on pursuing unfair competition valid for the partners of the general partnership applies to the general partners of the limited partnership also. On the other hand, the limitedly liable partners are not absolutely deprived of decision making rights – they may inspect the commercial books of the company and request a copy of the annual financial report. In case of refusal, they may turn to the district court to rule that the company should provide these documents. There is no obstacle for the Memorandum of Association to make provision for entrusting the management of the company to one of its general partners so far as the rules in this part of the law are provisional – the provisions negotiated with the contract have priority over the statutory provisions.
The different positions the partners have is reflected in the way the profits and loses are divided among them and this has to be settled in the Memorandum of Association. The general partners are entitled to a bigger part of the profits, but there is no obstacle for the opposite to be negotiated. As to the profits from the activity of the company, there are provisions in the Commerce Act and some particular rules concerning the contributions of the limited partners. The latter do not answer with their property for the obligations of the company, even if they have not deposited the compulsory contributions. However, if the limitedly liable partner has not submitted the negotiated contribution in full the outstanding part of the amount is deducted from the profit accrued to him. When at the end of the calendar year it is established that the company has losses coinciding in size with the deposited contribution, the profits are not distributed until the negotiated amount of the contributions has been recovered. The larger losses are borne by the general partners.
The personal character of the company validates the existence of hypothesis where the limited partners are liable with all of their property subject to sequestration for the obligations of the company. The name of the limitedly liable partner is not registered with the company, but if this happens, the consequences are as aforesaid. The second hypothesis concerns the case where a limited partner concludes a deal on behalf and on account of the company, without however being in the position of manager or proxy, and the deal is not confirmed by the actual representative of the limited partnership. The last two cases occur if the limited partner concludes the deal on behalf of the company before the company has actually been created or after that and the creditor had not known he was negotiating with a limitedly liable partner.
The different positions of the two types of participants in the limited partnership is also reflected in the manner their membership in the partnership is terminated. Expelling a general partner is carried out by order of the court if said partner is guilty of non-fulfillment of their obligations under the Memorandum of Association or if that fulfillment has become impossible. In such case, because of the general partner’s personal participation in the company, as well as their expulsion from the company the court may also require that the company be terminated. As regards the limitedly liable partners reason for expelling is their not depositing the contribution. This expulsion is also done by order of the court in view of the respective application of the regulations on general partnerships.
For the termination of the limited partnership applicable too are the regulations on the general partnerships. In addition to the aforesaid reason, the company may also be terminated on account of:
– expiration of the determined term in the Memorandum of Association;
– the consent of the partners;
– declaring the company bankrupt;
-the death or the total prohibition of the unlimitedly liable partner or their termination as a legal entity, if not negotiated otherwise;
-at the request of the trustee: when the general partner is bankrupt or with a notice of termination by the latter. The Memorandum of Association may make provision that the partnership will continue to exist even if one of the general partners is terminated.
Some foreign jurisdictions, for example the German and the Austrian ones define the limited partnership as an incorporated person, a figure similar to the unincorporated partnership under the Obligations and Contracts Act. Within the framework of these legal systems, such a company is not subject to taxation. The situation pursuant to the Bulgarian legislation is different – the limited partnership is a legal entity (a separate person) and as such is treated as a taxable person within the meaning of the Corporation Taxation Act.
Tascheva and Partner is a leading multi-disciplinary law partnership and a tax consultancy practice providing expertise in all areas of civil and commercial law to a client base of leading domestic and international companies and private individuals. Additionally the firm offers dispute resolution services and, if required, litigation before the Bulgarian courts. The firm was established in 1990 by attorneys Nelli Tascheva and Svetoslav Dimitrov to serve the needs of foreign and domestic investors and private individuals seeking an exceptionally high level of personal attention and client service.