General partnership is one of the more popular forms of business activity. In this article, we will examine pros and cons of a general partnership. Whether it is worth or not to establish. Check if this is the appropriate form of conducting business for you.
Table of Contents
- General partnership – what is it?
- General partnership – who can create it?
- General partnership – what are its advantages?
- Legal capacity of a general partnership
- The simplicity of the general partnership’s formation
- Low costs of establishing a general partnership
- Lack of minimum contributions in a general partnership and single taxation of partners
- Simplified management of company
- No need to keep full accounting in a general partnership
- Simplified termination of a general partnership
- General partnership – what are its disadvantages?
General partnership – what is it?
A general partnership runs an enterprise under its own name and doesn’t constitute another commercial company. Each partner is liable for its obligations with all his personal assets jointly with other partners and with the company. A general partnership is established upon entry into the register.
A general partnership does not have legal personality, but has legal capacity. It may acquire rights, including ownership of real estate and other property rights. It can also incur liabilities, sue and be sued in its own name.
A general partnership runs an enterprise under its own name. The name of a general partnership should contain the names or business names of all partners or the name or business name of one or several partners. The additional designation “general partnership” is also necessary. The Polish name of this legal form is spółka jawna. Therefore, it is allowed to use the abbreviation “sp. j.” in trading.
The general partnership agreement should be concluded in writing under pain of nullity. It can also be concluded using a standard contract template.
The regulations concerning the functioning of a general partnership are the basis for other types of partnerships.
General partnership – who can create it?
Partners of a general partnership may represent:
· natural persons,
· legal persons,
· organizational units without legal personality. For example: commercial law partnerships.
A partner in a general partnership cannot be a civil law partnership that does not have legal personality. It is also not possible to conclude a single-member general partnership.
A general partnership may be established both as a new entity and through the transformation of a civil law partnership.
General partnership – what are its advantages?
Legal capacity of a general partnership
The main advantage of a general partnership is its separate legal capacity. As indicated above, it can acquire rights, including ownership of real estate and other property rights. It can also incur liabilities in its own name. Therefore, a general partnership may be a party to any contract. The fact that a general partnership has legal capacity also results in the possibility of suing independently and being sued in court.
The simplicity of the general partnership’s formation
Another advantage of a general partnership is the simplicity of its establishment. In accordance with the provisions of the CCC, the general partnership agreement must be in a written form under pain of nullity. One can also conclude it using a standard contract template. This means that there is no need to visit the notary’s office and incur notarial costs.
A general partnership is established upon entry in the register. Therefore, the partners can independently prepare a general partnership agreement and submit it to the Register of Entrepreneurs of the Polish KRS. One should submit it together with an application for assigning a REGON** number and NIP*.
*NIP is a Polish abbreviation for the Tax Identification Number
**REGON is a Polish abbreviation that stands for National Business Registry Number, i.e. Polish Rejestr Gospodarki Narodowej
Low costs of establishing a general partnership
The advantage of a general partnership is also the low costs of its establishment. The costs include registration of the company in the National Court Register and possible costs of legal assistance. Pursuant to the Act on Court Fees in Civil Cases, a fixed fee of 250 PLN is charged for an application to register a general partnership in the Register of Entrepreneurs of the KRS. In turn, the fee for placing an advertisement or announcement of entry in the KRS in the Monitor is also fixed. It amounts to 100 PLN.
Lack of minimum contributions in a general partnership and single taxation of partners
Another advantage of a general partnership is the lack of minimum contributions. The provisions of the CCC do not require partners to make certain minimum contributions to the company. This is also related to the lack of double taxation in a general partnership. Only the partners pay the tax on the generated profit.
Simplified management of company
According to the CCC, each partner has the right and obligation to manage the affairs of a general partnership. The provisions do not regulate the formalized procedure for making decisions in a general partnership. Most of the activities can be undertaken by the partners independently. Thus, there is no need for the participation of professional advisors.
No need to keep full accounting in a general partnership
According to the Accounting Act, full accounting is obligatory when the income of general partnership of natural persons exceeds the limit of 2 000 000 EUR. When it comes to general partnerships, in which the partners are not only natural persons, there is a requirement to keep full accounting.
Simplified termination of a general partnership
The procedure of terminating the activity of general partnership is also its advantage. Unlike other types of companies, it does not require going through a formalised liquidation procedure.
General partnership – what are its disadvantages?
Obligation to enter a general partnership in the register
In accordance with the provisions of the CCC, a general partnership is subject to entry in the Register of Entrepreneurs of the National Court Register. This involves the payment of the court fee described above.
Liability of partners with all their personal assets
Another disadvantage of a general partnership is the fact that its partners are liable without limitation for the company’s debts with all their personal property. Therefore, the enforcement of overdue liabilities takes place first from the company’s assets. Then, if there are no more company’s assets and the debts are still not repaid, they are enforced against the assets of the partners.
Lack of the possibility to form a general partnership in the organization
The Commercial Companies Code does not provide for the form of a general partnership in the organization. What does that mean? A general partnership may start its activity only upon the entry in the National Court Register. This may take up to several months.
Obligation to pay contributions
The court fee for entering a general partnership in the Register of Entrepreneurs is not the only cost that the partners must prepare for. They are subject to compulsory social and health insurance. In practice this means they must pay additional contributions. Partners of a general partnership cannot benefit from the preferential ZUS (Social Insurance Institution) rate.
Taxation of a general partnership agreement with tax on civil law transactions
The general partnership agreement is subject to tax on civil law transaction. In this case it amounts to 0.5% of the value of the contributions made. Therefore, the more assets a given company has, the higher the tax its partners must pay.
As you can see, a general partnership is a form of business that has both pros and cons. Its main advantages are a simple creation procedure and a small number of administrative duties. Its biggest drawback, in turn, is the unlimited liability of shareholders for the company’s obligations.