Termination of the limited partnership contract is a complex process that requires a thorough analysis of the law and appropriate preparation of documents. Below we will discuss what steps should be taken to effectively terminate the limited partnership contract.
Table of Contents
- Limited partnership – characteristics
- Termination of the limited partnership contract – when is it possible?
- How to terminate the limited partnership contract effectively?
- Is it possible to revoke the termination of the limited partnership contract?
- Termination of the limited partnership contract – what happens further with the partnership?
Limited partnership – characteristics
A limited partnership is an entity that has two categories of partners: general partners and limited partners. General partners are individuals who manage the partnership. They are personally liable for the company’s debts. Limited partners are liable for the partnership’s debts only up to a certain amount. Namely, to the amount that corresponds to their contribution to the partnership.
In a limited partnership, there are usually at least two shareholders. They hold the functions of a general partner and a limited partner. The partnership should have statutes that regulate its functioning and operations. A limited partnership should also have an entry in the National Court Register (Polish: KRS).
In such a type of partnership, both general and limited partners have the right to use the entity’s profits. It has to correspond in proportion to the amount of shares they own. Yet, in the event of a loss of capital, the liability of general partners is unlimited. The liability of limited partners is, on the other hand, limited to a certain amount.
A limited partnership form is often chosen by entrepreneurs who want to control their business but, at the same time, want to limit their personal liability for its obligations.
Termination of the limited partnership contract – when is it possible?
Such termination is possible in the case of the end of cooperation between shareholders. It is also possible when there is a situation that prevents the company from its operations. The reasons for the termination of the limited partnership agreement may vary. They depend on specific circumstances. For example, in the event of:
- Terminating the agreement by one of the limited or general partners in compliance with the company’s statutes;
- A court decision to dissolve the company as a result of a request from one of the partners;
- A court’s decision to liquidate the company due to not fulfilling financial obligations. Moreover, in the event of other violations of the law.
Termination of the limited partnership agreement should comply with its regulations or the law. Moreover, it should be in writing. In case of a dissolution, the partnership’s financial obligations should be settled. Furthermore, there also should be a division of the company’s assets among partners. Termination of the limited partnership agreement can be initiated by one or more shareholders. One should provide the notice about termination in writing. Its term should be specified in the company’s articles of association. It may be also determined based on the provisions of the law.
In the event of the termination of a limited partnership agreement, it is necessary to settle financial obligations. It is also required to divide the company’s assets among partners. It is worth remembering that this process can be complex. Therefore, it may be useful to consider the support of a lawyer or tax advisor.
Before terminating the agreement, it is advisable to carefully analyze the partnership’s situation. It’s always worth looking for alternative solutions. They may enable to continue the cooperation between partners.
How to terminate the limited partnership contract effectively?
To terminate the limited partnership contract, you must follow the provisions of the statutes or the law. Below are some steps you should take to make your termination effective:
- Familiarize yourself with the partnership agreement. It is important to thoroughly read the agreement and become familiar with the provisions about termination. Thanks to that you will know what formalities to fulfil and what deadlines to meet.
- Submit written notice. The termination notice should be submitted in writing. You should send it to the remaining partners. It should include information about the reasons for termination. It must also specify the date on which it is to take effect.
- Financial settlement. Before the termination of the limited partnership agreement, it is necessary to analyze its financial situation. Financial obligations between the partners should be settled.
- Division of limited partnership assets. If the partnership has assets, they should be divided among the partners. It is important to remember that the division should follow provisions of the statutes or law.
- Using the help of a lawyer or tax advisor. In the event of terminating a limited partnership agreement, the experts will support you in the process. They will also assist in the correct settlement of finances and division of assets.
It is important to follow legal requirements when terminating a limited partnership contract. The provisions of its statutes must be also respected. Otherwise, the partners may face financial or legal consequences.
Is it possible to revoke the termination of the limited partnership contract?
Revocation of a termination notice of a limited partnership agreement by one of its partners is possible. If you make such a decision, the revocation must follow the general rules specified in the Civil Code. The statement about revocation will be effective if it reaches the partners before or at the same time as the notice itself. However, a notice received by the partners can only be withdrawn with their consent.
Termination of the limited partnership contract – what happens further with the partnership?
The future of the partnership after terminating the contract depends on the decisions of the partners. It also results from the provisions of the limited partnership agreement.
If terminating the agreement means the end of the partnership’s operations, the partners should liquidate it. They should proceed with a dissolution of the entity. The assets of the limited partnership should be divided among the partners. However, if they decide to continue the business activity, there are other possibilities. The shareholders may decide to transform the limited partnership into another legal form.
Eventually, the future of the partnership depends on given circumstances and partners’ decisions.
It is worth remembering that transformation of a limited partnership into another legal form requires compliance with certain formal and tax requirements. Therefore, it is advisable to look for the support of a lawyer or a tax advisor.
If you are interested in the above topic and want to learn more about it, we invite you to cooperate with us. Experts from our accounting firm in Warsaw are at your disposal. Contact us today and let us help you.