General partnerships according to Bulgarian Commercial law
The general partnership (Bulg.: Събирателно дружество, short: СД) is regulated in the Articles 76 to 98 of the Bulgarian Commercial Code. According to the legal definition provided by Article 76 of the Commercial Code, the general partnership is an association of two or more persons for the purpose of effecting commercial transactions by occupation under a joint trade name.
The partners are liable with all their assets as joint debtors. The liability of the partners is personal, unlimited and subsidiary regarding the obligations of the general partnership. Due to the last peculiarity, the general partnership belongs to the partnerships. Also the personal participation of the partners in the partnership is characterised by the personal participation in business operations.
Because of the personal character of the general partnership, the trade name contains the name of one or more partners or the name of their trade names. The Articles of Partnership must be signed by all of the partners and is subject to a notarial certification. Besides, the application for registration must be signed by all company members and all persons that represent the partnership must deposit a signature specimen.
Regarding the legal relationship between the parties in commerce, the Bulgarian commercial law distinguishes an internal (the relationship between the general partnership and the company members) and an external relationship (the relationship between the general partnership and third parties). The internal relationship is usually regulated within the Articles of Partnership, the external by the Commercial Code.
I. The legal (internal) relationship between the general partnership and the partners
The internal rights and obligations of the partners may be material and nonmaterial.
1. The material rights are as follows:
- Right on shares in profit in the end of the financial year (if there was profit).
- Right on liquidation quota if in case of a termination of the company assets remain that may be distributed among the partners.
- Right on compensation of the costs regarding the execution of business missions as well as of all damages that were directly caused when executing business missions. Aside, there is a right on all statutory interest.
2. The nonmaterial rights are as follows:
- According to Article 84 of the Commercial Code, each partner is entitled to take part in the management of the partnership's business. This concerns the management of the partnership and not the representation in respect of third parties. The acquirement and the disposal of real rights on immovable property, the appointment of managers, the conclusion of loan contracts that exceed the amount of the sum appointed in the Articles of Partnership as well as all other legal transactions that require the decision of the general meeting;
- The voting right – an irrevocable right of the company members;
- The right of examination of each partner that does not participate in the management. It is a protective right each partner is entitled to exercise.
3. Material obligations:
- Obligation to provide contribution – amount and nature are defined in the Articles of Partnership;
- Obligation to pay interest – if the contribution payment is delayed.
4. Immaterial obligations:
- Duty of loyalty – without the consent of the other partners, one partner may not participate in other trading partnerships or effect transactions on his or someone else’s behalf if they regard the partnership’s subject matter in any way.
- Due to the personal character of the general partnership, each partner owes to participate in the business activities by personal actions.
II. Legal (external) relationship – between the partners and third parties
According to Article 89 (1) of the Commercial Code, each partner of the general partnership is a representative of the partnership. The partner acts as a body of the partnership and does not need an authorisation. Restrictions towards bona fide third parties are only effective after a respective record into the commercial register. The power of representation may be limited within the Articles of Partnership. It may be transferred to one or more partners but also to a third party.
The most important peculiarity of the general partnership is the unlimited personal liability of each of the partners for the debts of the partnership. According to Article 88 of the Commercial Code, the liability is subsidiary and limited on the assets of each partner. The debtors may only try to satisfy their claims by single partners if the satisfaction by the general partnership became impossible. Each partner may raise any personal objections and any of the partnership’s objections. All claims of the partnership creditors against the partners expire 5 years after the termination of the partnership or the expulsion of a partner unless another time period applies.
In reverse, the general partnership is not liable for the debts of the partners – neither as natural person nor as legal entity. Though, there is the legal possibility of partnership creditors to obtain the seizure of their claims on the liquidation quotas and the termination of the general partnership if he unsuccessfully pursued enforcement of the partnership’s movable property within the past 6 months. According to Article 96 (1) of the Commercial Code, it is possible to escape this legal consequence if the partnership or the other partners square the debts of the indebted partner. In this context, the partners may terminate the debtor’s participation in the partnership.
The conditions regarding the termination of general partnerships are listed in Article 93 of the Commercial Code:
- Upon request by a written notice of one of the partners in consideration of a time period of at least 6 months if the partnership was founded for an undefined period;
- Upon request of one of the partners, it may be dissolved by the court if another partner violated an essential obligation of the Articles of Partnership intentionally or by gross negligence or if the fulfilment of such an obligation becomes impossible or if a partner acts against the partnership’s interests;
- By the private creditors of one partner.
It is possible, to carry on the partnership in spite of the expulsion of one of the partners. In this case, the remaining partners are (according to Article 97 of the Commercial Code) obligated to pay the share of the expulsed member in the company’s assets. In case of death of one of the partners, his heirs may take his place in the partnership (if the Articles of Association allow so).