Partnerships can be of two types: partnership en commandite or a partnershipen nom collectif
Partnerships en Commandite (Limited Partnership)
This form of commercial partnership has its obligations guaranteed by the unlimited, joint and several liability of one or more partners (called the “general partners”) and by the liability, limited to the amount unpaid on the contribution, if any, of one or more partners (called the “limited partners”). At least one of the general partners shall be either an individual or a body corporate which has its obligations guaranteed by the unlimited and joint and several liability of one or more of its members.
The deed of partnership must state the following:
- the name and residence of each of the partners;
- the name of the partnership;
- its registered office (in Malta);
- its objects, that is to say, whether the objects are trade in general or a particular branch of trade, and in the latter case, the nature of the trade;
- the contribution of each of the partners, specifying the value of the respective contribution of every partner;
- the period, if any, fixed for the duration of the partnership.
A partnership deed for a partnership en commandite must also specify which partners are general partners and which are limited partners. In default, the partnership shall resolve itself into a partnership en nom collectif, meaning that all partners will have unlimited, joint and several liability.
Administration and representation
The administration and representation of the partnership en commandite is vested in the general partner(s), and unless the deed of partnership otherwise provides, such administration and representation shall vest in each of the general partners severally. A limited partner is not vested with the power of administration of the partnership nor may they transact business on behalf of the partnership, though they may be given a specific mandate/ power of attorney for specific acts or transactions.
A person, even if a limited partner, who hold himself out to be a general partner, shall be held liable unlimitedly, jointly and severally with the general partners for all obligations contracted by the partnership. The inclusion of a person’s name in the name of the partnership may render such person liable as a general partner if the court is of the opinion that such person holds himself out to be a general partner. These restrictions vis-à-vis limited partners serve to protect general partners and creditors.
The general partners by unanimous decision have the right to appoint, from among themselves, the partners who are to administer and represent the partnership and to dismiss these partners. The partnership deed may provide that limited partners may participate in this.
Since limited partners aren’t vested with administration or representation, at the end of each accounting period the balance sheet and the profit and loss account of the partnership must be communicated to the limited partners. They have a right to access accounting records and other documents of the partnership to ascertain their correctness. These are statutory rights given to limited partners to protect their interests and to asses the financial health of the partnership.
Limited partners can compete with the partnership en commandite, unlike partners in a partnership en nom collectif. Moreover, a limited partner isn’t bound to restore profits received in good faith. A limited partner may also assign his interest, unless the partnership deed provides otherwise. Any assignment of interest won’t take effect where the contribution of that partner isn’t fully paid, unless the consent of the general partners is obtained. Changes in the partnership deed which deprive limited partners of any of their rights require the unanimous consent of all general and limited partners – unless, again, the partnership deed provides otherwise. In case of death of a limited partner the partnership continues with his heirs, unless the deed provides otherwise.
Dissolution of the partnership
The partnership is dissolved:
- where the period, if any, fixed for its duration expires;
- if, subject to the provisions of article 21, all the partners so agree;
- if the partnership is adjudged bankrupt;
- if in the opinion of the Court there exist grounds of sufficient gravity to warrant dissolution;
- if the number of partners is reduced below two and remains so reduced for more than six months;
- in such other cases for which provision is made in the deed of partnership;
- if no general or limited partner remains unless, within six months, the partner who has ceased to be a partner shall have been substituted.
Where no general partner remains, the limited partners may, for the said period of six months, appoint one of their number for the performance of acts of ordinary administration. A limited partner appointed as aforesaid may take part in the management of the partnership.
The division of capital into shares
The Act permits the conversion of the capital of the partnership en commandite into shares such that all the capital can be divided into shares without distinction being made between limited and general partners. This introduces a new notion: that of a shareholder who can also be a general partner.
In terms of the Maltese Income Tax Act, a partnership en commandite haivng its capital divided into shares will be treated as a limited liability company for Maltese income tax purposes.
Partnership en Nom Collectif
The provisions above governing partnerships en commandite (limited partnership) also apply to partnerships en nom collectif with the main distinguishing feature being that a partnership en nom collectif has its general obligations guaranteed by the unlimited, joint and several liability of all its partners, whilst a partnership en commandite has its general obligations guaranteed by the unlimited, joint and several liability of its general partners and by the limited partners up to the amount of their unpaid contributions. Moreover the deed of partnership of a partnership en commandite or limited partnership, in addition to the particulars prescribed for a deed of partnership en nom collectif must specify which of the partners are general partners and which of them are limited partners.
Conversion of a Limited Liability Company into a Partnership
A limited liability company pay be converted into a partnership if the following conditions are complied with:
- The conversion must be approved by an extraordinary resolution of the shareholders of the company;
- In the case that there are any dissenting members, i.e. members that do not approve the conversion, the company shall be required, to redeem the shares held by such dissenting members, if they so request, on such terms as may be agreed, or as ordered by the court;
- The company to be converted shall be dissolved without having to be wound up. Dissolution is deemed to take place when the conversion becomes effective (see below);
- The resolution approving the conversion must be delivered for registration to the Registrar of Companies by the partners of the new partnership en commandite;
- Upon receipt of such notice, the Registrar is required to publish a statement reflecting such notice in the Government Gazette or on the Registry website and also on a local daily newspaper;
- The conversion shall not take place until the lapse of 3 months from the date of publication of this statement. During the said 3-month period, any creditor of the company may object to the conversion by submitting a sworn application in Court;
- Once the conversion has become effective, either by the lapse of the 3-month period, or by a decision of the court following an objection by a creditor, the company is struck off the register and a new certificate is issued to the partnership en commandite that shall be succeeding the company. The certificate will indicate that the formation of that partnership resulted from a conversion;
- A notice of the partnership’s conversion will be published by the Registrar in the same manner indicated in paragraph (v) above;
- The partnership en commandite resulting from the conversion shall succeed to all the assets, rights, liabilities and obligations without the requirement of any other formalities. The new entity also retains the same legal personality of the company that has been converted;
- It is important to emphasise that the unlimited liability of the general partners in the partnership en commandite shall extend to the obligations of the Company that has been converted following such conversion;
- The succession to all assets, rights, liabilities and obligations by the new entity does not give rise to the liability for any stamp duty or tax in Malta.