Entrepreneurs carrying out business activities in partnerships are, in principle, liable for its potential liabilities with all their assets. Although this general rule does indeed translate into practice, each company has its own specificities. It is for this reason that the question of liability for debts in each of them differs somewhat. In the following, I will describe what the situation is in the case of debts in partnerships.
Read also the other articles in this series:
Liability for debts in limited liability companies
Liability for company debts - sole proprietorship and partnership
Partnerships in the Polish legal order
Polish law distinguishes four partnerships. These are the company:
- general,
- partnership,
- limited partnership,
- limited joint-stock partnership.
Liability for debts in a general partnership
This is the basic type of partnership regulated by the Commercial Companies Code. The formation of such a company is disclosed in the National Court Register (KRS). A partnership does not have legal personality. However, it may acquire rights in its own name, including ownership of real estate and other rights in rem, incur liabilities, sue and be sued. Due to the lack of legal personality, it is not the partnership that pays taxes, but its partners. On the other hand, income and expenses incurred are shared in proportion to the partners' right to participate in the company.
What is the liability for the debts of a company that can incur debts on its own?
Liability for the debts of a general partnership is similar to liability in a civil partnership. Although the partnership may incur liabilities independently, the partners are liable for its debts. Each partner is liable for the company's obligations without limitation with all his or her assets jointly and severally with the other partners and the company. However, a creditor of the partnership may only pursue enforcement against the assets of a partner if enforcement against the assets of the partnership proves ineffective. This is the so-called subsidiary liability of the partner.
However, this seemingly insignificant difference from the liability regime in a civil partnership is of significance. Particularly if one takes into account the fact that in the case of a civil partnership, the creditor was free to choose between satisfying himself from the joint assets of the partners and from individual assets. In the case of debt enforcement in a general partnership, the creditor is obliged to seek satisfaction first from the partnership assets. Only if such enforcement is ineffective may the debt be enforced from the assets of the individual partners. It is worth noting that enforcement is ineffective not only when enforcement against the partnership proves ineffective and is confirmed by a bailiff's decision, but also when it is obvious that enforcement will be ineffective. Therefore, a final decision to discontinue proceedings against the company is not necessary to establish that enforcement is ineffective.
Liability for obligations in partnerships - Partnerships
A partnership is formed to practise liberal professions such as lawyer, doctor or architect.
A partnership, like a general partnership, can be the subject of rights and obligations. It can also appear in court as both plaintiff and defendant. It can also sign contracts in its own name.
However, liability for the partnership's obligations is shaped differently than in a general partnership. Partners in a partnership are not liable for damage caused by other partners through their professional activity. An exception to this is where the partnership agreement expressly provides for one or more partners to be fully liable for the obligations of the partnership. The separation of liability does not, however, apply to liabilities incurred by the partnership for a common purpose, such as taking out a loan for the new premises of the partnership.
Liability for debts in a limited partnership
It is a type of partnership with two types of partners: general partners and limited partners. They are liable for the obligations of the partnership in different ways.
A limited partnership is primarily liable with its own assets. If the assets of the partnership are insufficient to cover its debts, then at least one of the partners, known as the general partner, is liable for the partnership's obligations with all of its assets jointly and severally with the other partners and the partnership.
At least one of the partners, known as a limited partner, is liable for the debts of the partnership up to an amount specified in the agreement. This is the so-called limited partnership sum. The limited partner is liable for the company's debts towards its creditors only up to the limited partnership sum. If the debts are higher, the limited partner is not liable for them with his or her own assets.
It should be emphasised that the subsidiary liability of partners in a limited partnership does not apply to liability for tax debts. With regard to this type of debt, the liability of partners is joint and several with the partnership, i.e. the enforcement of public law receivables takes place regardless of the possibility to satisfy itself first from the assets of the partnership itself. The creditor, i.e. the Tax Office, may enforce payment of the tax against both the company and the partners, against each of these entities separately or against all of them jointly. The tax office may also carry out enforcement against only some of the partners. The partners against whom the Tax Office has carried out effective enforcement have the right to claim compensation of the enforced claim from the other partners.
Liability for obligations in partnerships - limited liability partnerships
Liability for obligations in a limited joint-stock partnership is similar to the liability we face in a limited partnership. Here, too, there are two types of partners, although an anonymous shareholder appears instead of a limited partner.
The general partner's liability for the partnership's obligations is personal; he is liable with all his assets. In addition, it is joint and several and subsidiary, but not with respect to tax debts. As is the case in a limited partnership, the liability of the general partner for the partnership's tax debts is only joint and several with the partnership and the other partners. A creditor may enforce against both the partnership and the partners, and the order in which debts are enforced will not be relevant here.
The shareholder is not liable for the company's obligations. However, he or she bears the property risk related to the contributions made to the company. A creditor enforcing his claim may satisfy himself from the assets contributed to the company by the shareholder.
There are specific cases in which a shareholder may be liable for the company's obligations. This will be the case in particular when:
- his or her name has been included by omission or intentionally in the company (name) or
- when he acts on behalf of the company as a proxy or attorney and fails to disclose this fact externally or exceeds the scope of his authority or when he acts at all without a power of attorney.
In such a situation, the shareholder will be personally liable for the consequences of the action he or she has taken.
If a shareholder changes his or her status and becomes a general partner (with the consent of all existing general partners), he or she will also be liable for the company's obligations existing at the time the company is entered in the KRS.
