Important issues for general partners in a partnership company

I. Understanding general partners in a partnership company

1. Scale of a partnership company

A partnership company is a type of enterprise in which at least two general partners co-own the enterprise and jointly conduct commercial activities under a common enterprise’s name. In addition to general partners, a partnership company may also have capital-contributing members.

2. Characteristics of a partnership company

According to Article 177 of the Law on Enterprise 2020, a partnership company has the following fundamental characteristics:

• A minimum of two general partners is required.
• General partners are liable for the company’s obligations with all of their personal assets.
• Capital-contributing members are only liable for the company’s debts to the extent of their capital contribution.
• The company obtains legal person status from the date of issuance of the Enterprise Registration Certificate.
• Partnership companies are not permitted to issue securities.

3. Minimum and maximum number of members in a partnership company

There is no legal provision limiting the maximum number of members in a partnership company. Therefore, a partnership can be established with just a minimum of two (02) general partners. Additionally, a partnership may include both general partners and capital-contributing members.

4. Role of general partners in a partnership company

General partners are who contribute capital, directly managing and operating the company's business. As such, they possess broad powers that are inherently tied to their managerial authority. Specifically:

Right to participate in management:

• The general partner is entitled to attend meetings, deliberate, and vote on important matters of the company.
• Each general partner has one vote, unless otherwise stipulated in the company charter.

Legal representation of the company:

• General partners may act on behalf of the company in registered business activities.
• The general partner is authorized to negotiate, sign contracts, and conduct transactions beneficial to the company, thereby directly exercising legal representation and managing the company’s operations.

Internal supervision and protection of interests:

• The general partner is entitled to claim compensation from the company for damages incurred during the performance of assigned duties, provided such damages were not caused by personal fault.
• The general partner is entitled to request information, inspect records, and check assets to ensure transparency and mutual oversight among general partners.

Financial rights:

• The general partner is entitled to profit-sharing according to the capital contribution ratio or as agreed in the company charter.
• In the event of dissolution or bankruptcy, entitled to a share of remaining assets in proportion to their capital contribution.
• Upon a general partner’s death, their heirs are entitled to the value of the partner's interest after debt and obligations are settled. The heirs may become general partners if approved by the Members' Council.

Due to their significant powers, general partners also take extensive responsibility, even unlimited, and joint liability for the financial obligations of the company.

Duty of honest and lawful management:

• The general partner must manage and operate the company with honesty and  diligence, and in the company’s best interests.
• Any actions contrary to law, the company charter, or resolutions of the Members' Council that result in damage to the company shall result in compensation liability.

Prohibition against personal gain from company assets:

• The general partner is forbidden from using company assets for personal purposes or for the benefit of other individuals or organizations.
• If violated, the general partner must return all misused assets and compensate for any resulting damages.

Unlimited and joint personal financial liability:

• If the company lacks sufficient assets to cover its debts, general partners must use personal assets to jointly fulfill the outstanding liabilities.
• Additionally, if the company incurs losses, general partners must take losses in proportion to their capital contributions or in accordance with the company charter.

Reporting and declaration obligations:

• The general partner is required to submit monthly written reports on their individual business results and performance.
• The general partner must provide such reports to other general partners upon request, ensuring transparency and accountability.

II. Legal provisions relating to general partners in a partnership company

1. Conditions for becoming a general partner

To qualify as a general partner, individuals or organizations must not fall into the categories prohibited from establishing or managing enterprises as provided under Clause 2, Article 17 of the Law on Enterprise 2020, and must not fall under Points a and b of Clause 3 of the same Article.

Additionally, Article 180 of the Law on Enterprise 2020 outlines the following restrictions:

• A general partner may not concurrently own a private enterprise or serve as a general partner in another partnership company unless unanimously approved by all current general partners.
• A general partner may not conduct business in the same industry as the partnership for personal gain or for the benefit of others, whether in their own name or that of another.
• A general partner may not transfer all or part of their capital contribution to others without the approval of all remaining general partners.

According to Clause 1, Article 186 of the Law on Enterprise, a partnership company may admit additional general or capital-contributing partners, subject to the approval of the Members’ Council.

Furthermore, the Chairperson of the Members’ Council or a general partner must request a meeting of the Members’ Council to deliberate and decide on the admission of a new general partner (per Clause 2, Article 182 and Clause 1, Article 183). Unless otherwise stipulated in the company charter, such admission requires the approval of at least three-fourths of all general partners.

Once a new general partner is admitted, the company must notify the business registration authority of the change within 10 days. Additionally, under Clause 2, Article 186, the new general partner must fully contribute their committed capital within 15 days from the date of approval, unless a different deadline is set by the Members' Council.

2. Legal capacity requirements for individuals

Pursuant to Articles 177 and 180 of the Law on Enterprise 2020, a general partner must meet the following criteria:

• Must be an individual: Organizations are not permitted to become general partners.
• Must have full civil legal capacity:
  + Being at least 18 years of age.
  + Not being subject to any legal incapacity or restriction under the Civil Code 2015.
• Must not fall into categories prohibited from establishing or managing an enterprise under Article 17 of the Law on Enterprise:
  + Currently serving a criminal sentence or banned from professional practice.
  + Holding public office as a civil servant or official.
  + Other prohibited cases as provided by law.

3. Prohibited cases for general partners in a partnership company

According to Article 180 of the Law on Enterprise 2020:

• Individuals may not simultaneously be the owner of a private enterprise or a general partner in another partnership unless otherwise approved.
• Individuals may not conduct business activities in the same industry for personal benefit or that of another, either in their own name or representing others.

Specific prohibited cases include:

• Being declared bankrupt or banned from doing business by a court.
• Currently serving a prison sentence or under house arrest.
• Other disqualifications listed under Article 17 of the Law on Enterprise.

4. Rights and obligations of general partners

Pursuant to Articles 180 and 181 of the Law on Enterprise:

Rights:

• Participate in the management of the company and vote on matters within the authority of the Members’ Council.
• Act as the legal representative of the company (if provided in the charter).
• Receive profit shares in proportion to their capital contributions or as agreed.

Obligations:

• Contribute capital in full and on time as committed.
• Jointly and severally liable with all personal assets for the company’s debts and financial obligations.
• Prohibited from using company assets for personal gain or the benefit of other parties.
• Must comply with legal provisions regarding capital transfer.

III. Questions about general partners in a partnership company

1. Can a general partner convene a meeting of the Members’ Council?

According to Clause 1, Article 183 of the Law on Enterprise 2020, the Chairperson of the Members’ Council may convene a meeting when necessary or at the request of a general partner. If the Chairperson fails to do so upon request, the requesting general partner has the right to convene the meeting themselves.

2. What is the deadline for a general partner to contribute capital?

As stipulated in Clause 2, Article 186 of the Law on Enterprise 2020, both general and capital-contributing members must contribute their committed capital in full within 15 days of being approved by the Members’ Council, unless a different period is specified by the Council.

3. Can a general partner transfer their capital contribution?

Under Article 180 of the Law on Enterprise, general partners are not permitted to transfer all or part of their capital contribution to others without the unanimous approval of the remaining general partners. If such approval is obtained, the transfer may proceed.

4. What are the liabilities of a general partner who withdraws from the company?

According to Clause 5, Article 185 of the Law on Enterprise 2020, a withdrawing general partner remains jointly liable for any company debts incurred prior to their withdrawal for a period of two years from the date of termination of their partnership status.

IV. Consulting services and legal procedures related to general partners in a partnership company

The above information is provided by NPLaw to support our clients in understanding matters relating to general partners in partnership companies. Should you have any further questions on the topics mentioned or other legal concerns, please contact NPLaw for direct consultation and guidance from our legal team.