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ANALYSIS OF PUBLIC COMPANY
AND LIMITED PARTNERSHIP AS
UNUSED LEGAL FORMS OF BUSINESS
Tomáš Peráček1
Boris Mucha2
Abstract: General commercial partnership and limited partnership representing the types of
personal trading companies have their origin in German and Austrian commercial law. ey
have been applied as ideal legal forms mostly in the eld of family entrepreneurship primarily
in these countries. In the Slovak Republic, however, they have been pushed to the background
and have been literally “dying out” despite of their advantages. It is striking that even com-
mercial law theorists have been avoiding them and have been marginally involved in their
research. e authors’ goal, not only for this reason, is the examination of the provisions §76
to §104 of the Commercial Code regulating such trading companies and provision of an
unbiased view on them. e goal set is to be achieved primarily by using scientic literature,
judicature and legal regulations by means of which we will assess the legal form of general
partnership, limited partnership and their management. In the conclusion, we either conrm
or dismiss the hypothesis, according to which personal trading companies are being regarded
as unnecessary types of trading companies and ahistorical relic of commercial law.
Keywords: Commercial Code, trading companies, management
JEL Classication: K 20
1. INTRODUCTION
A general commercial partnership and alimited partnership are inherently typical
business companies because they are very closely associated with partners. From this
connection and due to business risk, the potential negative consequences for partners
may also arise. ese are basically the same as in business, for example, according to
the Trade Licensing Act. However, the main dierence is that even this risk is shared
between at least two partners. Personal trading companies have held the interest of legal
theorists in the eld of commercial law only marginally. Particularly in comparison with
the capital business companies, minimal attention has been paid to them. e goal of
1 Comenius University in Bratislava, Faculty of Management, Odbojárov 10, 820 05 Bratislava,
Slovak Republic, e-mail: tomas.peracek@fm.uniba.sk
2 Comenius University in Bratislava, Faculty of Management, Odbojárov 10, 820 05 Bratislava,
Slovak Republic, e-mail: boris.mucha@fm.uniba.sk
138 BUSINESS ENVIRONMENT HORIZONS
our contribution is at least apartial correction of this state. Using multiple scientic
research methods, analyses, descriptions, deductions, or comparisons, we will review
available literature, judicature and legal regulations.
2. AIM OF THE PAPER AND METHODOLOGY
Generally speaking there is alimited interest of legal theorists in exploring apublic
company and limited partnership as apersonal trading companies. Our aim is to pro-
vide, with scientic and doctrinal interpretation of the provisions of Sections 76 to 104
of the Commercial Code, an objective view of the personal trading companies. We want
to achieve the goal by means of acomplex study of professional literature, jurisprudence
and legislation. Mamojka, Kubíček, Suchoža, and others are among the most important
authors who devoted themselves to the issue of Commercial Law in the Slovak Republic.
Based on the results obtained, we can critically judge the legal regulations of this com-
panies. In conclusion, we will provide aresponse to the hypothesis which says “Personal
trading companies are unnecessary types of companies and ahistorical relic of commer-
cial law.”
3. RESULTS
General Commercial Partnership
Ageneral commercial partnership is atypical personal trading company in which
at least two persons run abusiness using common business name and are liable for the
company’s obligations jointly and severally with all of their assets. e founders of the
company can be natural persons and also legal entities. As stated in the specialized lit-
erature, this type of business can only be established for the purpose of doing business,
because other than business activity is permitted only for ajoint stock company, asim-
ple joint-stock company and alimited liability company.
e social contract as afounding legal document must be drawn up in written form,
signed by all founders, while the authenticity of their signatures must be ocially veri-
ed. e law permits that the social contract can be signed by the representatives of the
founders, acting on the basis of awritten power of attorney that is attached to the social
contract and includes the certied signatures of the principals.
Obligatory requirements of the social contract are the determination of the business
name and seat of the company, the identication of the partners, including their proper
identication and the subject of the company’s business. e business name has to,
in the rst place, include the indication “general commercial partnership”, which may
be replaced the statutorily-designated abbreviation “g. c. p.” In this context, Lukačka
(2019, p. 85) points out the Judgment of the Supreme Court of the Slovak Republic
no.5Obdo 8/1997. According to that, if atrading company participates in litigation,
the form of its conduct of business is part of its business name. If the business name does
not include this fact, it needs to be added.
139ANALYSIS OF PUBLIC COMPANY AND LIMITED PARTNERSHIP AS UNUSED LEGAL FORMS…
In certain, unanticipated by law situations, the company is required to include an
addendum indicating its current legal status, particularly if the company is bankrupt,
restructured or liquidated. However, the company is established only after it has been
entered in the Commercial Register which has constitutive eects. e proposal for such
registration shall be led and signed by all partners with certied signatures within 90
days since the establishment of the company or since the delivery of adocument prov-
ing atrade or other business license.
Rights and duties of partners
e provisions of Sections 79 to 84 of the Commercial Code have non-mandatory
character, which allows the partners to make use of this possibility and, according to the
agreement, modify the mutual relationship by means of the social contract. e con-
tract can be generally changed by all partners except in cases where the Commercial
Code or the social contract determines dierent legal arrangement. A general commer-
cial partnership is aprivate trading company in case of which the law neither requires
nor prohibits the share capital (i. e. contributions of shareholders). Suchoža et al. (2016,
pp.198-218) however refer to cases where the members of the company still choose to
place money or non-monetary capital in acompany which, under Section 80 (1) of the
Commercial Code, becomes the property of the company. In their view, the shareholder
is obliged to repay his deposit within the term specied in the social contract and, if
that term is not specied, without undue delay after the establishment of the company.
e decision of the Supreme Court of the Slovak Republic no. 2Obo 128/2002
shows that after the expiry of the shareholder’s participation in ageneral commercial
partnership during the duration of the company, the shareholder is not entitled to the
refund of his contribution, as far as it has become the property of the company and will
be taken into account in the calculation of his/her compensation share.
Company’s management and distribution of prot
Section 81 of the Commercial Code guarantees the right to the company’s business
management within the framework of the principles agreed between the partners to
each of them. According to the law, each partner is the statutory body of ageneral com-
mercial and can act independently. However, the social contract may restrict that right
by determining that the partners act together. Dierent regulation can be found in Sec-
tion 80 of the Commercial Code. If the partners partly or wholly entrust one or more
partners with the company’s business management in the social contract, the other part-
ners lose that right to that extent. However, the authorized partner is obliged to follow
the decision taken by amajority of partners’ votes, whereas if the social contract does not
provide otherwise, each partner has only one vote. If the social contract does not pro-
vide otherwise, and if all the others partners agree, the authorization of apartner may
be revoked. Ovečková et al. (2017, pp. 444-451) notes that in practice, there were cases
in which the authorized partner substantially violated his/her obligations. In this case,
the law requires the court to revoke his authorization to manage the company on apro-
140 BUSINESS ENVIRONMENT HORIZONS
posal from any partner, even if the authorization is, according to the social contract, not
revocable. e provision of Section 81 article 1 of the Commercial Code, according to
which all partners are entitled to the business management of the company, is valid until
partners agree on anew person authorized to manage the company. e partner respon-
sible for the company’s business management is obliged to inform other partners about
all matters of the company upon request. Each partner is entitled to consult all com-
pany documents. Non-mandatory provision of the section 82 article 1 to 3 of the Com-
mercial Code provides for the distribution of prots, provided that the social contract
does not determine otherwise. e prot to be distributed is equally divided between
the partners. According to Csach (2019, p.192), the share of prot determined on the
basis of the annual clearance of accounts is payable within three months of its approval.
e loss itself, ascertained by the annual clearance of accounts, is borne by the partners
in equal shares. However, the social contract may alter the distribution of prots and
bearing losses.
Dissolution and liquidation of the company
Section 68 of the Commercial Code regulates the grounds for the dissolution of
acommercial company in general. It is followed by Section 88 article 1 of the Commer-
cial Code, which lists the specic grounds for the dissolution of the company. However,
as stated by Kubíček et al. (2018, p. 162), in case of selected grounds for the company’s
dissolution, the law allows the remaining partners to reach an agreement on the con-
tinuation of the company without apartner by means of achange of the social contract.
However, such an agreement on achange of the social contract must be made within
three months since the company’s dissolution, otherwise that right ceases and the com-
pany is put into liquidation.
e general rule says that ageneral commercial partnership is dissolved by the death
of the partner. Despite of that, the partnership may continue to function if three condi-
tions are met. First of all, this must be allowed by asocial contract. e second condi-
tion is that the heir has to make aclaim on his/her participation in the company within
one month since the end of the inheritance procedure. e third condition is that there
remained at least two as partners in the partnership.
Upon the dissolution of apartnership in liquidation, partners are entitled to the
share in the balance in the event of the liquidation, which is distributed among the part-
ners rst up to the amount of their paid deposits – if they made some. e rest of the
liquidation balance is distributed among the partners in equal shares. However, if the
liquidation balance is insucient to repay the paid-up deposits, the partners have their
share in it in proportion to their amount, whereas the social contract may adjust the dis-
tribution of the liquidation balance dierently (Haentjens et al. 20156, p. 58).
Limited Partnership
e limited partnership together with the general commercial partnership belongs
to agroup of personal trading companies. e characteristic feature of alimited part-
141ANALYSIS OF PUBLIC COMPANY AND LIMITED PARTNERSHIP AS UNUSED LEGAL FORMS…
nership is the existence of two groups of partners. In the section 93 (1) of the Commer-
cial Code, the legislature denes the limited partnership as acompany in which one or
more partners are liable for the company’s liabilities up to the amount of their unpaid
deposit entered in the commercial register (limited partners) and one or more partners
with all of their own assets (general partners). e following paragraph 2 refers to the
supportive application of the selected provisions of the Commercial Code by applying
the provisions of the Commercial Code on ageneral commercial partnership to the lim-
ited partnership and the provisions on limited liability Company to the legal status of
the limited partners.
Under the section 58 article 1 of the Commercial Code, the limited partnership
as apersonal type of trading company is not obliged to create capital. According to
Jankurová et al. (2017, pp. 135-151), the limited partner is obliged to place adeposit
in the amount determined by the social contract that should be at least 250 euros. is
deposit has to be obligatorily repaid within the term stipulated by the social contract
and, if the social contract does not regulate the length of the term, without undue delay
after the establishment of the company or after the establishment of the partner’s par-
ticipation in the company.
e mandatory provision of Section 94 of the Commercial Code determines the
mandatory requirements of asocial contract, the absence of which results in the social
contract being aected by an absolute nullity. e social contract must include, as in the
case of ageneral commercial partnership, the business name and registered oce of the
company, the identication of the partners and the object of the business. Furthermore,
it includes the denition of who from the partners are general partners and who are
limited partners and the amount of the deposit of each limited partner. e founders’
agreement on the dierent management of the company, the determination of the rules
of the general assembly, competition prohibition, prot and liquidation balance distri-
bution and other issues can be included as the optional elements of the social contract.
e business name of the company must include the term “limited partnership”, with
the abbreviation “l. p.” In practice, there may be asituation where the business name of
the company includes the name of the limited partner. In such acase, he/she guarantees
the company’s obligations as ageneral partner, i. e. jointly and severally with other gen-
eral partners (Grancay et al. 2015, pp. 759-777).
From the formal point of view, the social contract must be drafted in written form,
signed by all founders with ocially certied signatures. If the signing of the social con-
tract is signed by the authorised representative of the founder, the provisions of section
57, paragraphs 1 and 2 of the Commercial Code on representation shall be applied
appropriately.
e proposal for registration of limited partnership in the business register is signed
by all the partners, i. e. general and limited partners, whereas their signatures on the
social contract as well as on the application for entry in the commercial register are sub-
ject to the verication obligation. e application for registration together with the nec-
142 BUSINESS ENVIRONMENT HORIZONS
essary attachments must be delivered to the commercial register within 90 days since the
conclusion of the social contract or the acquisition of the business license.
Managing the company and partner rights and obligations
Only general partners are entitled to be in the company’s business leadership, i. e. be
astatutory body of acompany, which results from their unlimited liability for the com-
pany’s obligations. In this case, they are also authorized to act on their own behalf indi-
vidually. According to Mamojka et al. (2016, pp. 360-375) in other matters the general
partners decide together with the limited partners by the majority of the votes, during
the vote, each partner has, according to the law, only one vote. ey also state that the
consent of all partners is necessary to change the social contract and that the consent of
the other partners is required to transfer the share of the limited partner to another per-
son. However, the social contract may also alter these rights and obligations dierently.
e mandatory provision of the section 98 of the Commercial Code guarantees the
limited partner only the right to inspect the company’s accounting records and account-
ing documents and the right to receive an issue abalance sheet of the annual accounts.
e dierent status of partners in limited partnerships is also reected in the legal regu-
lation concerning the ban on competition, according to which the ban on competition
does not apply to the limited partner, unless the social contract determines otherwise. It
follows from the above that the general provision of the section 65 of the Commercial
Code on the prohibition of competition applies to general partners.
e distribution of prots to the part passed to limited partners and the part to gen-
eral partners is determined in the way agreed in the social contract. If the social contract
does not regulate this issue, the prot is divided between them in half. Furthermore, if
nothing else arises from the social contract, general partners will divide the part of the
prot equally and limited partners according to the amount of their paid-up deposits.
In this context, it is necessary to emphasize that the position of alimited partner in the
company itself can be modied dierently even though he/she is held responsible for the
company’s liabilities to the minimum extent, which reects the application of the non-
mandatory principle (Ďuračinská, 2015, pp. 137-144).
Legal relationships with third parties
As the statutory bodies of the company are general partners and unless the social
contract does not state anything else, each general partner is entitled to act on behalf
of the company independently. e limited partner, who by law is not and cannot be
astatutory body of alimited partnership, is responsible for the obligations under the
treaties concluded on behalf of the company without authorization to the same extent
as the general partner. It is alawful sanction for breach of law. However, the law recog-
nizes two possibilities, whereby the limited partner can also act on behalf of the limited
company without being personally liable for the company’s obligations for more than
the amount of his/her unpaid deposit. is is the case if he/she was granted apower of
procuration under the section 14 of the Commercial Code or if he/she acted as arepre-
143ANALYSIS OF PUBLIC COMPANY AND LIMITED PARTNERSHIP AS UNUSED LEGAL FORMS…
sentative of alimited partnership on the basis of awritten mandate granted under the
section 31 of the Civil Code.
Dissolution and liquidation of the company
e actual act of dissolution of alimited partnership is governed by the general pro-
visions of the Commercial Code on the dissolution of commercial companies. In addi-
tion, the provisions of section 88 and section 89 of the Commercial Code with certain
exceptions apply. Due to the dierent status of the partners in the limited partnership,
the Act deals with some issues of its dissolution specically. e provision of section 102
(1), however, negatively denes the possibilities that are not grounds for the dissolution
of the company. It is the death of alimited partner, the loss or limitation of the capac-
ity of alimited person to legal acts, declaring the limited partner insolvent or rejecting
to le for bankruptcy for lack of assets, or the dissolution of alegal person who is alim-
ited partner.
e scientic literature (Rontchevsky, 2017, pp. 362-363) also analyzes the situa-
tion when the participation of all limited partners will cease. According to it, the general
partners may agree that the limited partnership changes to ageneral commercial part-
nership without liquidation, otherwise the provision of section 104 of the Commercial
Code regulating the dissolution of the limited partnership is applied. e partners are
entitled to ashare in the liquidation balance and to the refund of the value of the paid
deposit. e company itself is dissolved by its removal from the Commercial Register.
4. CONCLUSION AND DISCUSION
Slovak society still advocates that personal trading companies as legal forms of entre-
preneurship, have been in decline, or just survive past times when their establishment
had tax benets in particular. In the past, for example in the case of ajoint stock com-
pany, there was atax on dividend that in practice meant double taxation. It was that the
rst tax paid wat the tax on prot and then the tax on dividends, i. e. tax on the share-
holder’s share in the prots of the company. In the case of personal trading companies,
however, such double taxation did not exist because it was not adividend payment. is
was often the main reason for doing business in these legal forms. On the basis of our
research, we reject the hypothesis that personal trading companies are unnecessary types
of trading companies and historical relic of commercial law. Despite the fact that they
also show certain shortcomings, such as unlimited liability of partners other than lim-
ited partners for the company’s obligations, or with alarger number of partners acertain
risk of conicts in the management of the company, they still remain to be the appro-
priate legal forms of doing business. In our opinion and according to the scientic lit-
erature as well – which points to the very brief legislation of these trading companies
– it is possible to eliminate several risks by arigorous regulation of the mutual relations
in the social contract as well as by preserving mutual trust and honesty of the business.
Personal business companies have their undisputed benets. ey are relatively easy
and simple to set up, they do not have to but can build up capital and can have two part-
144 BUSINESS ENVIRONMENT HORIZONS
ners only. eir benet has also been revived by the introduction of atax license cover-
ing only the capital companies, which however ceased to exist on December 31, 2017.
Acknowledgement
e paper was written within the VEGA research project no. 1/0647/18 “Determi-
nants of the target and process orientation of nancial management in the context of the
development of the current business environment.”
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