General partnership and limited partnership are two main types of partnership under the Law on Commercial Enterprises (LCE). This article provides an overview of legal previsions on general partnership in Cambodia. In particular, it discusses the creation of general partnership, relations among general partners, relations between general partners and third parties, cease of general partners and dissolution and liquidation of the general partnership.
1. Formation or creation of general partnership
Pursuant to Article 8 of Law on Commercial Enterprises, a general partnership is formed by a contract between two or more persons who jointly contribute their assets, knowledge, or activities to do business. The remarkable difference from limited liability company which requires capital to be in cash, the capital of general partnership can be cash and in-kind. However, the general partners are required to determine the value of the contribution in-kind to be in cash. Even through partners can contribute their knowledge and activities into their partnership, these kinds of contribution will not be counted or taken into consideration when calculation of the capital of the general partnership. (Article 21, LCE)
From the time of its registration in accordance to laws with the Ministry of Commerce, the general partnership has its own legal personality. Accordingly, the general partnership has a legal capacity to acquire rights and assume obligations on its own name. It can enter into the contract, own of the properties, fill a lawsuit and be sued. (Article 12, LCE)
The name of general partnership usually includes the name of one or more general partners, and at the end or below that name, there are the words “General Partnership”. (Article 14, LCE) General partnership is not allowed to issue securities or bonds that can be traded to the public. (Article 47, LCE)
2. Relations among the general partners
Each partner shares the profits and losses of the partnership. (Article 23, LCE) In principle, if there is no special agreement of the partners in the contract, each partner shares the benefits and losses equally. (Article 24, LCE) Since partners are responsible for all the obligations of the partnership, no natural person or legal person can become a general partner of a general partnership without the unanimous consent of all general partners. In addition, the transfer of benefits to any person and the use of contribution in assets or profits of any general partner in the partnership as collateral to guarantee the general partner’s personal obligations require the unanimous consent from all general partners. (Articles 32 and 33, LCE)
The partners can make decisions about their rights to manage the affairs of the partnership. (Article 34, LCE) The partners can appoint one or more partners or individuals who are not general partners to manage the affairs of partnership on their behalf. If the manager carries out all the activities within his authority and if the manager does not commit fraud, the conduct of that manager binds the obligations to the partnership. Except there is different arrangement in partnership contract, managers are removed from office by a majority vote of the partners during the voting session, (Article 35, LCE) To ensure accountability and transparency of the management of partnership and to protect the interest of any partner who does not have a managerial role in the partnership, Law on Commercial Enterprises entitles such partner to get information about the affairs of the partnership and to consult the books and minutes of the partnership. (Article 39, LCE)
3. Relations between general partners and third parties
Each general partner is an agent of the general partnership in dealings with third parties who do business faithfully. Consequently, all acts committed by the general partner on behalf of that partnership bind the obligations to the general partnership. (Article 40, LCE) If the partner who has entered into a contract with a third party will bind the company whenever that obligation is within the scope of partnership’s business or whenever the subject matter of the contract is an asset which is used by a general partnership. (Article 41, LCE)
All general partners are jointly and separately responsible for the obligations of the general partnership. Third parties must first claim the obligations, liabilities or assets from the partnership before claiming from the general partners (Article 42, LCE) Any person who has become a general partner in an existing partnership is liable for all debts incurred by the company before that person becomes a general partner. However, any debts incurred before that person becomes a general partner can only be repaid by the company’s assets. Such debt cannot be repaid by personal property of the new general partner, except there is written consent of that person. (Article 43, LCE)
Any general partner who is not declared by the company must be recognized as an unidentified general partner and must be liable to third parties for all obligations of the partnership as the declared general partners do. (Article 46, LCE)
4. Exclusion of general partners
An individual is no longer a general partner of a general partnership when that person transfers his or her interests or dies or is placed under investigation for bankruptcy or has exercised the right to withdraw or be dismissed from partnership or received a court’s order authorizing the removal or ordering the confiscation of the person’s interests. (Article 48, LCE)
The fact that any person ceases to be a general partner causes the automatic dissolution of the general partnership, except for the contract stipulates otherwise. The partnership may continue its activities by the unanimous consent of all the general partners and by applying the requirements of the deposit and registration to indicate the amendment in the general partnership. (Article 49, LCE)
5. Dissolution and liquidation of general partnership
The general partnership must be dissolved for the reasons stated in the partnership contract (such as the business purpose of the company is terminated, it is not possible to continue the business and there is unanimous consent of the general partners) and by the court in accordance with the law.
Dissolution of a general partnership does not affect the rights of third parties who do business with it in good faith and does not affect any person who has entered into a contract with the general partner or does not affect any agent who works on behalf of the general partnership. No. (Article 57, LCE)
Once the general partnership is dissolved, the partnership can be liquidated. The rights of the general partner acting on behalf of the partnership must end when the partnership is dissolved, except for those activities which are a necessary consequence of the business of the partnership which has not been completed. However, any business carried out in the partnership by a general partner who is not aware of the dissolution of the partnership and is still acting in good faith, the general partner is obliged with the general partnership and other general partners as if the partnership remains in force. (Article 56, LCE)
The general partners must send written notification to the registrar about the dissolution of the partnership in the prescribed form and must also appoint a liquidator. The general partners must immediately publish the dissolution of the partnership within a period of four consecutive weeks in a Khmer language newspaper in the Kingdom of Cambodia, published or posted on the premises where the partnership has its office or other advertisements as stated in the regulations of the Ministry of Commerce. (Article 59, LCE)
When dissolving a partnership, the liquidator has the right to occupy, use and dispose of the partnership’s assets, as well as the right to demand from all general partners the documents and explanation related to the rights and obligations of the partnership. (Article 60, LCE)
The liquidator must use the assets to repay the debts of the staff, the state tax debts and other debts according to the priority rights before making the capital distribution to the general partners. The liquidator must distribute the remaining assets to the general partners in equal proportions, unless otherwise stated in the contract. If the partnership’s assets include the assets of a third party, the liquidator must return such assets to that third party. (Article 61, LCE) From the time of liquidation, the liquidator must keep the partnership’s books and records for up to 10 years, or more if these documents are required as evidence (Article 62 LCE)
The liquidation of the partnership must be completed by submitting the notice of closure to the Ministry of Commerce in the prescribed manner. The submitting or filling of this document is a revocation of the legal personality of the general partnership. (Article 63, LCE)
This text is not legal advice or opinion.