The Concept of Ordinary Partnership and Its Common Types
Introduction
Ordinary partnerships are regulated under Turkish Law between Articles 620 and 645 of the Turkish Code of Obligations No. 6098 (“TCO” or the “Code”). The Law defines an ordinary partnership contract as a contract where two or more persons undertake to combine their labour or property to achieve a common purpose. In the second paragraph of Article 620 of the TCO, the definition in the first paragraph is expanded and it is regulated that if a partnership does not have the distinctive characteristics of partnerships regulated by law, this partnership will be considered as an ordinary partnership. In addition to these, there are also ordinary partnerships that are formed spontaneously due to the existing contractual relationship, even in cases where the parties to the ordinary partnership do not have the purpose and will to establish a partnership.[1]
The Concept of Ordinary Partnership
An ordinary partnership is a partnership that is shaped according to the common objectives of two or more persons, where the partnership rights and partnership structure do not depend on the capital, where the partners are primarily and successively liable for the debts of the partnership with all their assets (except for consortiums and exceptions), which can be established or formed for any economic or non-economic subject without being bound by any form, and does not have a legal personality.[2] Since it has no legal personality, an ordinary partnership does not have an independent existence in its relations with third parties.
The elements of an ordinary partnership can be summarised as follows:[3]
- In order to establish a partnership, two or more persons must come together. For example, while a single person joint stock company can be established, a single person ordinary partnership cannot be established. Real or legal persons may be partners of an ordinary partnership.
- According to the definition of the Law, in order to establish an ordinary partnership, the labour or property of the partners must be combined to achieve a common purpose. The common declaration of will and common purpose of the parties are necessary for the establishment of an ordinary partnership.
- In combination with element (ii) above, partners are required to commit to a participation share. However, unlike capital companies with legal personality, the partners are free to determine the type and scope of the participation share. Any kind of performance related to the realisation of the purpose of the partnership may be undertaken as participation share.
- Common purpose is the fundamental element of an ordinary partnership. The purpose of the partners in an ordinary partnership must be one and the same. This purpose may be temporary or continuous.
- The coming together of the parties for the realisation of a common purpose is not sufficient alone for the establishment of an ordinary partnership. It is also necessary that the parties actively participate in the activities necessary for the realisation of this common purpose and that they have undertaken to participate.
- The establishment of an ordinary partnership and the validity of the ordinary partnership agreement are not subject to any formal requirements.
While an ordinary partnership is subject to the rights and regulations between partners in internal relations, since it does not have a legal entity in external relations, direct, in other words, organised representation of the partnership against third parties is not possible. The partner who enters into transactions with third parties becomes creditor and debtor against these third parties. If this partner enters into transactions with third parties on behalf of the partnership, in other words, on behalf of all partners, the other partners shall also be liable according to the provisions of direct representation.[4] For this purpose, the transacting partner must inform the third parties that he represents the other partners as well. Therefore, an ordinary partnership cannot have rights and obligations on its own behalf and account, or be a claimant or defendant. Lawsuits to be filed against the partnership must be filed against all partners, and lawsuits to be filed in favor of the partnership must be filed with the participation of all partners. Since the ordinary partnership does not have a legal personality, it does not have the capacity of a party.
Relations Between Partners
Pursuant to Article 621 of the TCO, each partner is obliged to contribute a participation share to the partnership in the form of money, receivables or other property or labour. Unless otherwise agreed in the contract, the participation shares must be equal to each other and also of the importance and quality required by the purpose of the partnership and must be equal to each other.
Pursuant to Articles 622 and 623 of the Law, the sharing of the profits and losses of the partnership among the partners is subject to the following elements:[5]
- The partners shall be obliged to share among themselves all profits which by their nature belong to the partnership. Unless otherwise agreed in the contract, the share of each partner in the profits and losses shall be equal regardless of the value and nature of the share.
- If the partners have agreed on a procedure for participation only in profits or only in losses, such agreement shall apply to both.
- An agreement that a shareholder shall participate only in the profits and not in the losses shall only apply to a shareholder who has contributed only his labor.
Unless otherwise stipulated in the partnership agreement, the decisions of the partnership shall be taken by unanimous vote of all partners. If the agreement states that the decisions shall be taken by majority of votes, the majority shall be determined according to the number of partners. However, the admission of a new partner to the partnership is subject to the consent of all partners. If one of the partners unilaterally makes a third person a partner in the partnership or transfers his/her share to him/her, this third person shall not be entitled to the title of partner.
Unless the management of the partnership has been entrusted to one or more partners or to a third party by contract or decision of the partners, all partners shall have the right to manage the partnership. If the partnership is managed by all or some of the partners, each of them may carry out transactions without the participation of the others; however, each partner authorized to manage the partnership may prevent such transaction from being carried out by objecting to the transaction before its completion. The unanimous vote of all shareholders is required for the appointment of a general authorized representative and for the conduct of the extraordinary affairs of the partnership. However, in cases where delay is inconvenient, each of the managing partners is authorized in this regard. Unless otherwise provided in the partnership agreement, the provisions governing attorney agreements shall apply to the relations between the managing partner or partners and the other partners.
Contractual relations based on ordinary partnership arise due to the necessity of cooperation to be established in order to carry out the activity in cases that exceed the capabilities of a single person or organization due to the size of the volume or technical characteristics of the activity planned to be carried out.
Joint Venture
One of the most common types of partnership based on ordinary partnership is "Joint Venture". Joint Venture is defined in the doctrine as “Joint Venture is the coming together of more than one real or legal person who are legally and economically independent from each other within the framework of a contract in order to carry out a certain business or a continuous activity by establishing a trade partnership or without such a partnership, and to gain profit, and to assume the risks of that activity by each of them being jointly liable.”[6]
As can be understood from this definition, there are two basic types of Joint Ventures. Based on this definition, joint venture agreements are divided into two as “Cooperative Joint Venture” and “Equity Joint Venture”.
The type of Joint Venture established on the basis of ordinary partnership is Cooperative Joint Venture. In the Cooperative Joint Venture model, the relationship consists only of a law of obligations contract concluded between the parties; in order to achieve the common purpose, the participation share performances of the partners are sufficient, and there is no need to establish a commercial company with a legal personality.
A Cooperative Joint Venture is also referred to as a relationship formed when more than one real or legal person, who are economically and legally independent from each other, come together within the framework of a contractual bond in order to undertake the performance of a certain work, with each of them being responsible for the entire work against the owner.
While a Cooperative Joint Venture serves for the execution of a single business or temporary activity, an Equity Joint Venture is formed for the joint execution of long-term commercial activities.[7]
In the light of all these explanations, it is seen that the parties come together for the realization of a specific purpose, and all of the contractually undertaken performances are aimed at the realization of the common purpose and making a profit. In this respect, it is clear that a Cooperative Joint Venture constitutes an ordinary partnership relationship without legal personality.
Business Partnership
Another type of joint venture that is frequently used in practice is the “business partnership”. A business partnership is formed when more than one company, which are legally and economically independent from each other, come together within the framework of a contract concluded between them, in order to carry out a certain work together, without separating the parts related to their own areas of expertise, and to jointly carry out the entire work and to jointly share the risk of the work.
The definition of business partnership is also included in various legislations; it is included in Article 4 titled “Definitions” of the Public Procurement Law (“PPL”) dated 04.01.2002 and numbered 4734, as amended by Article 2 of the Law dated 20.11.2008 and numbered 5812. Pursuant to the aforementioned provision, tenderers are defined as real or legal persons or joint ventures formed by them who operate in the field of procurement and have purchased tender or pre-qualification documents.
Article 14 of the PPL titled “Joint Ventures”, as amended by Article 10 of Law No. 4964 dated 30.07.2003, includes both joint venture-type business partnerships and consortia in the technical sense. In this regulation, “joint venture” is used as a meta-concept to include both joint ventures and consortia.
The concept of business partnership is also defined in the corporate tax legislation. Subparagraph (d) of Article 1 and paragraph 7 of Article 2 of the Corporate Tax Law No. 5520 dated 13.06.2006 and numbered 5520[8] and Article 2.5 of the Corporate Tax General Communiqué No. 1 (“CTGC”)[9] regarding the implementation of this Law, "business partnerships", which are considered as a special type of Joint Venture, are subject to legal regulation. Accordingly, a joint venture, within the meaning of the corporate tax legislation, is understood as "a partnership established by capital companies, cooperatives, economic public institutions and enterprises belonging to associations and foundations among themselves or together with sole proprietorships or real persons, in order to undertake jointly the joint performance of a specific work and to share its profits.[10]
Consortium
Another common type of partnership based on ordinary partnership is “consortium”. A consortium is a partnership formed when two or more persons come together for the purpose of performing a specific work or a series of works together, and each of them undertakes the fulfillment of only a part of the work independently of the other.[11]
Consortia also have all the elements of an ordinary partnership. It can be established by bringing together more than one real or legal person, its establishment is not subject to a formal requirement, the parties come together for a common purpose, which is essentially economic in nature, as it does not have a legal personality.
In practice and even in some judicial decisions, the concepts of “consortium” and “joint venture” are confused with each other. The characteristic feature of a joint venture and what distinguishes it from a consortium is that the partners undertake to be responsible to the owner for the whole of the work, not for certain parts of it. Even if the work as a whole does not fall entirely within a partner's area of expertise and activity, and even if the work is shared in an internal relationship, the partners are jointly and severally liable to the owner for the entire work. In consortiums, on the other hand, the liability of the partners is limited to the performance undertaken by them and there is no joint and several liability for the entire work.
Conclusion
As a result of developing commercial activities and large-scale investments, especially in the fields of construction, energy and mining, companies want to participate in these investments by joining forces and take part in these projects in a stronger way by using both their expertise and financing opportunities together.
Ordinary partnerships, which appear as a contractual association in which at least two economically independent undertakings, legal entities or real persons come together and adopt the purpose of performing a single or temporary work, usually under joint management, and making a profit under a contract, and there is no asset allocated to the joint assets of the partners, are both the fact that the coming together is not subject to any form and the realization of the common purpose, in other words, the ease of liquidation of the partnership upon the termination of the jointly undertaken work makes ordinary partnership a frequently preferred type of partnership, especially in project-based works.
- Poroy, Tekinalp, Çamoğlu, Ortaklıklar Hukuku, Vol. I, Revised 13th Edition , Vedat Kitapçılık, 2014, p: 40.
- Poroy, Tekinalp, Çamoğlu, P: 40.
- Yavuz, Cevdet, Türk Borçlar Hukuku Özel Hükümler, Updated Renewed 10th Edition , Beta Basım A.Ş., 2014, P:1512.
- Poroy, Tekinalp, Çamoğlu, P: 69.
- Yavuz, Cevdet, P:1517.
- Barlas, Nami, Adi Ortaklık Temeline Dayalı Sözleşme İlişkileri, 4. Edition, Istanbul 2016, p. 284.
- Altay Sıtkı Anlam, Anonim Ortaklıklar Hukuku’nda Sermayeye Katılmalı Ortak Girişimler, Istanbul 2009 p.38.
- RG. 03.04.2007, p. 26482.
- RG. 21.06.2006, p. 26205.
- Barlas, p. 279.
- Barlas, Nami P.263.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
Adaptation of the lease agreement cases is among the most frequently encountered legal disputes, especially in the event of economic fluctuations and changes in market conditions. In these cases, it is requested that the rental price be adapted according to the current conditions. Article 138 of the Turkish Code of...
Article 351 of the Turkish Code of Obligations (“TCO”) regulates the new owner’s right to evacuate the immovable property for its needs following the acquisition of the right of ownership. Whether this provision applies to the new owners who were previously joint owners of the immovable property has been the subject...
The assumption of a debt or an act (performance) of a third party has a critical role in the maintenance of commercial relations and the resolution of commercial disputes. The Court of Cassation General Assembly of Civil Chambers (“General Assembly”) recently issued a decision numbered...
In general terms, eviction due to the need for residency is a lawsuit regulated under Article 350 of the Turkish Code of Obligations No. 6098 ("TCO") and is filed in the event that the lessee is obliged to use the leased property as a residence or workplace for himself/herself, his/her spouse, descendants, ascendants...
The Decree No. 32 on the Protection of the Value of Turkish Currency (“Decree No. 32”) and the Communiqué No. 2008-32/34 on the Decree No. 32 on the Protection of the Value of Turkish Currency (“Communiqué”) prohibit the determination of the contract prices of certain contracts and other payment obligations...
The issue of proving damages in cases related to the excess damages is frequently subject to the examination and evaluation of both the Supreme Court and different chambers of the Court of Cassation. With its decision dated 29.03.2022 and numbered 2021/928 E. 2022/401 K., the Court of Cassation General...
The Constitutional Court's decision dated 14.09.2022 and published in the Official Gazette dated 25.10.2022 and numbered 31994 ("the Constitutional Court Decision") examines whether the start of the application period related to the applicant’s request for appeal being from the date of the pronouncement of...
Although the general principle in the law of contracts is freedom of contract or, in other words, freedom of will, the parties’ wills are not completely free in the case of exemption agreements. The validity of these agreements is limited by the mandatory provisions of the Turkish Code of Obligations...
The Constitutional Court, in its decision dated 14.09.2021 on application no. 2018/25663 (“Decision"), found that applicant Cahide Demir’s right to property was violated on the ground that the mortgage on her real estate, established to secure a third party’s debt, had not been released by the...
The use of general terms and conditions is a commercial reality not only in consumer transactions but also in commercial transactions in certain industries such as automotive, banking, insurance, telecommunications and energy...