Insights: Partnership Law in Cyprus

A Partnership is the relationship which subsists between two or more natural or legal persons carrying on business in common with a view to profit.

A partnership is able to operate under a registered business name, enter into contracts using this name and may sue and be sued in its own name. Unless there is an agreement to the contrary any rights and interests to assets and intellectual property brought, acquired on account or for the purposes and in the course of the partnership business are deemed to be partnership property.

The creation, operation, and termination of partnerships are regulated by the Partnership and Business Names Law, Cap. 116 (the “Law”). The Law distinguishes between general partnerships, limited partnership and partnerships limited by shares.

1. General Partnerships

In a General Partnership each partner is regarded as the agent of the others, with authority to enter into contracts in the ordinary course of business on behalf of the partnership as a whole.

In addition, each individual partner, together with the other partners, has unlimited liability for all the debts and obligations of the partnership which were incurred during their time as partner.

2. Limited Partnerships

In a limited partnership there must be at least one general partner, with unlimited liability for the debts and obligations of the partnership, and one or more limited partners.

A limited partner is not regarded as an agent of the partnership. Consequently a limited partner does not has no power to bind the firm neither do they have the right to take part in the running of the business. The benefit for foregoing these is limited liability. If the limited partner fails to adhere to these rules results then they will lose limited liability.

3. Partnerships limited by shares 

The concept of partnerships limited by shares (commonly referred to as LLP`s) was introduced in 2015.

A partnership limited by shares is similar to the conventional limited partnership. There must be at least one general partner, with unlimited liability for the debts and obligations of the partnership, and one or more limited partners. The liability of the limited partners is restricted to the amount unpaid on the shares they hold in the partnership, in the same way as shareholders in a limited company. As in a conventional limited partnership, only general partners may participate in the management and the operations of the partnership, and be authorised to bind the partnership; limited partners may not.

Like all other partnerships, partnerships limited by shares have no separate legal personality and are transparent for tax purposes, with tax being assessed on the partners.

4. Advantages of Partnerships

The advantages of a partnership include:

• minimal formalities and cost in formation, operation and termination;
• simple procedure for formation and termination of a partnership when compared to companies;
• losses accumulated at the level of the partnership may be used by the partner himself;
• partnerships are not required to disclose constitutional documents;
• unless agreed otherwise, the partners are free to assign their participation share in the partnership, for example, in the case of dissolution of the partnership for a third party assignee to receive the share of profits and the share of partnership assets to which the partner assignor would otherwise be entitled to

5. Disadvantages of Partnerships

The disadvantages of a partnership include:

• general partners are provided with considerable power. Every general partner acting within its authority can in principle bind the firm and its co-partners. This necessitates the careful drafting of decision-making rules within the partnership;
• unlimited liability towards third parties for all debts and obligations of the firm incurred during the time they were partners. This may be alleviated through the creation of a partnership between limited companies that are wholly owned by the participants. The option of a limited partner status would only be attractive to a participant that is willing to provide capital and leave management and control to others;
• effective tax planning maybe complicated as the attribution of profits to partners is automatic.

6. Termination of Partnership

Unless otherwise agreed by the partners, a partnership is dissolved in the following cases:

• if the partnership was agreed to be for a fixed term, by the expiration of that term;
• if the partnership was agreed to be a single venture or undertaking, by the termination of that venture or undertaking;
• if the partnership was was for an undefined time, by any general partner giving notice to the others of his intention to dissolve the partnership;
• by the death or bankruptcy of any general partner;
• by the occurrence of any event which makes it unlawful for the business of the firm to be carried on, or for the members of the firm to carry it on in partnership; or
• by a court order (for example when a partner becomes permanently incapable of performing its part of the partnership contract).

How can we help?

The  legal structure/legal entity chosen to carry out a business will impact on the type and how much taxes are paid, the records and amount of paperwork the business is required to maintain and submit, the personal liability faced by the owners and the ability to raise finance.

We can advise and assist investors to determine the type of business structure which best suits their needs.

Theodorou Law is a Cyprus law firm with Cyprus lawyers and other legal experts on legal matters involving Cyprus law, EU law and international law. The above should be used as a source of general information only. It is not intended to give a definitive statement of the law.