Partnership Liability Analysis: Case Study
Case Study: Partnership Liability
Assumption 2:
In 1995, Miguel Angel, Jose, and Ramon formed a partnership dedicated to purchasing motorcycles. In 1997, Ramon married Isabel under a community property regime. In 2001, Miguel Angel transferred his shares to Frederick. This transfer was not communicated to the partnership until 2003. In 2006, the partnership incurred a debt of 10,000C, while its assets were valued at only 1,000, and the capital was depleted. Jose managed the partnership, which operated under the name Ramon SC. The partnership is validly established by public deed and registered in the commercial register.
Issues
1. Is the transfer of Miguel Angel’s shares to Frederick valid?
No, the transfer is not valid. It requires unanimous consent from all partners. Communication is essential in a partnership. Unless otherwise stated, management is for all partners. Frederick may seek damages from Miguel Angel for selling shares without permission. Generally, shares cannot be transferred to a third party without explicit consent. Article 143 of C.dc.C states: “No member may give it to someone who has interest in the company, or replace it in place to carry trades that he would play in the social administration, without prior consent of the partners.”
2. What is the liability of a partner’s spouse?
The spouse’s private estate is not affected. The spouse is not liable with their personal assets (acquired before marriage or inherited). Regarding community property:
- Assets from the trader’s commercial activity are liable unless expressly excluded.
- The spouse can bring assets from their own commercial activity.
Acts executed to defraud creditors are void. Property transfers to a spouse to avoid creditors are invalid. It must be determined if the property is derived from commercial activity. If not, it is not subject to liability unless the spouse publicly denounces it in the commercial register.
3. Is the liability of assets direct or subsidiary? And for partners, is it direct or joint and several?
The liability of social capital is direct.
The liability of assets is subsidiary, responding after the capital.
The liability of general partners is subsidiary (in relation to the partnership), intermediate, and joint and several. According to Article 127 of the Commercial Code, all partners (managers or not) are jointly and severally liable with all their assets for the partnership’s actions. Therefore, a creditor can claim full compliance from each member of the social debt, against all members or one of them (Art 1137 CC).
4. What are Frederick’s responsibilities?
Considering the transfer is valid from 2003, Frederick is liable. Otherwise, he would not be liable. Until 2003, the transfer is void. Incoming members have no accountability. The outgoing partner is liable for debts incurred by the partnership with third parties in good faith from the transfer until its publication in the Official Journal of the Commercial Registry.
5. Does the non-registration of the transfer in the Register of Companies have legal effects?
No effects. If the transfer is not registered, it is invalid for third parties. The partners will have to address the issue with the one who transferred or received the shares.
6. If Michelangelo had been the administrator, would Frederick automatically assume the administration, or would he need the consent of the other partners?
By default, all partners of a partnership are administrators unless stated otherwise.