Different forms of liability

The most important difference between the different private partnerships concerns the liability of partners for debts, but how does that work exactly?

The liability of a partner to creditors of the partnership

The liability of partners is in principle limited to the part of the partnerships’ debt for which he can be accounted for. E.g. a partner who has three fellow partners can only be held liable for 25% of the total debt of the partnership. When a creditor would want to recover the full debt he would have to sue all partners, where the creditor will be exposed to the risk of insolvency of one of the partners.

The liability of the partners to the creditors of a general partnership

Partners are personally liable at all time for the debts of the general partnership. A creditor can therefore sue every partner for the total amount of his debt, on the condition that the partners together do not have to pay more than the total amount of the debt. The creditor has less risk of insolvency in this case, because when one of the partners cannot pay, the creditor can sue another partner in order to recover the full amount.

The liability of the silent partner to the creditors of the limited partnership

Because of the nature of the role of the silent partner in a limited partnership, the silent partner in principle cannot be held liable for potential debts of the limited partnership. This is also because the silent partner does not have an active or visible role within the limited partnership and therefore does not create any debts on behalf of the limited partnership. Because he is not involved he cannot be liable.

This is different when the silent partner would act on behalf of the limited partnership contrary to the prohibition on that activity. When a silent partner acts, he cannot invoke the law that protects him any longer and that partner will become personally liable, equal to ‘regular’ partners.

The mutual liability between partners

The liability of partners to creditors can and must be distinguished from the question of mutual liability between partners. In other words: when one partner satisfies the debt of a creditor on personal account he cannot recover that payment from the other partners. If, and in what extent, such a recovery is possible, will depend on the specific circumstances of the case. When e.g. one of the four partners satisfies the full debt of a creditor, one would assume that 3/4rd of that debt can be recovered from the other partners. This however depends on agreements that are made by the partners earlier and the reproaches that partners can make towards each other concerning that debt.

More information

When you have any question regards the above situations or when you would like to know more on the different forms of liability, please contact one of our attorneys.