A general partnership is one of the diverse legal forms for creating a business in Spain. This type of entity, except in the case of providing movable goods, is established by a private contract between partners who have unlimited liability for any credits or obligations of the company, which means their personal assets are at risk. (On the other hand, in the case of a corporation, its creation must be carried out through a public writing in compliance with a series of formalities). General partnerships are governed by what is established in the 1665 articles and the Civil Code and do not have their own legal status. A general partnership is one of the diverse legal forms for creating a business in Spain. This type of entity, except in the case of providing movable goods, is established by a private contract between partners who have unlimited liability for any credits or obligations of the company, which means their personal assets are at risk. (On the other hand, in the case of a corporation, its creation must be carried out through a public writing in compliance with a series of formalities). General partnerships are governed by what is established in the 1665 articles and the Civil Code and do not have their own legal status.
The aforementioned reasons make general partnerships infrequent and rarely used in the commercial market. Thus, general partnerships commonly decide to transform themselves into another type of corporation, such as a limited liability company, thus maintaining all of its characteristics without needing to begin a new business.
The Steps for Transforming a General Partnership
The transformation of a general partnership into a limited liability partnership is governed by article 4.3 of Law 3/2009 of April 3, of Structural Modifications, and is a relatively simple process.
- The transformation must be agreed to at the company’s general meeting and the legal representatives for the company must make a series of documents available to the partners that substantiate the status of the company and the convenience of the transformation. Unless the company transformation is agreed to in the General Universal Meeting with all partners present, the legal representatives must provide, inter alia:
- A balance sheet closed on the date of the transformation agreement
- A report from the directors indicating their reasons for advising the transformation as well as the possible consequences
- Once the agreement is adopted, it will be subject to a special marketing regime for the purposes of protecting creditors and holders of special rights. Thus, publication of the agreement in the Official Spanish State Gazette (BOE) and in one of the widely-circulated local newspapers in which the company has its domicile is required. Likewise, the Law grants partners the opportunity to separate from the company in the event they vote against the agreement
- Next, the company’s transformation agreement must be raised to public deed before a notary. The writing must comply with the same requirements as the constitution of the company and permit the beginning of the operations to date back to the date of the general partnership contract. The writing must be registered in the Commercial Registry. It is important to highlight that the registration of the transformation has constitutive effects, for which it will not be understood to take effect until the moment of registration.
Once the company transformation is complete, the partners will continue being responsible for the debts incurred prior to the transformation and will remain responsible for five years following the registration in the Commercial Market, unless the creditors of the company expressly consented to a different period during the transformation.
Ultimately, the transformation of a general partnership into a limited liability partnership presents numerous benefits. On the one hand, it is possible to continue with the activity of the company, maintaining its most essential aspects, such as the reputation and notoriety it has achieved. On the other hand, it grants the company a legal status and permits it to limit the liability of the partners.
For further information regarding the transformation of a General Partnership into a Limited Partnership in Spain,
