Partnerships in Cyprus
Partnerships are a common form of business organisation in Cyprus. They offer several advantages, including shared decision-making and tax benefits. However, forming and dissolving a partnership can be a complex process that requires careful consideration and legal expertise.
Formation of Partnerships in Cyprus
A partnership is a business organisation that is formed by two or more individuals or entities who agree to carry on a business together with a view to making a profit. In Cyprus, partnerships are governed by the General and Limited Partnership and Business Names Law (Cap. 116), which sets out the legal framework for the formation and operation of partnerships.
To form a partnership in Cyprus, the partners must enter into a partnership agreement. The partnership agreement is a legal document that outlines the terms and conditions of the partnership, including the name of the partnership, the purpose of the partnership, the contribution of each partner, the distribution of profits and losses, and the management and control of the partnership. The partnership agreement can be oral or written, but it is advisable to have a written agreement to avoid disputes and misunderstandings in the future.
The partnership agreement must be registered with the Registrar of Companies and Official Receiver within one month of its execution. The registration process requires the partners to complete and submit a Partnership Registration Form, along with the partnership agreement and other relevant documents, such as the identity documents of the partners and the registered address of the partnership. Once the registration is complete, the partnership will be issued with a unique registration number, which must be displayed on all business correspondence and documents.
Liability of the Partners
In a partnership, the partners have shared liability for the obligations and debts of the partnership. This means that each partner is personally responsible for the debts and obligations of the partnership, including any losses or liabilities that may arise from the business activities of the partnership.
The extent of the liability of the partners in a partnership depends on the type of partnership. In a general partnership, each partner has unlimited liability, which means that each partner is personally liable for all the debts and obligations of the partnership, regardless of the amount. This means that if the partnership is unable to pay its debts or liabilities, the personal assets of each partner may be used to satisfy the outstanding obligations.
In a limited partnership, there are two types of partners: general partners and limited partners. The general partners have unlimited liability, while the liability of the limited partners is limited to the amount of their investment in the partnership. This means that the limited partners are not personally liable for the debts and obligations of the partnership beyond the amount of their investment.
In a limited liability partnership (LLP), the liability of the partners is limited to their investment in the partnership, and they are not personally liable for the debts and obligations of the partnership beyond that amount. This means that if the partnership is unable to pay its debts or obligations, the personal assets of the partners are protected.
It is important for partners to understand their liability in a partnership and to take steps to protect themselves from potential liabilities. This may include having a well-drafted partnership agreement, maintaining adequate insurance coverage, and taking other measures to mitigate risk.
Dissolution of Partnerships in Cyprus
Like any other business organisation, partnerships in Cyprus may dissolve for various reasons, including the expiration of the partnership agreement, the death or bankruptcy of a partner, or the mutual agreement of the partners to dissolve the partnership. The dissolution process can be voluntary or involuntary, depending on the circumstances.
Voluntary Dissolution
If the partners agree to dissolve the partnership, they must follow the procedures set out in the partnership agreement or the Partnership and Business Names Law. The first step is to notify the Registrar of Companies and Official Receiver of the decision to dissolve the partnership by completing and submitting a Notice of Dissolution Form. The notice must be signed by all the partners or their authorised representatives.
Once the notice of dissolution is received, the Registrar will publish a notice in the Official Gazette and the dissolution will take effect from the date of publication. The partners must then wind up the affairs of the partnership, which includes collecting and distributing the assets of the partnership, paying off the debts and liabilities, and settling any outstanding obligations. If the partners cannot agree on the distribution of assets and liabilities, the matter may be referred to the courts for resolution.
Involuntary Dissolution
Involuntary dissolution occurs when the partnership is terminated by court order or by operation of law. The Partnership and Business Names Law sets out several grounds for involuntary dissolution, including:
- The partnership has engaged in illegal activities or activities that are contrary to public policy;
- The partnership is unable to carry on its business due to insolvency or other reasons;
- The partners have engaged in misconduct or breach of trust;
- The partnership is no longer able to achieve its purpose.
If any of these grounds exist, any partner or creditor of the partnership may apply to the court for an order of dissolution. The court may also appoint a liquidator to wind up the affairs of the partnership and distribute its assets and liabilities.
Our Services
Chambers & Co offers a range of services related to partnership law, including:
- Partnership Agreements: We provide expert advice and assistance in the drafting and negotiation of partnership agreements. We work closely with our clients to ensure that the agreements are clear, comprehensive, and fully reflect their interests.
- Partnership Disputes: In the event of a dispute between partners, we provide skilled and efficient representation in resolving the issue through mediation, arbitration, or litigation.
- Dissolution of Partnerships: When a partnership needs to be dissolved, we provide guidance and assistance in the process of winding up the business and resolving any outstanding issues.
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Taxation: We have in-depth knowledge of the tax implications of partnership agreements and can provide expert advice on taxation matters.
