Issue 220925 – Regulations on partnership members under the Enterprise Law

Dear Valued Clients,

Partnership members are the central element that creates the unique nature of a partnership company. The Enterprise Law has important provisions to determine the legal status, powers and responsibilities of partnership members, thereby ensuring the operation and reputation of this type of enterprise.

In fact, the organization and management of a partnership company can encounter many difficulties related to the rights, obligations and responsibilities of partnership members. If the regulations are not clearly understood, the enterprise may incur legal risks and internal disputes.

I. OVERVIEW OF PARTNERSHIP MEMBERS

According to Point b, Clause 1, Article 177 of the Enterprise Law 2020 amended and supplemented in 2022, 2025 (“The Enterprise Law“): “A partnership company must be an individual, responsible for all of his/her assets for the obligations of the company”. In a partnership company, a partnership member is the core force, because without them, the enterprise cannot be established. According to regulations, a company must have at least two partnership members, and they are the co-owners of the company. These members must be individuals and will jointly assign positions in management, operation and supervision of the company’s operations. An important feature of a partnership member is that they must jointly bear unlimited liability for all debts and property obligations arising from business activities, meaning that their liability is linked to all personal assets.

In the market, the existence of a partnership company reflects the need to combine personal reputation, professional expertise and investment capital. The nature of a partnership shows that this is a type of business based on trust, unlimited liability and personal commitment of the partnership members, thereby creating strong trust with customers and partners. Because of the requirements associated with reputation and professional capacity, partnership companies often appear in fields that require high qualifications and professional liability, such as legal consulting, auditing, accounting, medicine, architecture or other professional consulting services. Therefore, a partnership company not only adds diversity to the system of business types, but is also the optimal choice for industries that value personal expertise and reputation more than capital size.

In practice, partners often have close personal relationships, possess certain professional qualifications and prestige. Therefore, they become the decisive factor in the formation and maintenance of the partnership company. When there is a change in partnership members, such as capital withdrawal or death, it can seriously affect the stability and even threaten the existence of the company.

To become a partnership member, an individual must satisfy the following conditions:

– The individual is not prohibited from establishing, contributing capital, purchasing shares, purchasing capital contributions and managing an enterprise.

– The individual contributes capital according to an agreement and is recorded in the company’s charter.

– Individuals must satisfy the conditions on practice certificates in the case of a business company that requires a practice certificate.

Thus, if you meet all of the above conditions, you can absolutely become a partnership member of a partnership company.

II. RIGHTS AND OBLIGATIONS OF PARTNERSHIP MEMBERS

2.1. Rights of partnership members

2.1.1. Management and operation rights

According to Clause 1, Article 181 of the Enterprise Law, partnership members in a partnership company are granted many important rights, directly related to their role as co-owners and business operators. First of all, they have the right to fully participate in the company’s management activities, including the right to meet, discuss and vote on all matters related to business activities. At the same time, partnership members can also conduct transactions, sign contracts and use common assets on behalf of the company for business purposes. Specifically, a general partner is the legal representative of the company and has the authority to organize and operate daily business activities. This is a mechanism that clearly demonstrates the personal characteristics of a partnership member, according to which the management right does not only arise from the capital contribution but is also associated with the unlimited liability and personal reputation of the member.

The management right of a partnership member is implemented in two aspects. First, in foreign relations, each general partner has the right to establish and conduct transactions and business activities on behalf of the company. Restrictions on the right to represent are only effective against third parties when the third party knows or should know about the restriction. This is to ensure legal safety and protect the legitimate trust of partners when dealing with the company. Second, in internal relations, partnership members can assign management and control positions and apply the principle of majority voting for necessary tasks. This provision ensures democracy while maintaining effective corporate governance[1].

Notably, any actions taken by a partnership member beyond the scope of the company’s business activities, in principle, give rise to the company’s liability, unless the remaining members do not approve. This approach demonstrates a strong legal bond between the management rights and the property obligations of the partnership member, thereby reinforcing the principle of unlimited joint liability a core legal feature that distinguishes a partnership member from other types of companies.

2.1.2. Economic rights and property interestsc

In addition, during the performance of work, partnership members can use personal capital to serve common activities and the company will repay both principal and interest at market interest rates. If damage occurs within the scope of assigned work without personal fault, they have the right to request the company to compensate for the loss. They also have full access to information on the business situation, assets, and accounting books to ensure transparency in management.

In addition, the material interests of general partners are also guaranteed by law. They are divided profits corresponding to their capital contribution or according to the agreement in the charter; when the company is dissolved or bankrupt, they receive the remaining asset value according to the capital contribution ratio. In case a partnership member dies, their heirs will receive the asset value in the company and can become a partnership member if approved by the Board of Members.

2.2. Obligations of partnership members

2.2.1. Joint and unlimited liability

This obligation is based on the principle that the partnership member is both the owner and directly manages and represents the company in business activities. Therefore, the law requires them to attach economic interests to property obligations, while ensuring the rights of creditors and partners. Any risks arising from the company’s business activities do not stop at the scope of capital contributions, but extend to the entire private assets of the general partner.

Legally, “joint” means that the creditor has the right to request any or all partnership members to pay the entire debt. After performing the obligation on behalf of the members, the partnership member can request internal repayment according to the ratio agreed in the Charter or according to the level of responsibility. This mechanism not only protects creditors to the maximum extent, but also forces the general partner to manage the company carefully, honestly and for the common benefit.

However, because of this characteristic, partnership members face much higher legal and financial risks than capital-contributing members or members in limited liability/joint stock companies – who are only liable to the extent of their capital contribution. This explains why, in practice, the partnership company model is often applied in professional service fields that require professional reputation such as lawyers, auditors, and financial consultants, where personal reputation becomes the greatest guarantee for business operations.

2.2.2. Obligation to comply with legal regulations and the Charter

According to Clause 2, Article 181 of the Enterprise Law, in addition to important rights, partnership members also shoulder many heavy obligations associated with their key roles in the company. First of all, they are responsible for managing and conducting business activities honestly, carefully and for the maximum benefit of the company. All management actions must comply with the law, the Company Charter as well as resolutions and decisions of the Board of Members; if they violate and cause damage to the company, they must compensate.

Partnership members are also not allowed to take advantage of or use the company’s assets for their own benefit or for a third party. In the case of receiving money or assets from business activities on behalf of the company or an individual but not returning them to the company, they are required to return and compensate for all damages. In particular, a characteristic obligation is that the partners must jointly and severally bear unlimited liability for the company’s debts if the common assets are not sufficient to pay.

In addition, if the company makes a loss, each partner must bear the loss corresponding to the capital contribution or as agreed in the Charter. They must also periodically report honestly and accurately on their business situation and results, and provide information to other members when requested. Along with that, partners must also perform other obligations according to the provisions of law and the company’s Charter.

Thus, it can be seen that the obligations of partnership members are both strictly legal and linked to professional responsibility and personal reputation. It is this mechanism of “unlimited and joint liability” that makes the fundamental difference between partnership companies and other types of enterprises.

2.3. Restrictions on the rights of partnership members

Because of their key role and unlimited liability, partnership members are limited by law in certain rights. According to Article 180 of the Enterprise Law 2020, they are not allowed to simultaneously own a private enterprise or be a partnership member of another partnership companies, unless there is agreement from all other partnership members. In addition, they are not allowed to conduct business in the same industry for personal gain on their own behalf or on behalf of others, and are not allowed to arbitrarily transfer their capital contributions without collective approval. These restrictions are intended to ensure concentration of responsibility and avoid conflicts of interest in the management and operation of the partnership company.

The above article will outline the current legal provisions on partnership members in a partnership company according to the Enterprise Law 2020, and at the same time point out some issues that need to be noted in the practical process.

[1] Article 187 the Enterprise Law

Kind regards,
ENT Law LLC