In a partnership , there are two primary types of members: general partners and limited partners. While both play essential roles in the business, they differ significantly in terms of responsibilities, rights, and liabilities. This article compares and contrasts the two types of members to highlight their unique features.
1. What is a General Partner? What is a Limited Partner?
According to Clause 1, Article 177 of the 2020 Enterprise Law, general partners and limited partners are defined as follows:
“A partnership is an enterprise in which:
– There are least 02 partners that are joint owners of the company and do business under the same name ((hereinafter referred to as “general partner”). There can be limited partners in addition to general partners;
– A general partner shall be an individual whose liability for the company’s obligations is equal to all of his/her assets;
– A limited partner can be an organization or an individual whose liability for the company’s debts is equal to the promised capital contribution.”
Accordingly, partnership members and capital contributing members are regulated as follows:
– General Partner: A general partner must be an individual who is fully liable for the company’s obligations with all of their personal assets.
– Limited Partner: A limited partner can be an organization or an individual, and they are only liable for the company’s debts up to the amount of capital they have contributed.
2. Similarities between general partners and limited partners in a partnership
– Both are members of the partnership.
– There is no limit on the number of members.
– Both are responsible for contributing the full amount of capital committed.
– The deadline for capital contribution is 15 days from the date the members’ meeting approves the contribution (unless the members’ meeting changes the deadline).Both will receive a certificate of capital contribution once the committed capital has been fully paid.
– Both have the right to participate in meetings to discuss and vote on issues related to their rights and obligations.
– Both have the right to request the company to provide accurate information on its business status and results.
3. Differences between general partners and limited partners in a Partnership
a. Number of Members
General Partner: At least two general partners are required, and they must jointly own the company and operate under a common name.
Limited Partner: There is no required minimum number of limited partners. A partnership may or may not have limited partners.
b. Liability
General Partner: A general partner must be an individual who is personally liable for the company’s obligations with all their assets.
Limited Partner: A limited partner can be either an organization or an individual and is only liable for the company’s debts up to the amount they have committed to contribute.
c. Profit Distribution
General Partner: Profits are shared equally, or as stipulated in the company’s charter, or based on the proportion of capital contributions.
Limited Partner: Profits are distributed annually, and the share of profits corresponds to the capital contribution ratio in the company’s charter capital.
d. Management and Operation Rights
General Partner: A general partner represents the company and engages in business activities on behalf of the company. They also negotiate and sign contracts on behalf of the company.
Limited Partner: A limited partner has the same rights as a general partner in terms of engaging in business activities, negotiating, and signing contracts for the company.
e. Capital Transfer
General Partner: A general partner cannot freely transfer any part or all of their capital contribution to another person without the consent of the other general partners.
Limited Partner: A Limited Partner is allowed to transfer their capital share to others without needing the consent of the other members.
f. Restrictions
General Partner: A general partner cannot be the owner of a private business, cannot engage in the same business activities as the company in their personal name or on behalf of others for personal gain, and cannot be a general partner in another partnership, unless agreed upon by the remaining general partners.
Limited Partner: limited partners do not face any such restrictions on their rights.
In summary, general partners and limited partners each have distinct roles within a partnership, with differences in liability, profit distribution, management rights, and capital transfer. Understanding these differences is crucial for anyone considering joining or forming a partnership.
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