MKB Juristen drafts custom legal documents
It is best not to cobble together or copy important contracts, terms and conditions, and other legal documents yourself. We help entrepreneurs on a budget with customized legal solutions, clear costs upfront, and practical explanations.
- Custom contracts, terms and conditions, and legal documents
- Budget-friendly and clear about the costs upfront
- Request a free consultation or a no-obligation quote
While a general partnership agreement is not legally required when establishing a general partnership, it is virtually indispensable in practice. It stipulates who contributes what, how profits and control are distributed, and what happens in the event of illness, disputes, withdrawal, or the death of a partner. Without these agreements, you fall back on the law, which often turns out differently than the partners themselves would wish. A good general partnership agreement prevents costly conflicts and protects the continuity of the business.
What is a general partnership and what is a general partnership contract?
A general partnership (VOF) is a form of partnership in which two or more entrepreneurs, the partners, conduct a business together under a common name. Each partner contributes something: money, goods, knowledge, or labor. Under current law, a general partnership does not have legal personality; the partners conduct business together for joint account.
A general partnership agreement (also known as a partnership contract or firm deed) is the written agreement in which the partners record their mutual arrangements. You do not need a notary for this, and it is not legally required: a general partnership can even be formed orally. Nevertheless, it is wise to put the agreements on paper, precisely because the law offers only a limited safety net and, in the event of disagreement, does not regulate everything exactly as you intended.
Is a general partnership agreement mandatory when establishing a general partnership?
No. A written contract is not legally required to establish a general partnership (VOF), and a notarial deed is not necessary. However, you must register the VOF in the Trade Register of the Chamber of Commerce. During this registration, the partners and their powers are recorded, so that third parties know with whom they are doing business.
The fact that a contract is not mandatory does not mean you can skip it. Without clear agreements, disputes arise as soon as things go wrong: regarding money, who decides what, or what happens to the business if someone wants to leave. A general partnership contract puts those agreements in writing before a conflict arises.
Joint and several liability: the biggest risk of a general partnership
The most important point of attention regarding a general partnership (VOF) is liability. In principle, each partner is jointly and severally liable for the debts of the partnership. This means that creditors can recover the full debt from the private assets of each individual partner, regardless of who incurred the obligation. Savings and, in principle, the partner's own home may also come into play in this regard.
In practice: if the general partnership enters into an obligation that it cannot fulfill, a creditor can come to you for the entire amount, even if your co-partner caused the debt. A general partnership agreement does not eliminate this legal liability towards outsiders, but you can make mutual agreements regarding the burden of payment and powers, thereby making the risk manageable. Anyone wishing to shield personal risk as much as possible would do well to have an assessment made in advance to determine whether a general partnership is the appropriate legal form or whether, for example, a private limited company (BV) would be a better fit.
Limit powers to limit liability
In principle, any partner can bind the general partnership. Therefore, a single partner can decide to purchase a company car on their own, and not necessarily the most economical model. That is why agreements regarding the partners' powers are included in the general partnership agreement. For example, you can stipulate that a partner may bind the general partnership independently up to a certain amount, and that the consent of all partners is required for higher amounts.
Such restrictions are only effective against third parties if they are registered in the Commercial Register. Only then can a supplier or bank verify which partner is authorized to sign for what. If you leave the restriction unregistered, a partner can still validly bind the general partnership vis-à-vis an outsider.
What agreements belong in a good general partnership contract?
A strong general partnership agreement covers both day-to-day operations and scenarios where things go wrong. The key components:
- Contribution – who contributes what money, goods, knowledge, or labor, and at what value.
- Profit and loss distribution – how the profit is distributed and who bears which share of a loss.
- Remuneration – an interim payment for the work of the partners, based on a fixed distribution or hours worked, aligned with the financial plan so that no repayment is required at the end of the year.
- Powers – who may decide what and up to what amount.
- Entry and exit – the procedure when a partner joins or leaves, including share valuation.
- Illness and disability – a partner does not accrue employee rights such as unemployment benefits, so determine how long continued payment lasts.
- Death – determine whether the general partnership is continued or terminated.
- Dispute resolution – how conflicts are resolved, for example via a pre-designated mediator.
Agreements about money prevent arguments
As soon as money is involved, emotions run high quickly. That is why you should formalize financial matters before there is anything to be divided. Agree on how profits will be distributed, whether partners will receive interim remuneration, and how to handle losses. Link these agreements to the financial plan so that private withdrawals during the year remain proportionate to what the general partnership actually earns.
Arrange now what happens if things go wrong
When establishing a general partnership, ambitions are high, but a good contract also takes setbacks into account. If a partner becomes ill for an extended period, a pay continuation arrangement is logical, but it cannot continue indefinitely; therefore, set a time limit.
If a partner dies, the general partnership (VOF) terminates in principle, unless a continuation clause is included in the contract allowing the remaining partners to continue. If a partner leaves, you must discuss the consequences and the valuation of their share; every departing partner wants their contribution back. Please also read our explanation regarding withdrawal from a general partnership. Arranging this in advance prevents protracted discussions with personal financial consequences.
Agree on the dispute resolution procedure in advance
Good agreements prevent many points of contention, but never all. Disagreements can arise because one partner is underperforming, because agreements are not being honored, or due to personal tensions. In the general partnership agreement, you can already stipulate how you will resolve such a dispute, for example by appointing a mediator or including an arbitration clause. This way, you will not need to reach an agreement on this matter precisely at the moment of a dispute. Should matters escalate, our corporate law assist with a dispute involving a business partner or associate.
Pay attention to upcoming legislation regarding partnerships
Legislation regarding partnerships is being revised. A proposal (the Partnership Modernization Act) has been in place for some time, which stipulates, among other things, that a general partnership (VOF) will acquire legal personality and that the current forms will be merged. At the time of writing, this proposal has not yet entered into force, and the exact content and date may still change. Please bear in mind that the rules of the game may change over time, so have your VOF agreement aligned with this once the new law actually comes into effect. If you want to know what this means for your situation, ask for up-to-date advice.
Frequently asked questions about the general partnership agreement
Is a general partnership agreement legally required?
No. A general partnership can be formed without a written contract and even without a notary. Registration in the Chamber of Commerce Trade Register is, however, required. A contract is highly recommended because the law regulates many matters differently or not at all than the partners themselves wish.
Am I personally liable as a partner?
Yes. In principle, partners are jointly and severally liable for the debts of the general partnership. A creditor can recover the full debt from the private assets of any partner. In the contract, you make mutual agreements regarding the burden of payment and powers to keep this risk manageable.
Do I need a notary for a general partnership agreement?
No, a notarial deed is not required. You may draw up the general partnership agreement privately. However, do have it legally reviewed, as errors or incomplete agreements often cost much more later on than the drafting itself.
What happens in the event of a conflict without a general partnership agreement?
In that case, statutory rules and supplementary law apply. These do not cover everything and often do not align with your intentions, causing conflicts to drag on and the outcome to be unpredictable. A contract provides stability and prevents unnecessary proceedings.
Can I add a partner or leave the general partnership?
Yes, but it is best to determine the method in advance in the contract: the entry and exit procedure, the valuation of the share, and any compensation. Without those agreements, disputes quickly arise regarding who gets what.
What is the difference between a general partnership (VOF) and a sole proprietorship or private limited company (BV)?
A sole proprietorship has one owner; a general partnership (VOF) has two or more partners who conduct business together under a common name and are jointly and severally liable. With a private limited company (BV), the business operations are conducted by a legal entity, which in principle limits personal risk, but stricter incorporation and administrative requirements apply. Which form suits you best depends on your liability risk, the number of entrepreneurs, and your tax situation; seek advice on this before making a choice.
Have your general partnership agreement drafted or reviewed
A general partnership agreement is custom-made: it must align with your contributions, ambitions, and risks. The legal experts at MKB Juristen draft a general partnership agreement for you or review an existing draft to ensure the agreements are legally sound and your partnership is well protected. See what we can do for you regarding a general partnership agreement or schedule a no-obligation consultation via the intake form.
