Limited partnership: 10 tips for your CV contract

A good limited partnership agreement specifies who contributes what, which partner has the right to make decisions, how profits and losses are distributed, and what happens in the event of illness, withdrawal, or the termination of the partnership. A limited partnership (CV) is formed simply by a verbal agreement, but without a written partnership agreement, the rules of the game are not established, and partners run unnecessary legal and financial risks. Below, we explain how a CV works and provide 10 concrete tips to draft a watertight CV agreement.

What is a limited partnership (CV)?

The limited partnership is a special form of the general partnership (vof). Under current law, it is not a legal entity: the partnership does not have legal personality separate from its partners, unlike a private limited company (bv). A limited partnership consists of at least two types of partners:

• Managing partner: the entrepreneur who actively manages the business, enters into contracts, and acts as the public face of the company. In principle, managing partners are jointly and severally liable with their private assets for the debts of the limited partnership.
• Limited (silent) partner: the financier in the background. This partner contributes capital, shares in the profits, but does not interfere with the management. In principle, the silent partner cannot lose more than their contribution.

It is precisely this division of roles that makes the CV attractive: an entrepreneur can raise capital from an investor without that investor assuming co-management. However, this separation of roles must be carefully documented, otherwise the protection of the silent partner evaporates. Would you like to know if the CV suits your situation, or if a partnership agreement or BV structure is more appropriate? Our legal experts are happy to help.

CV or general partnership: what suits your business?

Are you unsure whether to choose a CV or a VOF? The main difference lies in the role of the silent partner. If you have an investor who only contributes capital and deliberately wishes to remain in the background, the CV is the obvious choice. If all partners actively participate in the business, a VOF contract a better fit. In both cases, ensure you receive proper advice before making a choice: the legal form largely determines your liability.

Why a written CV contract is indispensable

A limited partnership agreement (also known as a partnership agreement) is not legally required, and you do not need to engage a notary for it. Nevertheless, a written contract is highly recommended. It regulates so many core aspects of the collaboration that it is too important to leave to verbal agreements. Without formal documentation, disputes quickly arise in the event of conflicts, illness, or withdrawal regarding who agreed to what, resulting in legal costs and damaged relationships.

A good contract prevents those disputes and offers the company what it is ultimately all about: peace and continuity. Below are the 10 most important tips.

Tip 1. Choose a broad goal description

In the limited partnership agreement, you define the purpose of the partnership. This is not unimportant: all actions of the partners must fit within that purpose. In other words, the purpose determines the boundaries within which you may operate. Therefore, describe the purpose broadly. You can do this literally by including wording such as 'and all related activities, in the broadest sense of the word' . This ensures you retain sufficient leeway for future opportunities

Tip 2. Be specific about the input

Each partner contributes something: this can be labor, knowledge, or relationships, but also money or goods (assets). Specificity is crucial, especially when contributing assets. Do not simply state in the contract that 'a car' is being contributed, but describe it precisely.

Ideally, include an attachment with a detailed description, a valuation, and possibly photos. This is necessary for accounting purposes and crediting the capital account anyway, and by providing clarity in advance, you prevent later discussions regarding what has been contributed and at what value.

Tip 3. Limit the powers of the managing partner

In principle, every managing partner may act in the interest of the partnership. However, it is wise not to leave that power unlimited. Agree that the consent of the other partners is required for certain decisions. Consider conducting legal proceedings, taking out loans, or performing legal acts exceeding a certain amount. In this way, the partners collectively maintain control over major decisions.

Tip 4. Establish the right to supervision and information

The silent partner naturally wants to keep track of what the managing partners do with his invested capital. Therefore, explicitly include the silent partner's rights of information and supervision. Consider inspecting the books, requesting information, and potentially engaging an accountant.

Be precise regarding the scope: is the accountant only permitted to request the books and ask questions, or also to enter the premises (with prior notice)? The clearer you describe this, the less room for discussion there is. Be mindful of the tension arising from tip 5: excessive involvement of the silent partner can jeopardize their protected position.

Tip 5. Respect the management prohibition (and the risks for the silent partner)

This is perhaps the most important point of attention. A management prohibition: he may not interfere in the management of the company and may not act externally on behalf of the CV, not even on the basis of a power of attorney. In addition, his name is in principle not used in the trade name of the CV.

If the silent partner violates this prohibition, he may lose his protected position and be classified as a managing partner. The consequence may be that he becomes jointly and severally liable for the debts of the limited partnership, and thus with his private assets. The Supreme Court has, however, nuanced this sanction: the liability must be proportionate to the nature and severity of the violation, and it may be relevant whether the silent partner is at fault and whether the counterparty knew or could have known that it was dealing with a silent partner. Nevertheless, the basic principle remains that a violation can lead to personal liability. Therefore, clearly define the division of roles and ensure that the silent partner strictly adheres to his role.

Tip 6. Think about illness and disability in advance

In limited partnership agreements, much attention is focused on the growth of the company, while the consequences of setbacks often remain underexposed. Do not make that mistake. Stipulate who takes over duties if a managing partner becomes ill or incapacitated for an extended period, and for what period that partner retains their entitlement to their share of the profits.

Also consider the consequences of disability insurance benefits, termination options, and what happens upon the death of a partner. When you fall ill, you won't want to have to discuss this anymore. So arrange it preventively.

Tip 7. Arrange now how the company will end

The end of a partnership is often a difficult period. Sometimes it is based on conflict, and moreover, everyone wants to secure their share during the settlement. Any friendly ties then play a smaller role. Therefore, consider in advance when the partnership will end, how the winding-up (liquidation) will proceed, and who has the right to continue the business. A clear exit and continuation arrangement prevents the termination from escalating.

Tip 8. Include a non-compete clause (and penalty clause)

In an employment contract, a non-compete clause is a matter of course, but in a limited partnership contract, it is often overlooked. Yet the damage caused by competition from a (former) partner can be substantial. Therefore, include a clause that regulates whether and to what extent a partner may work for a competitor during and after the partnership. If you want to make the clause enforceable, link an appropriate penalty clause to it. Bear in mind that the reasonableness of such a clause may be reviewed by a judge; a specialist can help you strike the right balance.

Tip 9. Agree on a dispute resolution procedure in advance

Where people work together, problems can arise. And once they do, they are often difficult to resolve. Therefore, start thinking now about how you will handle future conflicts.

For example, you can agree that if a partner defaults for a number of weeks, the other partners may consider this as consent, especially if their cooperation is necessary. Also consider mediation and dispute resolution. If you appoint a mediator or a form of arbitration now, you will no longer need to worry about this in the midst of a conflict.

Tip 10. Have the contract checked and remember to register

You may draft a CV contract yourself, but given its importance, some caution is warranted. A CV contract regulates so many aspects of the company that it is wise to have it reviewed by a lawyer. We at MKB Juristen point out the dangers and weak points and help remedy them before they become a problem. Prefer a solid foundation right away? Then check out our CV contract drafting or review service.

In addition, you register the CV with the Chamber of Commerce in the Trade Register. During registration, the managing partners, among others, are registered; the details of the silent partner are largely withheld. It is best to discuss with a legal expert whether registering the contract itself with a notary offers added value in your situation.

How do you divide profit and loss in a CV contract?

Profit distribution is one of the core agreements in every limited partnership contract. In principle, the partners themselves determine how the profit is distributed; this is often done in proportion to the capital contribution, but other distribution keys can also be agreed upon, for example, a fixed remuneration for labor plus a share of the remaining profit. Establish this distribution key unambiguously to avoid any disputes at the end of the financial year.

Note two limits. First, in principle, a partner may not be completely excluded from the profits (the so-called prohibition on the 'societas leonina'clause, based on the idea of ​​the lion claiming the entire prey). Second, the contribution plays a special role for the silent partner: he shares in the loss, but in principle not for more than his contribution. If you wish to deviate from this, have the arrangement legally reviewed first.

Please note: the law on partnerships is being modernized

A legislative proposal to modernize the law for partnerships (including the general partnership, professional partnership, and limited partnership) has been pending for some time. An important proposed element is that a partnership could acquire legal personality upon registration, and that the rules regarding the entry and exit of partners will change. At the time of writing, this legislation has not yet entered into force and the exact effective date is unknown; therefore, the current rules still apply. However, please bear in mind when drafting a limited partnership agreement that the rules of the game may change over time. We are keeping an eye on developments for you.

Frequently asked questions about the CV contract

Is a CV contract legally required?

No, a written CV contract is not legally required; a CV can even be established verbally. Nevertheless, a written contract is highly recommended, as it sets out contributions, powers, profit sharing, and the termination of the collaboration, thereby preventing conflicts.

Do I need a notary for a CV?

A notary is not required to establish a limited partnership. You register the limited partnership with the Trade Register of the Chamber of Commerce. In practice, a legal expert who drafts or reviews the contract offers the most added value.

Is the silent partner liable for the debts of the limited partnership?

In principle, no: the silent partner cannot lose more than his contribution. However, if he violates the prohibition on management—that is, interfering with the administration or acting externally on behalf of the limited partnership—he can be held jointly and severally liable for the debts of the limited partnership with his private assets.

What is the difference between a CV and a general partnership?

The CV is a special form of the general partnership. The difference is that, in addition to managing partners, a CV also has one or more silent partners: investors who contribute capital but do not participate in management and (within the limits of the prohibition on management) are not personally liable. In a regular general partnership, all partners are managing partners and jointly and severally liable.

Can the profit distribution be freely agreed upon?

Yes, in principle the partners determine themselves how the profit (and loss) is distributed; often in proportion to their contributions. However, there are limits, such as the prohibition against completely excluding a partner from the profit. Clearly stipulate the distribution key in the contract.

How much does it cost to draw up a CV contract?

The costs depend on the complexity of your situation and whether you have a contract drafted or an existing draft reviewed. Schedule a no-obligation intake for a clear price indication tailored to your company.

Need help with your CV contract?

A CV contract determines for years how you and your co-partners work together, and what happens if things go wrong. Do not leave that to chance. The legal experts at MKB Juristen draft your CV contract or review an existing draft, ensuring that the division of roles, liability, and dispute resolution are correct.

• Ready to get started? See how we draft or review your CV contract.
• Want to know more about your rights and obligations as an entrepreneur? View our expertise in corporate law and contract law.
• General legal questions? Our legal assistance helps you.

Schedule a no-obligation intake and have your CV contract reviewed by a specialist.