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Drafting a limited partnership agreement essentially means properly arranging two things: who operates the business and is jointly and severally liable for it, and how the silent partner contributes their capital without violating the prohibition on management under Article 20, paragraph 2 of the Commercial Code. Surrounding this are contributions, profit distribution, powers, withdrawal, and disputes. A notary is not required, but a private deed is the only document you can fall back on later. Below, for each section, is a list of what should be included and which wordings cause problems in practice.
The short answer
- Define roles: who is the managing partner (liable, Art. 18 read together with Art. 19 Commercial Code) and who is the limited partner (contribution, Art. 20 paragraph 3 Commercial Code).
- Specify contribution: amount, goods or labor, valuation, and payment date per partner.
- Profit distribution: a concrete key, plus the provision that the limited partner does not share in losses exceeding his contribution.
- Limit powers: decisions requiring consent, exclusively internally, without power of representation for the silent partner.
- Arranging the exit: notice period, continuation clause, valuation method, and payment in installments.
- Registration: the company in the Commercial Register, with the limited partner only as number and contribution.
Drafting a limited partnership agreement: start with the division of roles
Unequivocally establish in Article 1 of the contract who holds which role. The managing partner conducts the management, represents the partnership, and is jointly and severally liable with his entire assets for all obligations. The limited partner contributes capital, shares in the profits, and remains outside the management. This division is not a formality: it determines the liability of everyone who signs.
Include the prohibition on management literally in the same provision, including the sanction. A limited partner who is unaware that he becomes jointly and severally liable under Art. 21 of the Commercial Code as soon as he calls a supplier or co-signs a quotation will make that mistake sooner or later. Also specify who acts externally, who appears on the website and in the email signature, and who manages the bank account. Explicitly state that the name of the limited partner may not appear in the trade name (Art. 20, paragraph 1 of the Commercial Code).
Contribution and capital account
Describe for each partner what is being contributed and at what value. With cash, this is straightforward; for goods, a customer base, a machine, or goodwill, a valuation basis must be included in the contract; otherwise, disputes will arise immediately upon withdrawal or a dispute. Specify whether the contribution is made in ownership or merely in the use of the property. If someone contributes business premises as ownership, a notarial deed and registration in the public registers are still required for the transfer thereof.
Work with capital accounts per partner. Determine whether profit shares are credited or distributed, whether a private withdrawal arrangement applies, and whether the managing partner receives compensation for their work before the profits are distributed. Such remuneration is almost always necessary: the managing partner works full-time, the limited partner does not.
Profit, loss and legal limits
Without an agreement, the law distributes profit and loss in proportion to the contribution (Art. 7A:1670 BW). This is rarely what parties intend, as the managing partner primarily contributes labor. Therefore, agree on an explicit key: for example, first a remuneration for labor for the managing partner, then a fixed return on the limited partnership contribution, and the remainder as a percentage.
Two legal limits. A clause allocating the entire profit to a single partner is void (Art. 7A:1672, paragraph 1 of the Dutch Civil Code). Furthermore, the limited partner may never contractually share in the loss beyond the amount of their contribution; however, you can agree that a loss first affects their capital account and that subsequent profit replenishes that account before distribution. Include that replenishment mechanism, otherwise disputes will arise after a loss year regarding the first profit distribution.
Powers without violating the management prohibition
An investor wants influence. That is possible, but only internally. The workable structure is an exhaustive list of decisions for which the managing partner requires the prior written consent of the limited partner, with the explicit provision that such consent is an internal matter and does not create the authority of representation.
- Investments or obligations exceeding a specific amount.
- Entering into loans, guarantees, or securities.
- Hiring or dismissing personnel above a certain salary level.
- Change in the nature of the business or starting a new activity.
- Sale or encumbrance of business assets essential for operations.
In addition, regulate the right to information: quarterly figures within a specified timeframe, annual accounts within six months, and access to the records upon request. A well-informed silent partner has less reason to step into the operation themselves. Supplement this with a rule of conduct: all communication with clients, suppliers, and banks is channeled through the managing partner.
Duration, withdrawal and disputes
Without an arrangement, a partnership ends, inter alia, by the passage of time, termination, and by the death, bankruptcy, or placement under guardianship of a partner (Art. 7A:1683 BW). This is rarely desirable for an ongoing business. Therefore, include:
- Continuation clause: the partnership continues between the remaining partners.
- Survival or takeover clause: the share of the departing partner passes to the others, in accordance with a predetermined valuation method.
- Dividend scheme: payment in installments with interest, so that the company does not run dry.
- Notice period: for example, six or twelve months at the end of a financial year.
- Dispute resolution: first consultation, then a binding opinion or arbitration, with a mechanism for appointing the expert.
- Non-compete clause: limited in duration, scope, and activity, and only where truly necessary.
Practical example: Two brothers establish a limited partnership for a catering company. One cooks and manages, the other contributes €60,000. The contract is silent regarding valuation upon withdrawal. When the silent partner wants his money back after four years, he claims a share in the accumulated goodwill, while the other only wants to repay the nominal contribution. A five-line valuation clause would have prevented that dispute.
Honest recommendation
You do not always need a lawyer for this. If the limited partnership consists of one managing partner and one limited partner, involves a cash contribution, the profit distribution is a fixed percentage, and the silent partner has no desire to have a say in the direction, then a good model and careful reading will get you a long way. Do ensure, however, that the prohibition on management, the profit key, and an exit arrangement are included in any case.
Ensure that there is oversight in cases involving multiple limited partners, the contribution of an existing business, real estate, or intellectual property, when the investor desires consent rights, in the case of family business succession, or when a gift or inheritance component is involved. Even if the limited partnership is used to bring in external financiers, the wording regarding powers and exit will determine the contract's value in five years.
Read more: what is a limited partnership CV contract and having a limited partnership CV contract drawn up. You can arrange this directly via the limited partnership CV contract.
Frequently Asked Questions
The names and roles of the partners, the contribution per partner with valuation, the profit and loss distribution, the powers of the managing partner, the prohibition on management for the limited partner, the duration and termination, and a withdrawal arrangement with valuation method. Without the latter, disputes almost always arise upon departure.
No, a private deed suffices (Art. 22 Commercial Code). Only when registered property, such as business premises, is contributed into ownership is a notarial deed with registration in the public registers required for that transfer. Registration of the company itself in the Trade Register is mandatory.
Yes, provided it remains strictly internal. A limited list of decisions requiring prior written consent is permitted, as long as the limited partner does not act externally and is not granted the power of representation. If he does, he risks joint and several liability under Article 21 of the Commercial Code.
With a concrete key in the contract, for example, first remuneration for the managing partner's labor, then a fixed return on the limited partnership contribution, and the remainder in percentages. Without an agreement, the law distributes proportionally to the contribution (Art. 7A:1670 BW). A clause allocating all profits to a single partner is void (Art. 7A:1672 BW).
Without an arrangement, the partnership terminates, inter alia, upon the death, bankruptcy, or placement under guardianship of a partner (Art. 7A:1683 BW). A continuation clause combined with a survival or takeover clause keeps the business running and simultaneously regulates what the heirs receive and when it is paid.
This is the case for the managing partner; in practice, he primarily contributes labor and knowledge. For the limited partner, the situation is different: engaging in the business of the partnership is specifically prohibited (Article 20, paragraph 2 of the Commercial Code). His contribution therefore consists of money or goods.
By establishing a valuation method in advance: nominal capital account, a multiple of normalized profit, or an appraisal by an expert to be designated. Supplement this with a payment arrangement in installments with interest, so that the company can bear the distribution.
