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What is a general partnership (VOF) contract? It is the written agreement in which two or more partners record the arrangements of their general partnership: contributions, profit distribution, powers, joint and several liability, and what happens if a partner withdraws. The general partnership itself is formed by jointly operating a business under a common name (Art. 16 Commercial Code), but the contract determines how that collaboration works mutually.
The short answer
- What: the private or notarial document that regulates the internal agreements between the general partnership partners.
- Core: contribution per partner, profit and loss distribution, powers and joint and several liability.
- Legally: the general partnership falls under Articles 16-18 of the Commercial Code; the contract may deviate from this within limits.
- Mandatory: a deed is legally required (Art. 22 Commercial Code), but without a deed, the general partnership continues to exist vis-a-vis third parties.
- Why: without a clear contract, the standard statutory rules apply, and these rarely align with practice.
What is a general partnership (VOF) contract?
According to Article 16 of the Commercial Code, a general partnership (VOF) is a partnership to conduct a business under a common name. The VOF contract is not the VOF itself, but rather the formalization of the rules governing the partnership. The VOF can formally exist without legal documents, but in that case, the statutory standard rules from the Commercial Code and partnership law in the Civil Code apply. These rules are brief and usually distributed unfavorably for the practice of an SME.
The contract specifies who contributes what, how profits are distributed, who is authorized to sign and make decisions, and how you separate. Unlike a private limited company (BV), no share register or notarial structure is required; it involves a sound private agreement between equal entrepreneurs.
Joint and several liability: the most important feature
The most far-reaching aspect of the general partnership is found in Article 18 of the Commercial Code: each partner is jointly and severally liable for the obligations of the general partnership. This means that a creditor may recover the entire debt from any one partner, regardless of who entered into the obligation. Furthermore, pursuant to Article 17 of the Commercial Code, each partner may bind the general partnership through legal acts that fall within its purpose, unless that authority is limited in the contract.
Joint and several liability also affects the private assets of the partners. The general partnership agreement cannot eliminate this liability towards third parties, but it can mutually regulate who bears which share and how to hold each other accountable if one partner has overpaid. A limitation of signing authority (for example, that obligations exceeding a certain amount must be signed by both partners) should also be included in the contract.
Contribution and profit distribution
Contributions can consist of money, goods, a customer base, or labor and knowledge. The contract describes, for each partner, what is contributed and at what value. This is important, because the contribution often determines the ratio in which profit and loss are distributed and what a partner receives upon withdrawal.
The profit distribution can be freely structured. However, a limit applies: a partner may not be completely excluded from all profits (the prohibition on the so-called 'lion's clause', Art. 7A:1672 BW). Unless otherwise agreed, each partner shares in proportion to their contribution. In practice, partners often opt for a fixed distribution or a distribution that takes labor input into account.
Withdrawal, continuation and termination
Without an agreement, a general partnership (VOF) in principle ends when a partner withdraws, dies, or goes bankrupt. This is rarely desirable for an ongoing business. Therefore, a good general partnership agreement includes a continuation clause so that the remaining partners can continue. Additionally, you arrange a survival or takeover clause: who takes over the share, at what value, and within what period the buyout will take place.
Practical example: two installers start a general partnership (VOF), each contributing tools and a portion of the customer base. After three years, one of them wants to leave. Because the contract contains a continuation clause and a valuation method, the remaining partner buys out the share using a pre-agreed calculation method, and the company continues under the same name. Without those clauses, the general partnership would have terminated by operation of law, and a dispute regarding the value could have led to legal proceedings.
When do you need the contract?
Formally, a deed is mandatory (Art. 22 Commercial Code), but the absence of one cannot be invoked against third parties: the general partnership and joint and several liability therefore apply even without a written document. In practice, however, you need the contract as soon as something goes wrong: disagreement over money, the departure of a partner, a creditor coming knocking, or a bank demanding security. At that moment, you want to be able to fall back on clear agreements rather than the meager statutory standard regulations.
Honest recommendation
You don't always need a lawyer. If you start with a partner you know well, with simple contributions and equal effort, a solid general partnership agreement and sound consultation will get you a long way. In that case, ensure that it includes at least contributions, profit distribution, signing authority, and a continuation clause.
Be sure to have others review the documents as soon as unequal contributions are involved, one of the partners bears more risk, external financing is obtained, or you are undertaking business with family or friends. Joint and several liability makes a general partnership unforgiving of careless agreements: one misstep by your partner can affect your private assets. A few hours of advice beforehand is cheaper than a conflict afterwards.
Read more about this document and practice: general partnership (VOF) contract, drafting a VOF contract , and having a VOF contract drafted.
Frequently Asked Questions
It is the written agreement between the partners of a general partnership. It sets out contributions, profit and loss distribution, powers, joint and several liability, and the arrangements upon withdrawal. The general partnership itself is formed by jointly conducting a business under a common name (Art. 16 Commercial Code); the contract regulates how this works mutually.
A deed is prescribed in Article 22 of the Commercial Code, but its absence cannot be invoked against third parties. The general partnership and joint and several liability therefore exist even without a contract. However, in that case, only the summary statutory standard rules apply, which rarely align with practice.
Yes. Pursuant to Article 18 of the Commercial Code, each partner is jointly and severally liable for the obligations of the general partnership, including those incurred by the other partner. A creditor may recover the entire debt from any one partner, even from their private assets. You can arrange the burden of payment among yourselves, but joint and several liability remains with respect to third parties.
As agreed in the contract. Without an agreement, each partner shares in proportion to their contribution. A partner may not be completely excluded from the profits (prohibition on the 'lion's clause', Art. 7A:1672 BW). In practice, a fixed distribution or a distribution based on labor input is often chosen.
Without an agreement, the general partnership (VOF) in principle terminates upon the withdrawal, death, or bankruptcy of a partner. With a continuation clause, the remaining partners can continue. A survival or takeover clause regulates who takes over the share and at what value the departing partner is bought out.
A general partnership (VOF) conducts business under a common name, with joint and several liability of the partners (Art. 18 Commercial Code). A professional partnership is focused on a profession or asset management and, in principle, involves liability for equal shares. The general partnership is intended for commercial enterprises with multiple entrepreneurs.
No. A private deed suffices; Article 22 of the Commercial Code permits both a notarial and a private deed. A notary is not mandatory. However, it is advisable to have the contract legally reviewed if the contributions are unequal or if financing and greater risks are involved.
