Commercial Partnerships Under Maltese Law Assessment Answer

Three types of commercial partnerships found under Maltese Law

Partnership en Nom Collectif

The term “Partnership en Nom Collectif” is generally a French term that means general partnerships. It can also be defined as a commercial partnership where two entities work together in partnership with the aim of gaining profit. In general partnerships, each partner is liable for debts as well as obligations in the partnerships. This shows that personal assets can be used for the settlement of outstanding obligations. This is due to the fact both partner work in partnership and have equal responsibility in terms of legal obligations and the partnership’s finances. There is a partnership agreement between both parties that outlines different terms as well as collections[1]. These terms and conditions define the responsibility and profit and loss share. Further, in general partnerships, both parties are also subjected to different legal requirements. For instance, partnerships need to be registered with the government agency as well as compliance with regulatory obligations. Moreover, in general, in partnership when one of the parties enters an agreement with a third party then the other party is also compelled to join the partnership with a third party[2]. Further, in terms of taxation general partnership is observed as pass-through entities. This shows that partnerships do not pay the tax but it depends on the profit and loss of an individual partner.

Partnerships en Commandit 

“Partnership en Commandit” is generally used in the French term which is also called limited partnerships. It is a partnership where two or more entities work together in the business with the aim of generating profit. There are types of partnerships in the limited partnership which include limited partners and general partners. The general partner usually has unlimited debts as well as obligations as in general partnerships. On the other hand, the limited liability partner liability is decided according to the amount that each party has contributed. There are different agreements done between the parties including different terms as well as conditions. This generally includes the responsibility of the parties, the decision-making process, and the profit and losses. Further, limited liability partners in Malta are also subjected to different legal requirements including registration with the MFSA[3]. Further, the parties are also subjected to different tax as well as regulatory requirements. MFSA is also called the Malta Financial Services Authority which is responsible for the regulation of partnerships in Malta. The partner in limited liability is required to submit different tax returns and financial statements. The limited liability in Malta is used for real estate ventures and investment funds. The investor can contribute to both capitals as well as profits without any risk in the business.

Limited Liability Company

LLC is also called a Limited Liability Company and is a business structure that includes benefits of both partnerships as well as corporations. It can be defined as a legal entity where the members are separate. This shows that the company can enter into an agreement related to conducting business and owning property. The main feature of the LLC is it provides protection to the members. This reflects that the personal asset of the members including debts and obligations are protected. Further, if LLC goes bankrupt then the personal members are not at risk. However, the amount invested can be at risk. However, in order to establish an LLC, parties in the partnership need to file a document including “articles of organization” along with the government agency. Further, the parties also need to establish an agreement called an operating agreement which defines the internal rules as well as regulations. The operating agreement addresses the matter including ownership structure, profit, and loss share as well as the decisions making process. The Limited Liability Company is perfect for small business owners as it provides liability protection to them. Moreover, LLCs are easy to set up as well as maintain. The taxes of LLCs are pass-through entities. This reflects that tax is not paid by the company however the individual party in the company is compelled to pay the taxes according to their profits as well as losses.

What is the Concept of Liability in Partnerships?

Liability in a partnership refers to each partner's legal accountability for the debts and liabilities of the partnership. This implies that partners may be held liable for the partnership's acts, particularly any outstanding bills or legal obligations the company may incur. The a partner's private possessions, including as their property, investments, and bank accounts, may also be subject to this liability. Joint as well as several liability are the two categories of liability that apply to partnerships. Joint liability means that each of the partners is equally liable for the debts and liabilities of the partnership[4]. Any partner may be sued by creditors for the entire amount owed if the corporation fails to pay its debts. Each partner is liable for their proportionate share of the collaboration's debts and responsibilities when there are multiple liabilities. Creditors may seek every partner for their proportionate share of the debt if the corporation is unable to satisfy its obligations. Partnerships can additionally have limited liability, in which case one or more partners are only liable for the amount of their personal investment in the partnership, up to which their assets are protected[5]. This, however, is subject to the regulations of the country or region where the partnership conducts business.

Concept of Liability in Maltese Partnerships

Partnership en Nom Collectif: Liability refers to the legal requirement of the partners of the partnership to take on the burden of the debts and obligations of the partnership inside the context of Partnership en Nom Collectif (PNC) under Maltese law. Each partner in a PNC is liable indefinitely for the debts and liabilities of the partnership[6]. This means that the partners will be held personally liable for any debts incurred by the partnership if it is unable to pay them[7]. This covers both the partnership's overall indebtedness as well as the share of each individual partner in those debts. Every member is responsible for the full purchase price of the partnership's liabilities and obligations, just not their individual share, because the partners' culpability is joint and several. As a result, creditors are free to demand payment from any one partner individually or from all partners at once, as they see right[8]. Therefore, it's critical that PNC partners comprehend the full scope of their liability prior to forming the partnership. They should carefully weigh the benefits of the collaboration against any potential hazards, and they should have the proper insurance or other safeguards in place to reduce any risks related to ultimate liability. According to Maltese law, partners in a partnership en nom collectif are legally required to take personally liable for the debts and obligations of the other partner.

Partnerships en Commandit: In a limited partnership, the liability has been divided into two distinct categories known as general partners and limited partners. In the case of general partners, the individuals are given the responsibility for managing the partnership as well as the obligations in the partnership. The partners in this type of partnership enjoy liability that is unlimited which means that they are not liable personally for all the obligations and debts that are present in the organization. Seizing the personal assets of the partners so as to satisfy and clear the debts of the company can be seen in this type of partnership. On the contrary limited partners are investors who have entered the partnership by contributing a certain amount of capital[9]. However, they do not participate in managing any part of the partnership. The liability that is allowed to them is limited. This means that the liability that is given to these partners is limited to the amount that they have contributed at the beginning of the partnership. The limited partners are not responsible personally for any debts that are seen in the company and are not obliged to fulfill them. The extension of their obligation does not exceed the initial investment that is made by them[10]. In case the limited partner has been given the active role of management in the partnership, the loss of the limited liability can be seen and they might become prone to unlimited liability. This can be termed as losing limited liability by participation.

Limited Liability Company: The limited liability corporation is treated as a separate legal person under Maltese law from its owners and stockholders. This means that the liability of the company's owners and shareholders is constrained to the amount of their investment in the business, and the corporation is accountable for its own debts and responsibilities[11]. Liability in an LLC refers to the degree to which the business and its owners are accountable for its obligations[12]. The liability of an LLC's members is often constrained to the amount of their investment in the business. This means that members are only liable to pay their share of any debts or liabilities, up to the amount of their investment into the company, if the firm has any debts or obligations, such as loans or unpaid bills. An LLC's limited liability protection allows members to invest in the business without putting their own assets at danger. For instance, the member's personal assets, such as their homes or cars, would often be covered if the firm went bankrupt or was sued[13]. It's crucial to remember that this rule comes with specific prerequisites. An LLC's members may occasionally be held personally responsible for the debts and liabilities of the business. Members may be held personally responsible for any ensuing damages, for instance, if they engage in fraudulent or unlawful actions or if they disregard certain legal obligations.

References

Azzopardi C, “Malta Partnerships – an Alternative Vehicle to Set up a Business in Malta - Corporate and Company Law - Malta” ( Malta Partnerships – An Alternative Vehicle To Set Up A Business In Malta - Corporate and Company Law - Malta May 4, 2021) <https://www.mondaq.com/corporate-and-company-law/1064648/malta-partnerships-an-alternative-vehicle-to-set-up-a-business-in-malta> accessed April 20, 2023

Corriericilia, “Taxation of Partnerships in Malta” ( Corrieri Cilia August 24, 2017) <https://corriericilia.com/publications/taxation-of-partnerships-in-malta#:~:text=Partnership%20en%20commandite,-A%20partnership%20en&text=It%20consists%20of%20one%20or,in%20a%20partnership%20en%20commandite.> accessed April 20, 2023

Heinonline, “About” ( HeinOnline March 8, 2021) <https://heinonline.org/HOL/LandingPage?handle=hein.journals%2Frevjurns55&div=28&id=&page=> accessed April 20, 2023

Heinonline, “About” ( HeinOnline March 8, 2021) <https://heinonline.org/HOL/LandingPage?handle=hein.journals%2Fbclr61&div=64&id=&page=> accessed April 20, 2023

Journals, “The Organization of Neglect: Limited Liability Companies and Housing ...” (April 20, 2023) <https://journals.sagepub.com/doi/pdf/10.1177/0003122418821339> accessed April 20, 2023

Kpmg, “Partnership Formation in Malta” ( KPMG 2019) <https://kpmg.com/mt/en/home/services/tax/corporate-services/partnership-formation-in-malta.html> accessed April 20, 2023

Legalnature, “What Is Your Liability in a Partnership?” ( LegalNature 2019) <https://www.legalnature.com/guides/what-is-your-liability-in-a-partnership> accessed April 20, 2023

LexisNexis, “Anonymous Partnerships” ( Image 2019) <https://www.lexisnexis.co.za/lexis-digest/conveyancing/anonymous-partnerships> accessed April 20, 2023

Malta , “Company Registration in Malta - Business Setup in Malta” ( 3E Accounting Firm India April 20, 2021) <https://www.3ecpa.co.in/services/other-jurisdictions-setup/company-registration-in-malta/> accessed April 20, 2023

Muscat M, “Legitimacy of the Maltese Financial Services Regulator” ( Apollo Home September 30, 2019) <https://www.repository.cam.ac.uk/handle/1810/308785> accessed April 20, 2023

Newco, “Partnership En Commandite: Newco - Corporate Services Provider” ( NEWCO April 20, 2023) <https://www.newco.pro/en/invest-in-malta/companies-in-malta/types-of-companies-in-malta/partnership-en-commandite#:~:text=Partnership%20en%20Commandite%20obligations%20are,have%20put%20into%20the%20partnership.> accessed April 20, 2023

Upcounsel, “Partnership Business Liability: Everything You Need to Know” ( UpCounsel 2020) <https://www.upcounsel.com/partnership-business-liability> accessed April 20, 2023

Zedra, “Malta Partnership” ( ZEDRA March 3, 2023) <https://www.zedra.com/insights/malta-partnership/> accessed April 20, 2023

[1]Heinonline, “About” ( HeinOnline March 8, 2021) <https://heinonline.org/HOL/LandingPage?handle=hein.journals%2Frevjurns55&div=28&id=&page=> accessed April 20, 2023

[2] Zedra, “Malta Partnership” ( ZEDRA March 3, 2023) <https://www.zedra.com/insights/malta-partnership/> accessed April 20, 2023

[3]Heinonline, “About” ( HeinOnline March 8, 2021) <https://heinonline.org/HOL/LandingPage?handle=hein.journals%2Fbclr61&div=64&id=&page=> accessed April 20, 2023

[4] Newco, “Partnership En Commandite: Newco - Corporate Services Provider” ( NEWCO April 20, 2023) <https://www.newco.pro/en/invest-in-malta/companies-in-malta/types-of-companies-in-malta/partnership-en-commandite#:~:text=Partnership%20en%20Commandite%20obligations%20are,have%20put%20into%20the%20partnership.> accessed April 20, 2023

[5] Matthew Muscat, “Legitimacy of the Maltese Financial Services Regulator” ( Apollo Home September 30, 2019) <https://www.repository.cam.ac.uk/handle/1810/308785> accessed April 20, 2023

[6] Malta , “Company Registration in Malta - Business Setup in Malta” ( 3E Accounting Firm India April 20, 2021) <https://www.3ecpa.co.in/services/other-jurisdictions-setup/company-registration-in-malta/> accessed April 20, 2023

[7] Journals, “The Organization of Neglect: Limited Liability Companies and Housing ...” (April 20, 2023) <https://journals.sagepub.com/doi/pdf/10.1177/0003122418821339> accessed April 20, 2023

[8] Clive Azzopardi, “Malta Partnerships – an Alternative Vehicle to Set up a Business in Malta - Corporate and Company Law - Malta” ( Malta Partnerships – An Alternative Vehicle To Set Up A Business In Malta - Corporate and Company Law - Malta May 4, 2021) <https://www.mondaq.com/corporate-and-company-law/1064648/malta-partnerships-an-alternative-vehicle-to-set-up-a-business-in-malta> accessed April 20, 2023

[9] Corriericilia, “Taxation of Partnerships in Malta” ( Corrieri Cilia August 24, 2017) <https://corriericilia.com/publications/taxation-of-partnerships-in-malta#:~:text=Partnership%20en%20commandite,-A%20partnership%20en&text=It%20consists%20of%20one%20or,in%20a%20partnership%20en%20commandite.> accessed April 20, 2023

[10]Kpmg, “Partnership Formation in Malta” ( KPMG 2019) <https://kpmg.com/mt/en/home/services/tax/corporate-services/partnership-formation-in-malta.html> accessed April 20, 2023

[11] Upcounsel, “Partnership Business Liability: Everything You Need to Know” ( UpCounsel 2020) <https://www.upcounsel.com/partnership-business-liability> accessed April 20, 2023

[12] LexisNexis, “Anonymous Partnerships” ( Image 2019) <https://www.lexisnexis.co.za/lexis-digest/conveyancing/anonymous-partnerships> accessed April 20, 2023

[13] Legalnature, “What Is Your Liability in a Partnership?” ( LegalNature 2019) <https://www.legalnature.com/guides/what-is-your-liability-in-a-partnership> accessed April 20, 2023

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