7 Legal Requirements in General Partnerships of Companies

7 Legal Requirements in General Partnerships of Companies. In Turkish law of obligations doctrine, the ordinary partnership is recognized as one of the most widely used cooperation models in economic and social life, despite lacking legal personality. Regulated between Articles 620 and 645 of the Turkish Code of Obligations (TCO) No. 6098, this structure is a contractual relationship in which two or more persons undertake to combine their labor and property to achieve a common goal. Unlike commercial companies, an ordinary partnership does not possess its own legal personality; this means the partnership lacks the capacity to have rights and obligations, cannot be a party in courts, and the partners hold joint ownership (ownership in collaboration) over the partnership assets.

In legal terminology, the ordinary partnership is characterized as a “residuary company.” Pursuant to Article 620/2 of the TCO, if a partnership does not bear the distinctive characteristics of other partnership types regulated by law (such as joint-stock, limited liability, or collective companies), it is automatically subject to the provisions of an ordinary partnership. While this flexibility facilitates the establishment of the partnership, it also brings complex management and liability relationships. For the partnership to be established soundly and to avoid setbacks in legal processes, it is essential to fully comply with the seven fundamental legal requirements determined by doctrine and law.

Constitutive Elements and Structural Foundations of Ordinary Partnership

Before moving on to the seven legal requirements, five fundamental elements that create this structure must be examined. These elements are classified as: person, contract, contribution, common purpose, and affectio societatis (partnership spirit). Regarding the person element, the existence of at least two natural or legal persons is mandatory; it is legally impossible to establish an ordinary partnership with a single person.

The contract element indicates that the partnership is based on a consensual foundation. As a rule, an ordinary partnership agreement is not subject to any formal requirements; it can be established orally or in writing. However, in terms of the law of evidence, the existence of a written contract plays a critical role in resolving potential future disputes. The contribution (capital) is the value that each partner undertakes to bring to achieve the partnership’s purpose. This contribution can be cash, movable or immovable property, receivables, labor, or commercial reputation.

Table 1: Structural Elements and Legal Characteristics of Ordinary Partnership

Element	Definition and Requirement	Relevant Legislation
Person Element	At least two natural or legal persons.	TCO Art. 620/1
Contract Element	Mutual and appropriate declaration of will.	TCO Art. 620/1
Contribution	Capital contribution in the form of money, property, labor, or rights.	TCO Art. 621
Common Purpose	The economic or ideal goal the partners wish to achieve.	TCO Art. 620
Affectio Societatis	The will to act actively and together to achieve the common goal.	Doctrine and Supreme Court

The common purpose element is the fundamental motivation bringing the partners together. This purpose can be an economic goal, such as making a profit, or an ideal goal, such as artistic or sporting activities. Finally, the affectio societatis element expresses that the partners are in an equal position to one another and must act with a “partnership spirit” to reach the common goal. The absence of this element turns the relationship into a simple business dealing or property relationship rather than a partnership.

First Requirement: Appointment of a Manager and Management Structure

Management in an ordinary partnership is the most fundamental function regulating the internal relationship. Pursuant to TCO 624, partnership decisions are, as a rule, taken by the unanimous vote of all partners. However, since seeking unanimity for every decision would constitute an operational obstacle in the fast-paced commercial world, the appointment of a manager emerges as a legal necessity. Unless otherwise provided in the partnership agreement, every partner has management authority.

The manager can be one of the partners or a third party appointed from outside. The appointment of a managing partner covers the conduct of daily business, making strategic decisions, and accounting to the other partners. The managing partner is obliged to give an account to the other partners and pay their shares of the profit at least once a year. A breach of this obligation may constitute a justified reason for the removal of management authority or the dissolution of the partnership.

Second Requirement: Limits and Scope of Management Authority

Management authority includes the right and obligation to perform the “ordinary business” of the partnership. Ordinary business refers to activities such as sales, purchases, personnel management, and similar routines that must be performed for the partnership to reach its purpose. Conversely, for “extraordinary business,” such as transactions that change the structure of the partnership, large-scale asset transfers, or changing the subject of the partnership, the unanimity of all partners is mandatory.

In cases where delay is harmful, each managing partner is authorized to act alone. This requirement aims to protect the partnership against suddenly developing risks. The scope of management authority can be expanded or narrowed by contract; however, for these arrangements to be binding on third parties, they must be supported by representation authority.

Third Requirement: Auditing of Management and Right to Information

Auditing management is a legal requirement for the ordinary partnership to be maintained transparently and reliably. Even if a partner does not have management authority, they have the right to receive information about the operation of the partnership, examine books and records, summarize the financial situation, and take copies of documents.

This right has been characterized by the legislator as “inalienable.” If provisions that abolish or seriously restrict the right to audit are included in the partnership agreement, these provisions are considered strictly null and void pursuant to TCO 625/2. The right to audit is a broad control mechanism covering not only financial records but all operational processes of the partnership. Exercising this mechanism is critical for determining whether the managing partner is acting in accordance with the duty of loyalty and care.

Fourth Requirement: Exercising the Right of Objection

If management authority is given to more than one partner, each managing partner can object to an action to be performed by another. The right of objection is an internal audit tool that prevents the abuse of management authority or the taking of erroneous decisions. When an action is properly objected to, the execution of that action generally stops, and the decision must be re-evaluated by all partners or the authorized board.

The use of the right of objection ensures balance among the partners. However, if the third party with whom the transaction is made is unaware of the objection and representation authority exists, the liability of the partnership (or other partners) may continue. Therefore, the right of objection is more important in terms of determining liabilities in the internal relationship and recourse relations.

Fifth Requirement: Removal and Limitation of Management Authority

Management authority given to a partner by the partnership agreement cannot be arbitrarily removed by the other partners. However, if there is a “justified reason,” management authority can be removed or limited. Justified reasons include the manager’s gross negligence in their duties, corruption, loss of management ability, or behavior contrary to the duty of loyalty.

If the appointment of the managing partner was made by a non-contractual decision (e.g., a partners’ board decision), this authority can be withdrawn at any time by a majority decision. However, the removal of authority given by contract generally requires the consent of all partners or a court decision. This legal requirement protects the stability of the manager while safeguarding the interests of the partnership.

Sixth Requirement: Representation Authority and Its Types

Since the ordinary partnership lacks legal personality, the representation mechanism is a vital requirement for legal transactions with third parties. Representation is divided into two: direct representation and indirect representation.

Direct Representation

In the case of direct representation, the representative (a partner or a third party) acts in the name and on behalf of the partnership and all other partners. For this, the representative must be authorized, and the third party must be aware of this situation. Rights and obligations arising from a contract made through direct representation belong directly to all partners, and the partners are jointly and severally liable for these debts.

Indirect Representation

In the case of indirect representation, the partner acts in their own name but on behalf of the partnership. That partner is personally liable to the third party and becomes the creditor. Subsequently, these rights and obligations must be transferred to the other partners. This distinction is of great importance, especially in determining the limits of liability law and whom third parties can sue.

Seventh Requirement: Representation in Lawsuits and Lack of Capacity to be a Party

One of the most characteristic and challenging features of an ordinary partnership is its lack of capacity to sue or be sued. A lawsuit cannot be filed in the name of an ordinary partnership, nor can a lawsuit be filed against an ordinary partnership. In court cases, the parties are not the partnership itself, but all of the partners. This situation is called “compulsory joinder of parties.”

In a debt collection lawsuit, all partners must appear as plaintiffs; otherwise, the lawsuit may be rejected on procedural grounds. Similarly, in a debt lawsuit, the creditor can sue each of the partners separately or all of them together. However, if representation authority has been given to the managing partner and this authority covers representation in lawsuits, procedures may become easier in certain exceptional cases. Nevertheless, the essence remains this reflection of the partnership’s lack of legal personality before the court.

Required Documents and Bureaucracy in the Establishment Process

Although the establishment of an ordinary partnership appears legally simple, it is mandatory to prepare a series of documents and submit them to the relevant institutions for commercial activities to be legalized. There is no capital limit at the establishment stage, and registration in the trade registry is not mandatory. However, it is possible for each partner to register separately with the chamber of commerce to gain the status of merchant.

Table 2: Required Documents for Establishment and Tax Office Registration

Document Type	Description	Requirement Status
Ordinary Partnership Agreement	Text containing the rights and obligations of partners.	Mandatory (Written for Evidence)
Signature Declaration	Notarized signature samples of partners.	Mandatory
Identity Copy and Photo	Identity verification for all partners.	Mandatory
Lease Agreement or Title Deed	Document verifying the workplace address.	Mandatory
Residence Certificate	Settlement information of partners.	Mandatory
Certification of Commercial Books	Books based on the operating or balance sheet basis.	Mandatory
Chamber Registration Declaration	Registration form for the relevant professional chamber.	Optional/Mandatory

Following the completion of these documents, a notification of commencement of business is made to the tax office, and a tax identification number is obtained on behalf of the partnership. While the partnership is considered a taxpayer for VAT and withholding tax, profit and loss are taxed through the individual income tax returns of the partners.

Tax Legislation and Notification Obligations for the 2024-2025 Period

The financial obligations of ordinary partnerships vary according to the type of tax. Although the partnership does not have legal personality, it is accepted as an independent unit in terms of Value Added Tax (VAT) and Withholding (Muhtasar) declarations. In this context, separate books must be kept, and invoices must be issued in the name of the partnership.

The years 2024 and 2025 represent a period in which digital transformation is accelerating for taxpayers in Turkey. It is mandatory to notify the tax office of the commencement of business within 10 days of the start date. Failure to meet this period leads to irregularity penalties. Additionally, taxpayers are obliged to report ultimate beneficial owner information.

Table 3: Tax Declaration and Notification Calendar (2024-2025)

Obligation	Notification Period	Notes
Commencement of Business	Within 10 Days	In person or digitally to the tax office.
VAT Declaration	28th Day of Every Month	Issued on behalf of the partnership.
Withholding Declaration	26th Day of Every Month	For employees and rental payments.
Income Tax Return	March of the Following Year	Each partner declares their own share.
e-Invoice Transition	July 1, 2025	For those with 2024 turnover exceeding 3 Million TL.

For taxpayers whose gross sales revenue in 2024 is 3 Million TL or above, the obligation to switch to the e-Invoice and e-Waybill system by July 1, 2025, has been introduced. This regulation means that ordinary partnerships will also be more strictly audited within the scope of the fight against the informal economy.

Social Security Institution (SGK) Notifications and Penal Sanctions

Ordinary partnerships that employ personnel hold the status of “employer” before the SGK. The workplace declaration must be submitted to the institution at the latest on the date sigortalı (insured) employment begins. If a new partner joins the ordinary partnership, this change must also be reported to the institution within 10 days.

Violations of SGK legislation have turned into quite high-cost administrative fines as of 2024, alongside the increase in minimum wage amounts. For example, if the workplace declaration is not submitted on time, a fine of 3 times the minimum wage is applied for those keeping books on a balance sheet basis.

Table 4: SGK Administrative Fines and Periods (2024)

Act	Notification Period	Penalty Amount (Balance Sheet Basis)
Workplace Registration	At latest when the insured starts work.	3 Minimum Wages (60,007 TL)
Entry of New Partner	Within 10 Days	2-3 Minimum Wages
Employment Notification	1 day before starting work.	1-2 Minimum Wages Per Insured
Submission of Books/Docs	15 days from notice.	12 Minimum Wages (240,030 TL)

In the event of an occupational accident or occupational disease, the notification period is 3 business days. Delays in these notifications carry great risks for partners in terms of recourse lawsuits and compensation liability.

Principle of Unlimited and Joint Liability

The most critical legal consequence of an ordinary partnership is the “primary, unlimited, and joint” liability of the partners toward third parties. Primary liability means that a creditor can directly target the personal assets of the partners without first applying to the partnership assets. Joint and several liability refers to the fact that the entire debt can be demanded from any of the partners.

This situation necessitates a high level of trust among the partners. An erroneous transaction made by a partner within the framework of management or representation authority can jeopardize the personal assets of all other partners. Even if the partners restrict this liability with a contract among themselves, this restriction (if the third party is in good faith) is not valid in the external relationship.

Termination and Liquidation Process

An ordinary partnership ends for reasons such as the realization of the purpose agreed upon in the contract, the expiry of the term, the death, bankruptcy, or restriction of a partner, or by a court decision for dissolution. From the moment of termination, the partnership turns into a “liquidation community.”

In the liquidation process, the external debts of the partnership are paid first. Then, the contributions made by the partners are returned. If contributions cannot be returned in kind, a settlement is made based on their cash values. The remaining profit or loss is distributed among the partners in the proportions specified in the contract, or equally if there is no provision in the contract. Joint ownership and joint and several liability of the partners continue until the liquidation process is completed.

Doctrinal Depth and Sectoral Reflections: Joint Ventures

One of the areas where ordinary partnership provisions are most intensely applied in commercial life is “Joint Ventures” and “Consortiums.” Especially in public tenders and large construction projects, several companies combine their forces through this model. Joint ventures have the right to choose corporate tax liability before tax laws. This situation facilitates the financial management of the project while allowing the partners to engage in tax planning.

However, it must not be forgotten that even if a structure is called a “joint venture,” it continues to bear the elements of an ordinary partnership under the TCO. Therefore, the powers of the pilot partner, profit distribution mechanisms, and post-project liquidation processes must be regulated in great detail in the contract. Otherwise, the default legal rules of the TCO, such as “equal profit-loss sharing” and “unanimity,” may come into play, leading to results that conflict with the commercial expectations of the parties.

Although the ordinary partnership is an attractive model for entrepreneurs due to its flexibility and low establishment costs, legal requirements arising from the lack of legal personality can place this structure on risky ground. Appointing a manager, protecting the right to audit, limiting representation authority, and meticulously following tax/SGK notifications are the primary ways to manage these risks.

The e-transformation processes in 2024 and 2025, in particular, are forcing ordinary partnerships toward a more transparent and registered structure. Considering the unlimited joint and several liability of the partners, oral agreements based solely on “trust” should be replaced by detailed written contracts that foresee every possibility (death, withdrawal, loss, etc.). Seeing legal requirements not as formalities but as insurance policies that extend the life of the partnership is the key to a successful collaboration.

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