Libro Quinto Título III. De la sociedad

A partnership is a contract by which two or more persons agree to pool property or services to carry on an economic activity and divide the profits.

The partnership must be executed by public deed and registered in the respective Register in order to be able to act as a legal person.

The partnership deed shall state the following:

1°.Object of the partnership;

2°.Firm name;

3°.Domicile of the partnership;

4°.Duration of the partnership;

5°.Capital and the share contributed by each partner;

6°.Share of profits or losses assigned to each partner, date and form of its distribution;

7°.Cases in which dissolution of the partnership shall proceed before its expiry; and the bases that in any case of dissolution must be observed for the liquidation and division of the partnership assets;

8°.Amount that each partner may periodically take for his personal expenses;

9°.Manner of resolving differences arising among the partners; and

10.Form of administration of the partnership, and the other covenants agreed by the partners.

If the partnership is constituted for a purpose or object which by its nature has a limited duration, but whose time limit cannot be fixed, it shall be understood that its duration shall be for the time necessary for the accomplishment of that object.

The clauses of the partnership contract stipulating that any of the partners shall not participate in the profits or that the part of the capital or property contributed by him shall be free from liability or risk are void and deemed unwritten.

The partners may not make any secret agreement, nor assert against the contents of the partnership deed any private document or testimonial evidence.

Any extensions or modifications to this contract shall be made with the same formalities and requirements required for its execution.

The contribution of property implies the transfer of ownership thereof to the company as a legal person, unless otherwise expressly agreed. Immovable property or real rights over the same shall be registered in the Property Register.

The partner who contracts on behalf of the partnership before it can act as a legal person is directly liable for the effects of the contract entered into.

The spouses may not conclude between themselves a contract of partnership involving the formation of a legal person, unless third persons appear as co-partners. The case of legal substitution is also excepted.

During marriage, the wife may not, without the husband's consent, nor may he without hers, enter into a partnership contract with third parties with respect to common property or contribute this class of property to a partnership.

The tutor and the guardian may not enter into a partnership contract with their represented persons until the minority of age or the incapacity has ended and the guardianship accounts have been approved and the guarantees have been cancelled.

Those declared bankrupt may not enter into partnership contracts while they have not been rehabilitated.

For minors or incapacitated persons, their representatives may enter into a contract of partnership, with prior judicial authorization based on proven utility. The liability of minors or incapacitated persons shall be limited to the amount of their contribution delivered.

The partnership or firm name shall be formed with the first name and surname of one of the partners; or the surnames of two or more, with the addition of the words “Sociedad Civil”.

The partnership obligations are guaranteed by the property of the partnership; and if such property is not sufficient, by the partners' own property.

The immovable property of minors or ownership rights therein may not be contributed to the partnership as partnership capital, but the fruits or products of said property may be.

The partners must contribute their respective capital to the common fund within the agreed time limit; and against the defaulting partner the partnership may proceed by executory action until delivery is effected or rescind the contract as to said partner.

Each partner is obliged to deliver and warrant to the partnership the thing he promised.

A partner who delays delivery of their capital, whatever the cause, must pay to the partnership the legal interest on the money not delivered in due time.

Partners who place their industry in common shall account to the partnership for the profits they have obtained from the exercise of that industry.

The risk of certain and determinate, non-fungible things that are contributed to the partnership so that only their use, fruits or products are common, lies with the owner partner.

If the things contributed are fungible or cannot be kept without deteriorating, or were contributed to be sold, the risk lies with the partnership. In the absence of a special agreement, the risk of things appraised at the time of contribution shall also lie with the same partnership, and, in this case, the claim shall be limited to the price at which they were appraised.

Any damage or harm caused to the interests of the partnership by intent, abuse of powers, or gross negligence of any partner places its author under the obligation to indemnify it if the fellow partners demand it, provided that express or implied approval or ratification of the fact on which the claim is based cannot be inferred from any act.

No partner may divert or segregate from the common fund for their private expenses any greater amount than that designated to each one in the clauses of the contract.

In addition to being liable for the damage or losses resulting to the partnership as a result of their having taken amounts from the common fund, the partners shall pay the corresponding legal interest on such amounts.

The partnership shall pay to the partners the expenses they incur in conducting its business, and shall indemnify them for the damage or losses that befall them on the immediate and direct occasion of such business; but not for those suffered through their own fault or by fortuitous event or by another independent cause, while engaged in the service of the partnership.

If the share that each partner is to have in the profits or losses has not been determined in the contract, both shall be divided pro rata to the capital that each one contributed to the partnership.

If the share of the profits was stipulated without mention of that of the losses, the distribution of the latter shall be made in the same proportion as that of the former and vice versa; so that the expression of the one shall serve for the other.

The share in the profit that the partner who contributed nothing more than his industry is to have shall be equal to the portion corresponding to the partner who contributed the most capital; and if the capitals are equal, or only one partner has contributed it, the profit of the industrial partner shall be equal to that of the others.

The industrial partner shall also bear the losses when they are greater than the entire capital of the company; and then he shall share in them only to the extent that they exceed the capital.

A partner who accepted it expressly or tacitly may not challenge the distribution of profits or losses, nor may a partner who has allowed three months to pass since gaining knowledge thereof without exercising his right.

The administration of the partnership's business shall be subject to the provisions of the contract. If it is entrusted to one or more of the partners, the others may not oppose it nor revoke the administration except in cases of fraud or bad faith (dolo), fault, inability or breach of their obligations.

In the absence of special agreements on administration, the following rules shall be observed:

1°.Each partner is an administrator; and, as such, may act in the name of the partnership without prejudice to the right of the others to oppose an act before it is perfected;

2°.Each partner may likewise make use of the property placed in common, employing them for their natural purpose; without prejudicing the interests of the partnership, nor preventing the other partners from exercising an equal right;

3°.Each of the partners has the right to compel the others to contribute to the expenses required for the conservation of the things of the partnership; and

4°.None of the partners may make innovations in the immovable property belonging to the partnership, even when they consider them advantageous to it if the others do not consent.

A partner who is not an administrator may not enter into any contract with respect to the property belonging to the partnership, even if such property is movable.

No partner may transfer to another person, without the consent of the others, the interest he has in the partnership; nor put such person in his place to perform the offices incumbent upon him in the administration of the partnership business.

Contracts entered into by the managing partner, or by whoever was authorized for that purpose, are binding on all the partners.

All partners are likewise bound for the debt from which the partnership has benefited, even if it was contracted by any partner without authorization.

No new obligation shall be contracted if one of the managing partners expressly opposes it; but if it should be contracted, it shall produce its legal effects with respect to the creditor, and the person who contracted it shall be liable for the damage or losses caused to the partnership.

All partners have the right to examine the state of the administration, and to make such claims as are appropriate to the common interest, in accordance with what was agreed in the partnership deed.

Payment made to one of the managing partners by a private debtor of his who is also a debtor of the partnership shall be imputed proportionally to both credits, even if the partner had applied it entirely in the receipt to his private credit; but if it was applied to the credit of the partnership, such disposition shall be given effect.

The contract of the partnership may be partially rescinded, or dissolved and extinguished in its entirety.

It is partially rescinded:

1°.If a partner for his own business uses the name, guarantees, or patrimony belonging to the partnership;

2°.If a partner to whom it does not correspond to perform them, according to the contract of the partnership, exercises administrative functions;

3°.If the managing partner commits fraud in the administration or accounts of the partnership;

4°.If any of the partners engages in his private business when he is obligated by the contract to act for the benefit of the partnership;

5°.If any of the partners falls within the cases of articles 1744 and 1749, according to the seriousness of the circumstances; and

6°.If the partner who has the obligation to render personal services to the partnership has absented himself; and, having been required to return, fails to do so, or states that he is prevented from doing so.

Upon partial rescission of the contract, the at-fault partner is excluded from the partnership.

The partnership contract is totally dissolved:

1°.By expiration of the time agreed for its duration, by termination of the enterprise or business that was the object of the partnership or by its attainment having become impossible;

2°.By loss of more than fifty percent of the capital, unless the partnership contract specifies a lower percentage;

3°.By bankruptcy of the partnership;

4°.By death of one of the partners; unless the deed contains the express agreement for the heirs of the deceased partner to continue;

5°.By judicial interdiction of one of the partners, or by any other cause depriving him of administration of his property;

6°.By bankruptcy of any of the partners; and

7°.By the will of one of them.

In the cases of paragraphs 4, 5, 6, and 7 of the preceding article, the partnership shall not be deemed dissolved if, two or more partners remaining, they wish by mutual agreement to continue it, or they had so agreed at the time of entering into the contract.

The extension of a partnership must be formalized before the expiry of the time limit and with the same solemnities and requirements required for entering into the contract.

If one of the partners promises to contribute the ownership of a thing of such importance that it is equivalent to the fundamental purpose of the business, if it is lost before delivery occurs, the contract is dissolved with respect to all the partners.

The clause that upon the death of a partner his heirs shall continue in his place does not obligate them to enter the partnership; but it obligates the other partners to admit them.

If the partnership continues after the death of a partner and his heirs do not enter it, they are only entitled to the share that corresponded to the deceased at the time of his death; and they do not participate in subsequent results, except insofar as it is a necessary consequence of what was done before the death of the partner whom they inherit.

The termination of the partnership by the will of one of the partners only takes place in those entered into for an unlimited time; and when the renouncing party does not proceed in bad faith nor untimely.

There is bad faith on the part of the partner who renounces when the partner seeks to make a particular profit that the partner would not have if the partnership continued to subsist; and the partner proceeds untimely when the partner does so in circumstances where a negotiation has not been concluded and where it is advisable that the partnership continue for some further time, in order to avoid the damage or harm that would otherwise result to it.

No partner may request the dissolution of the partnership entered into for a fixed term before the agreed time limit, unless just causes concur therefor, such as when another partner fails to fulfill his duties, or the one withdrawing suffers from a habitual illness that disqualifies him from the business of the partnership, or other causes have supervened, the gravity and legitimacy of which are left to the discretion of the judge.

The partners are reciprocally obligated to render account to each other of the administration and its results; both the gains and the losses resulting therefrom pass to their heirs.

Once the partnership is terminated, the legal person shall subsist but only for the purposes of liquidation, with the liquidators to represent it in judicial proceedings actively and passively. Upon entering liquidation, the words: “in liquidation” shall be added to the firm name.

The liquidation of the partnership shall be carried out in the manner and by the persons specified in the corporate contract or the dissolution agreement. If nothing was stipulated regarding the appointment of the liquidator or liquidators and the partners do not agree, the appointment shall be made by the competent judge and must fall upon a person of recognized responsibility.

The liquidator is a mandatary and as such shall be subject to the rules prescribed for him; if he is appointed by the judge and any of the partners so requests, he shall post security for his liability to the satisfaction of the judge.

Creditors representing at least twenty-five percent of the liabilities of the partnership may also request that the liquidator, whatever the source of his appointment, post security for his liability to the satisfaction of the same public official.

If the liquidators are several, they shall proceed jointly, and their liability shall be joint and several. Any difference of opinion among them shall be submitted to the decision of the partners, and in default thereof the competent judge shall decide.

The term for the liquidation shall not exceed six months and when this term elapses without it having been concluded, any of the partners or creditors may request the competent judge to set a reasonable term to conclude it, who with prior knowledge of cause shall so order.

If it appears that the delay is due to fault of the liquidators, their removal shall proceed without prejudice to the liabilities they may have incurred.

Once the liquidation of the partnership has been completed, the following order shall be observed in payments:

1°.Liquidation expenses;

2°.Debts of the partnership;

3°.Contributions of the partners; and

4°.Profits.

If the property of the partnership is insufficient to cover the debts, proceedings shall be conducted in accordance with the provisions on insolvency or bankruptcy.

The partners may not demand restitution of their capital before the liquidation of the partnership is concluded, unless it consists of the usufruct of the property contributed to the common fund.

Once the partnership is terminated and the liquidation has been carried out, the distribution of profits shall be made by the liquidator or liquidators observing the provisions relating to the partition of inheritance, except as the partners may have stipulated.

Where the powers of the liquidator have not been determined, the liquidator may not execute any acts and contracts other than those tending directly to fulfillment of the commission entrusted to the liquidator; consequently, the liquidator may not encumber the partnership property, nor borrow money, nor settle the rights of the partnership nor submit them to arbitration, unless, upon prior justification, the liquidator obtains judicial authorization to do so.

In addition to the duties that his title imposes on the liquidator, he shall be obliged:

1°.To prepare an inventory upon taking possession of his office;

2°.To continue and conclude the operations pending at the time of dissolution;

3°.To demand an account of their administration from anyone who has managed interests of the company;

4°.To settle and pay the debts of the company;

5°.To collect the outstanding credits, receive the amount thereof, cancel the encumbrances securing them and execute the corresponding releases;

6°.To sell the company property, even where there is a minor or incapacitated person among the partners, provided that such property has not been designated by them to be adjudicated in kind;

7°.To present a statement of liquidation whenever any of the partners so requests; and

8°.To render at the end of the liquidation a general account of his administration supported by evidence.

If the liquidator is the administrator of the extinguished company, he shall present at that time an account of his management.

The liquidator appointed by the partners may be removed by majority vote and resign the office, in accordance with the rules of mandate. The one appointed by the judge, if he shall have accepted the office, may only resign for just cause legally proven, and may be removed for fraud, fault, inability or breach of his obligations.

In carrying out the liquidation themselves, the partners shall conform to the preceding rules and shall proceed as in the case of joint administration.

The actions of creditors against the partners, those of the partners and creditors against the liquidator and those of the partners among themselves prescribe in three years counted from the date on which the liquidation ends, unless the law establishes a shorter term according to the nature of the obligation or of the title.