When a simple partnership (adi ortaklık) agreement is prepared, the identity of the partners, the common purpose, the contribution shares, the profit and loss ratios, management, representation, accountability and the conditions of withdrawal should be arranged together. A simple partnership may, as a rule, be formed without being bound to a special form; nevertheless, a written and signed text is important because it shows what was agreed. Where the transfer of immovable property or another right subject to a special form is involved, the general freedom of form does not remove the form required for that transaction.
A well-prepared agreement does not only describe the day of formation. It also determines the method to be applied if a partner fails to perform an undertaking, if the business needs more cash than expected, if the manager fails to account or if a partner dies. In this way the parties do not have to try to create rules for the first time when a dispute arises.
What relationship does a simple partnership regulate?
Article 620 of the Turkish Code of Obligations (TBK) is based on a contract in which two or more persons undertake to combine their labor and assets in order to achieve a common purpose. The partners may be natural persons as well as legal entities. However, the simple partnership formed does not itself acquire a separate legal personality. A business name in the contract or a tax registration belonging to the partnership does not change this result.
Merely giving money, working in the same workplace or receiving a fixed fee from sales does not always amount to a partnership. The relationship may be in the nature of a loan, service, agency, contract for work or another contract. During preparation, it must be clarified whether repayment of the money is unconditional, what the parties undertake for the common purpose and how rights to the profit arise.
For example, a person’s giving a certain amount to be taken back with interest is different from contributing the same money to share in the result of the business. Writing “partnership” in the contract does not of its own accord change another relationship actually formed. Under TBK Article 19, the real and common intention is what matters.
How should the parties and the subject of activity be written?
For natural persons, identity and service-of-notice details; for legal entities, the full trade name, registration details and the authorized signatory must be clearly determined. It must be checked whether the authority of the person signing on behalf of a company is sufficient to form this partnership. A company’s shareholder and the company itself are not the same contracting party.
The subject of activity should be made concrete: What is the workplace to be run, the project to be carried out, the service to be provided or the targeted economic result? On what decision does the addition of a new line of business to the scope of the activity depend? Matters requiring a license, professional permit, lease or administrative approval are dealt with separately. A simple partnership agreement does not replace these permits.
Is a written agreement and a notarial act mandatory?
As regards a simple partnership, the general rule is freedom of form. Nevertheless, the validity of the contract, proof of the contract in court and the transfer of a contribution share are three separate matters. A text signed by the parties makes proof easier; however, it does not by itself provide the official form and registration formalities required for the transfer of immovable property. For other transactions as well, such as the assignment of a receivable, their own special provisions are examined.
The parties may agree that the contract will be binding only if made in a certain form. In this case the regulation of agreed form in TBK Article 17 becomes significant. It is useful to distinguish the minutes of a meeting, a letter of intent and the definitive contract from one another, and to state at what moment the binding effect arises. Not every act performed at a notary has the same legal effect: certification of a signature and the official form of drawing up that the law requires must not be confused.
The decision of the 3rd Civil Chamber of the Court of Cassation (Yargıtay 3. Hukuk Dairesi) of 08.11.2023, E. 2023/4413, K. 2023/3160, shows the importance of separating the written formation requirement from the burden of proof. In the dispute examined, reliance on payment and authority relationships was not regarded as sufficient to prove the existence of the partnership. This decision does not mean that every bank record is worthless; it shows the importance of preparing, at the formation stage, a document that will show the intention to form a partnership.
In what detail are capital and the contribution share determined?
Under TBK Article 621, a contribution share may be money, a receivable, other property or labor. For a simple partnership, a general minimum basic capital amount, as in a joint-stock or limited company, is not prescribed. Even so, a statement such as “everyone contributes according to need” can create serious uncertainty as to the time of payment and the consequences of an incomplete contribution.
Unless otherwise agreed in the contract, contribution shares must be equal and of the importance and nature required by the purpose of the partnership. If different contributions are to be agreed, this difference must be written clearly and supported with valuation, delivery and acceptance documents.
| Type of contribution | Matter to be explained in the contract | Supplementary record |
|---|---|---|
| Money | Amount, currency, due date and payment account | Payment record with a description and confirmation of receipt |
| Equipment | Whether ownership or use is left | Inventory with serial numbers and delivery record |
| Labor | Scope of the work, duration, responsibility and inability to work | Job description and activity record |
| Receivable | Debtor, amount, collection risk and assignment act | Basis of the receivable and assignment document |
| Immovable property | Separation of the right of use from transfer of ownership | Required official act, title deed and permit documents |
Why should transfer of ownership be separated from leaving the use?
The use of a vehicle or machine in the partnership’s activity does not of its own accord show that its ownership has passed to the partners. The period of use, maintenance, insurance, damage and return conditions should be written separately. If ownership has been contributed as a contribution share, it should not be assumed that the same item will be taken back in kind at the end of liquidation; the regulation on taking back at value in TBK Article 642 is taken into account.
The value of a contribution share set at formation is also not the same as its later market value. Writing only “machine capital”, without stating which account is to be made on what value, may create a dispute both in the period accounts and in liquidation.
How are an additional payment, an advance and a partner’s receivable separated?
Not every later payment by a partner is a capital increase. Meeting a business expense, a temporary advance, a loan or a new contribution undertaking produce different consequences. The nature of each payment should be recorded, taking into account the provisions on expenses, advances and obligations in TBK Article 627.
For example, whether a partner who pays the rent from his or her personal account may claim that amount back, whether it will be deducted from the profit share and whether the payment changes the contribution ratio must be determined. Instead of an uncertain and unlimited additional financing obligation, the decision method, an upper limit, the time of payment and a lawful solution to be applied to a partner who does not pay can be written.
How is the sharing of profit and loss arranged?
Under TBK Article 623, unless otherwise agreed, the partners’ shares in profit and loss are equal, whatever the value and nature of the contribution share. For this reason, it cannot be said that a person providing seventy percent of the financing automatically has a seventy percent right to profit. If a different division is wanted, the ratios must be clearly arranged.
Where the contract fixes only the ratio of participation in profit or only in loss, that determination also expresses the share in the other. For a partner who contributes only labor as a contribution share, an agreement may be made to share in profit without sharing in loss. It should not be accepted that a partner who also contributes money or goods automatically benefits from the same exception.
Are turnover, net profit and distributable cash the same?
Turnover may express all of the business’s collections or the size of sales; it is not the same as the profit to be distributed to the partners. How expenses, taxes, returns, stock and uncollectible receivables will be taken into account should be explained. That a profit is shown in the accounts also does not mean that the same amount of cash is in the till.
The duty of managing partners to account at least once a year and to pay out profit shares is regulated in TBK Article 630. Agreements that extend the accounting period are invalid. For this reason, instead of a provision based on unlimited discretion, such as “profit is paid only if the manager sees fit”, a payment arrangement consistent with the accounting date, the method of objection and the statutory obligations should be established.
Remuneration for management, reimbursement of expenses and profit advances should also be separated. If it is not determined under which item the money a partner draws monthly is tracked and how it will be offset at the end of the period, the same payment may be disputed as both remuneration and a profit share.
How are decision-making, management and representation arranged?
Decision-making concerns the will of the partnership; management concerns the conduct of affairs; representation concerns on whom transactions made with third parties have effect. It is not sufficient to leave these three areas to a single sentence about an “authorized partner”.
Under TBK Article 624, unanimity is the basic rule. If a majority is provided for in the contract, the statutory rule based on the number of partners must be taken into account. Management duties, ordinary transactions and extraordinary matters should be determined separately. For borrowing outside the budget, long-term leases or significant asset transactions, the approval method can be written clearly.
As regards representation, TBK Article 637 and the general provisions on representation apply together. The managing partner’s authority regarding significant acts of disposition should be given by the unanimity of all the partners and shown clearly in the authority document. The effect on third parties of an internal spending limit in the contract is assessed separately according to the scope and notification of the authority of representation.
Can the right to information be removed by contract?
A partner who is not in management may also obtain information, inspect books and records, take copies and draw up a summary of the financial position. Contract provisions contrary to TBK Article 631 are invalid. Sending regular reports supports this right; it does not replace removing the right entirely.
Methods that can be applied for monthly reports, access to documents, monitoring of joint accounts and protection of trade secrets may be added to the contract. Passwords being held by only one person, the partnership’s financial information remaining in personal messages and the use of cash without documentation should be prevented.
Liability for debts and provisions that prevent disputes
The sharing of loss among the partners themselves does not automatically limit the creditor’s rights. For partnership debts within the scope of TBK Article 638, joint and several liability comes into play. Writing in the internal contract that “A is liable for only twenty percent” cannot be asserted in the same way against a creditor who has not accepted that limitation. In whose name and with what authority the debt was undertaken is examined separately.
The paying partner’s right of recourse against the others should be supported by payment documents and the internal division arrangement. Providing security, personal suretyship and the partners’ private debts should be kept separate. It is incorrect to provide for, or to expect, that each partner’s private debt will automatically be treated as a partnership debt.
| Uncertain provision | Dispute risk | Matter to be clarified |
|---|---|---|
| “Expenses are borne jointly.” | Charging a personal expense to the business | Type of expense, approval and document |
| “Profit is shared later.” | Uncertainty about the accounting date | Period, accounting method and payment |
| “The manager does every transaction.” | Confusion of internal authority with external representation | Transaction groups and authority document |
| “The leaving partner takes his or her money.” | Confusion of the net share with the initial contribution | Debts, valuation and set-offs |
| “On death the partnership continues.” | Uncertainty as to with whom it will continue | Heirs or surviving partners |
Notice addresses, proof of delivery and records of meetings and decisions should also be arranged. When adding a jurisdiction agreement or arbitration clause, the conditions of the HMK regarding the capacity of the parties, written form and the arbitrability of the dispute must be examined. Writing the same court name in every contract does not mean a valid jurisdiction agreement has been formed. Mediation as a condition precedent to litigation is also assessed separately according to the nature of the dispute.
What provisions are needed for withdrawal, death and liquidation?
Expiry of the term, completion of the purpose, termination, change of partners and death are separate scenarios. In a partnership of indefinite duration, the provisions of TBK Article 640 on the notice period, the end of the accounting year and the rule of good faith should be taken into account. The transfer of a share to a third party also does not by itself make that person a partner; TBK Article 632 is the basis for admitting a new partner.
In the case of death, continuing with the heirs and continuing only with the surviving partners produce different results. Continuation, the withdrawal share, information sharing, a valuation expert and payment security should complement one another. In a two-person partnership, one person remaining does not result in the simple partnership being continued with a single person in the same way.
In liquidation, not only the money initially contributed but also assets, debts, expenses, advances and unfinished work are dealt with together. Taking TBK Articles 642–645 into account, the selection of a liquidator and the handover of records can be determined. The end of the partnership does not of its own accord remove debts towards third parties.
Which annexes should be completed before signing?
- Contribution share and delivery schedule.
- Opening inventory and the list of existing debts and receivables.
- Table of duties, decisions and authority of representation.
- Accountability and expense documentation arrangement.
- License, lease, insurance and necessary permit documents.
- Valuation method for withdrawal and death scenarios.
It should be explained that the annexes are part of the contract, which provision applies in case of conflict and how amendments are made. It should be verified that every partner has received the same final text and annexes. Instead of the practice of filling in gaps or inserting dates afterwards, a completed, version-identified and signed record should be preserved.
Related articles: Proving a Simple Partnership Without a Written Contract; Simple Partnership Debts: Liability, Lawsuit and Enforcement; Management, Representation and Withdrawal of Authority in a Simple Partnership; Death of a Partner in a Simple Partnership and the Rights of the Heirs; Return of Capital and Recovery of Money in a Simple Partnership.
Conclusion
The purpose of a simple partnership agreement is to make the parties’ contributions and expectations measurable. The contribution share, the sharing of profit, management and representation should be arranged separately, and the effect of the internal division on creditors should be correctly established. Preparing the accounting, withdrawal and death provisions together with the formation documents reduces the uncertainties that may arise during the life of the partnership.
Frequently Asked Questions
Is a simple partnership agreement invalid if not made at a notary?
As a rule, no. Nevertheless, any special form concerning the contribution share, the form agreed by the parties and the rules of proof are examined separately. A notarial act does not resolve all special-form issues in the same way.
Can partners who do not contribute equal capital receive equal profit?
Yes. Unless otherwise agreed, the statutory rule is equal shares in profit and loss. If a different division based on the ratio of contributions is wanted, it must be explained in the contract.
Can a person who contributes only labor be a partner?
Yes. The scope and duration of the labor and the work undertaken must be determined. For a partner who contributes only labor, an agreement may be made to share in profit without sharing in loss.
Does obtaining a separate tax registration in the partnership’s name give it legal personality?
No. Tax procedures and private-law legal personality are different matters. In contract, representation and debt relationships, the identity of the actual partners retains its importance.
Does a debt limit written in the contract bind the creditor?
A limit agreed only among the partners does not of its own accord have effect as regards the creditor. The legal relationship established with the creditor and the liability arrangement the creditor has accepted are examined separately.
Can a sample contract from the internet be used directly?
A sample text can provide a preparation checklist. However, signing it without adapting the types of contribution, representation, special form, permits and withdrawal scenarios to the concrete partnership may leave significant gaps.
Sources
- Law No. 6098, Turkish Code of Obligations (Türk Borçlar Kanunu), in particular Articles 12, 17, 19, 40–48 and 620–645.
- Law No. 6100, Code of Civil Procedure (Hukuk Muhakemeleri Kanunu), in particular Articles 17–18, 190 and 200–203.
- 3rd Civil Chamber of the Court of Cassation, 08.11.2023, E. 2023/4413, K. 2023/3160. Access to the decision may require an account.
- Esra Hamamcıoğlu and Argun Karamanlıoğlu, Form in the Simple Partnership Agreement (Adi Ortaklık Sözleşmesinde Şekil), in the Festschrift for Cevdet Yavuz, pp. 1303–1331.