The civil-law partnership, governed by the Obligations and Contracts Act (ЗЗД) and frequently referred to as a ДЗЗД, is a contractual association of two or more persons who agree to combine their activity in order to achieve a common economic purpose. Its participants may be both natural and legal persons.

Such a partnership may be established either for a specific economic purpose (for example, participation in a public procurement procedure) or for a fixed or indefinite term.

Legal Status of the Civil-Law Partnership

The civil-law partnership does not have the status of a legal person. This means that it does not possess separate legal personality and is also referred to as an unincorporated partnership.

Although the partnership has its own BULSTAT number, the property acquired through it does not become its property, nor are the obligations assumed through it regarded as its own. Instead, the rights and obligations arise for the individual partners.

Contracts and Legal Relations

In a civil-law partnership, transactions with third parties are concluded by the partners, and not by the partnership as a separate entity.

All rights and obligations arising as a result of these transactions pertain to the individual partners, and not to the partnership itself.

If claims, seizures, or other demands arise, they must be directed against the partners, and not against the partnership.

Accounting and Taxation

For accounting and tax purposes, the civil-law partnership is treated as a legal person. This means that it must keep separate accounts. In cases where it is obliged to do so, the partnership must publish annual financial statements. If it does not carry on any activity, a declaration under Article 38(9)(2) of the Accountancy Act is required.

Establishment of a Civil-Law Partnership

The civil-law partnership comes into being through a contract between the partners, which in practice is often referred to as a joint-activity agreement.

Form and Content of the Contract

The contract for the establishment of a civil-law partnership must, as a mandatory requirement, be concluded in writing. It should include provisions concerning the partners' shareholdings, their rights and obligations, the type of property to be provided for carrying on the activity, the rules of management, the manner of distribution of profits and losses, and the conditions for dissolution of the partnership.

Types of Contributions to the Civil-Law Partnership

The partners may contribute funds, real estate, goods, and other assets, or participate through their personal labour and know-how.

Funds, as well as fungible items or those that are consumed in use, become the common property of the partners. Real estate and vehicles remain the property of the partner who provides them, while the other partners may only use them. All assets acquired as a result of the joint activity likewise become the common property of the partners.

Management and Representation

Decisions in a civil-law partnership are taken with the consent of all the partners, unless the contract provides for the possibility of taking decisions by majority. Unlike commercial companies, in a civil-law partnership each partner has the right to one vote, irrespective of his share.

Each partner may manage and represent the partnership, unless the contract provides otherwise. It is possible for a particular partner or a third party to be designated as representative. It is advisable for a notarially certified power of attorney to be issued to that person.

Distribution of the Profits and Losses

As a general rule, profits and losses are distributed in proportion to the partners' shares. A different ratio may be agreed, but there may be no stipulation that entirely excludes certain partners from participation in the profits or losses. Such a clause is void. Nor is it permissible to agree in advance on a guaranteed amount of profit, since such a stipulation is invalid.

Registration in BULSTAT

Once the contract has been signed, the civil-law partnership is deemed established. Within seven days of the signing of the contract, the partnership must be registered in the BULSTAT Register. The registration fee is BGN 10.

Dissolution of a Civil-Law Partnership

A partnership under the ЗЗД may be dissolved in several specific cases. The first of these is upon the achievement of the purpose for which the partnership was established, or if that purpose becomes impossible to achieve.

Dissolution also occurs upon the expiry of the term for which the partnership was established, if such a term was agreed in advance in the contract.

The partnership may also be dissolved upon the death or the placing under judicial interdiction of one of the partners. However, the constitutive contract may expressly provide that, in such a case, the partnership shall not be dissolved, but that the heirs of the deceased partner shall receive the share due to them. It may also be agreed that the heirs may enter the partnership as partners, instead of being paid the value of the share of their predecessor.

Dissolution may also occur on the initiative of one of the partners, who gives notice of withdrawal. This is possible only if the partnership was established for an indefinite term, unless the contract stipulates that, in such a case, the remaining partners shall continue the existence of the partnership without the withdrawing partner. The giving of notice must be done in good faith and at an appropriate time, so as not to harm the interests of the remaining partners.

Another case in which a civil-law partnership may be dissolved is by a court decision. This applies where the partnership was established for a fixed term, but there are legitimate grounds for its dissolution which render its continued existence impossible or extremely difficult.

After the dissolution of the partnership, each partner has the right to receive his share of the common property. This may, however, take place only upon withdrawal from the partnership or upon its complete dissolution.

After the final dissolution of the partnership, it is necessary for the common property to be distributed among the partners. This may be done by concluding a voluntary partition agreement or by selling the property and distributing the corresponding sum of money among the partners. If, however, no agreement is reached between the partners regarding the partition of the property, it must be divided by way of judicial partition.

If you need legal advice or assistance in connection with the conclusion and termination of a civil-law partnership contract under the ЗЗД, please contact us on 0887550706 or by e-mail: [email protected]