Ercüment Erdem Att. Tuna Colgar

The Term Business Partnership And The Legal Status Of Business Partnerships

June 2013

Introduction

As a result of developing commercial activities and large-scale investments, especially concluded in the fields of construction, energy and mining, companies are seeking to participate in these investments by uniting their powers and expertise to take advantage of financial opportunities together. This tendency among companies has caused the term “Business Partnership” to appear more frequently in commercial life. In this regard, it is necessary to determine the legal status of the term Business Partnership and to study the legal structure of the Business Partnership to be established. This article will assess the legal nature of Business Partnerships between parties and in relation to third persons.

The Definition of Business Partnership and its Legal Status

A “Business partnership” is defined as the relationship established by the gathering of more than one economically and legally independent real or legal persons within the context of an agreement, for the purpose of performing the contractual activates that has been committed to the project owner, mostly in the construction business, provided that each partner of the Business Partnership is separately liable to the project owner, for the fulfillment of the work in full.

In line with this definition, in practice, Business Partnerships are formed by the gathering of two or more companies that are legally and financially independent from each other, within the context of an agreement concluded between themselves, for the purpose of conducting certain business together without distinguishing the parts related to their expertise areas and thus jointly and severally sharing the risk of that business.

The characteristic of the business partnership and the aspect distinguishing it from a consortium is that in business partnerships, the partners assume liability for the whole business against the project owner rather than being liable for certain parts of the business. Even if the business as a whole does not fall into the area of activity or expertise of a partner and the work is shared in interior-relation, the partners shall be severally liable to the project owner for the entirety of the work.

The conclusion of a written contract between the parties is important in order for the Business Partnership to be established to rely upon strong basis. A Business Partnership agreement may explicitly provide that each partner shall be jointly and severally liable for the performance of the commitments and businesses within the scope of the contract concluded with the project owner and of the obligations arising from that Contract but headed towards the partnership.

A Business Partnership is a special type of Joint Venture, which is solely depending on an agreement. In other words, a Joint Venture is a broader term which includes Business Partnerships.

The doctrine defines a Joint Venture as follows: “An establishment of a commercial partnership or a contractual agreement joining together two or more real or legal parties which are independent from each other legally and economically, for the purpose of executing a particular business or a continuous activity in order to generate income. All parties agree to be severally liable for the risks of such activity.”

Within the scope of the above definition, Joint Venture agreements are separated into two as “Joint Venture Solely Depending on an Agreement” and “Joint Venture Through Capital Participation”. Under the Joint Venture Solely Depending on the Agreement, the relationship is merely a law of obligations agreement concluded between the parties; fulfillment of the participation stipulations by the partners is sufficient for achieving mutual purpose and the establishment of a commercial company with legal personality is not required. In a Joint Venture model through Capital Participation, the parties joining the venture by concluding a Joint Venture agreement first and establishing a partnership relation which qualifies as an ordinary partnership; subsequently establish a commercial company with legal personality or join an already-existing partnership as such.

Definition of Business Partnership under the Relevant Legislation

The definition of Business Partnership is set forth under Article 4 of the Law dated 04.01.2002 and numbered 4734 on Public Tender (“PTL”), with the amended heading “Definitions” under Article 2 of the Law numbered 5812. The definition pursuant to the said provision is as follows: “the real or legal persons active in the said tender area, who may be eager and who bought the tender or prequalification documents or the joint ventures formed by these”.

Article 10 of the Law dated 30.07.2003 and numbered 4964, amended by Article 14 of the PTL titled “Joint Ventures”, includes both business partnerships considered as Joint Venture and consortiums in technical sense. In this provision “joint venture” has been used as a covering concept which involves both business partnership and the consortium. The Article stipulates as follows:

“joint ventures may be established by more than one real or legal person either in the form of a business partnership or as a consortium. Members of a business partnership carry out the whole business jointly having equal rights and responsibilities while members of consortium carry out the business with separate rights and responsibilities according to their expertise field for the purpose of performing relevant parts of the business. Business partnerships may participate in any kind of tender. However, in cases where different expertise are needed, the contracting authorities shall indicate in tender documents whether the consortium are allowed or not to submit tenders. At the tender stage, the joint venture shall be asked to submit an agreement indicating the mutual agreement of the parties to form a business partnership or a consortium. The pilot partner and the coordinator partner shall be specified in business partnership agreements and in consortium agreements respectively. In case the contract is awarded to the business partnership or consortium, a notary-certified business partnership or consortium agreement shall be submitted prior to signing the contract. In both business partnership agreement and contract, it has to be stated that the real or legal persons establishing the business partnership are jointly and severally liable in the fulfillment of the commitment, whereas in consortium agreement and contract it has to be clarified which part of the business has been committed by real or legal persons establishing the consortium and they would ensure the coordination among them through coordinator partner in fulfilling the commitment.”

In accordance with the explicit expression of the provision, the partners of a Business Partnership shall be severally liable for the whole business, rather than being liable for a particular part of the committed business. However, the liability of the parties of a consortium agreement shall be limited since their commitment covers only their area of expertise.

The term Business Partnership is defined under the corporate tax legislation as well. Subparagraph (d) of Article 1 and paragraph 7 of Article 2 of the Corporate Tax Law dated 13.06.2006 and numbered 5520, and Article 2.5 of the General Communique on Corporate Tax Serial No. 1(“GCCT”) regarding the implementation of this Law comprise legal provisions on “Business Partnerships” which are accepted as a special type of Joint Venture. In accordance with this, Business Partnerships within the concept of corporate tax legislation are understood as “the partnerships that are established by the corporations, cooperatives, public economic enterprises and enterprises belonging to associations and foundations between each other or among the private partnerships or real persons for the common accomplishment of a specific project and for sharing the income.”

The principle of partners of the business partnership being liable to the project owner for the whole business is explicitly stipulated under Article 2.5.2 of GCCT. This provision is important for the determination of the nature of the business partnership and the provision demonstrates that it is not a consortium in the real and technical sense, but a Joint Venture solely depending on an agreement.

Whether the Business Partnership- Joint Venture Formed by Solely Depending on an Agreement – Has Legal Personality or Not

Since the Joint Venture formed by solely depending on an agreement has a simple structure, there is no question as to its legal status. Such agreements are ordinary partnership agreements pursuant to the Turkish Code of Obligations Article 620, which constitutes an ordinary partnership without legal personality.

Business Partnership carries all the elements of an ordinary partnership. There is no limitation as to the parties of the agreement in a Business Partnership. The presence of at least two real or legal persons is sufficient. The validity of the agreement is in principle, not subject to a form. There isn’t a different provision other than the provision for the ordinary partnership regarding the partners’ participation shares. The collective purpose and mutual endeavor for this purpose are present as well. In this regard, it is indisputable that the Joint Venture solely depending on an agreement constitutes an ordinary partnership relationship which does not have a legal personality; there is overall uniformity in the doctrine and in judicial decisions with respect to this issue.

Conclusion

In light of the explanations made above, since participants in a Business Partnership do not undertake specific parts of the business, do not limit their liabilities in this context and are severally liable for the whole work, these Business Partnerships do not qualify as consortiums.

Since participants in a Business Partnership can build up a partnership by solely concluding agreements, instead of creating a legal person or joining an already established company, these Business Partnerships qualify as a “Joint Venture solely based on the conclusion of an agreement”.

Lastly, since Business Partnerships that qualify as a “Joint Venture solely based upon the conclusion of an agreement” are considered ordinary partnerships according to the doctrine and judiciary judgments, it shall not have a legal personality.

 


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Barlas, p. 262, 263.

Official Gazette. 21.06.2006, p. 26205.

Official Gazette. 03.04.2007, p. 26482.

Barlas, p. 279.

Barlas, p. 280, 281.

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