SIMPLE PARTNERSHIP AS A FORM OF DOING BUSINESS

ABSTRACT

This article discusses the legal aspects of carrying out entrepreneurial activities by cooperation of business entities through the creation of a simple partnership.

АННОТАЦИЯ

В статье рассмотрены правовые и практические аспекты осуществления предпринимательской деятельности посредством кооперации хозяйствующих субъектов путем создания простого товарищества.

Keywords: simple partnership, joint activity without forming a legal entity, consortium.

Ключевые слова: простое товарищество, совместная деятельность без образования юридического лица, консорциум.

In the field of civil law, various forms of cooperation among subjects of civil legal relationships are known to achieve common goals, one of which is a simple partnership (consortium).

According to the provisions of Chapter 55 of the Civil Code of the Russian Federation, a simple partnership is formed by two or more legal entities and/or individual entrepreneurs based on a simple partnership agreement (joint activity agreement), which entails the obligations of the parties to combine contributions and perform joint actions with the aim of obtaining profits or achieving other legal objectives.

It should be noted that a distinctive feature of a consortium is the fact that entering into a joint activity agreement does not create a legal entity.

In practice, conducting business by establishing a partnership appears as follows. For example, there is a certain customer who intends to open a new plant. The construction of such a complex facility involves the following main stages: design, supply of technological equipment, construction and installation works, commissioning, and putting it into operation. For the customer, the most convenient option is to conclude a single turnkey construction contract, which will avoid additional management for coordinating the actions of the design organization, equipment supplier, construction and installation organization, and the person competent in commissioning.

Under these circumstances, the customer cannot enter into a single contract with the equipment manufacturer, who lacks qualified personnel and membership in self-regulatory organizations in the field of design and construction. Entering into a single contract with a construction and installation organization will increase the customer's expenses because the equipment will not be supplied directly from the manufacturer, and a markup will be added to the cost of the goods.

In this case, two legal entities, one specializing in the production, launch, and maintenance of complex technological equipment, and the other in project and survey work and construction and installation works, can create a simple partnership for the joint implementation of the turnkey plant construction project.

Creating a consortium seems to be a convenient option for cooperation in this case because, on the one hand, the organization manufacturing technological equipment ensures the sale of its product and its subsequent maintenance, and, on the other hand, the construction organization carries out project and survey and construction and installation works. Moreover, these performers do not need to establish a new legal entity for a specific individual project.

The essential conditions of a simple partnership agreement include: the subject (joint conduct of a specific type of activity), the purpose of conducting joint activities (achieving specific results, implementing a specific project), the size, and form of contributions to the common cause.

In the example given, the subject of the simple partnership agreement and the purpose of conducting joint activities can be formulated as the union of partners (participants in the agreement) in their contributions and the obligation to carry out joint actions without forming a legal entity to extract profits from the implementation of the turnkey plant construction project.

As contributions to the consortium, participants may provide money, other property, professional and other knowledge, skills and abilities, as well as business reputation and business connections. The value and percentage ratio of the contributions must be assessed in the agreement.

In addition to the essential conditions of the simple partnership agreement, participants should allocate the following responsibilities:

• Opening a bank account for the purpose of crediting the proceeds from joint activities – receiving funds during the project implementation, debiting funds for payment of work, services, and distributing funds among participants.
• Signing agreements and primary documents with the customer on behalf of the partnership for the project (separately for design, equipment supply, construction and installation works, commissioning).
• Settling accounts with a participant of the partnership to reimburse the latter's expenses related to project implementation and for the distribution of profits from the partnership's activities.
• Maintaining accounting records related to the main contract on a separate balance sheet.
• Keeping records of income and expenses for profit taxation purposes.
• Determining, at the end of each reporting (tax) period, the profit of each participant proportionally to the share of the respective participant in the partnership's profit obtained during the reporting (tax) period from the activities of all participants within the partnership.
• Calculating and paying taxes within the partnership's activities within the deadlines stipulated by tax legislation.
• Documenting and storing documentation related to joint activities.

Furthermore, the joint activity agreement should reflect the following conditions:

• The disposal of funds deposited into the partnership's bank account during project implementation is carried out by an authorized partner exclusively for purposes that ensure the project's realization and the simple partnership agreement.
• Obligations of partnership participants in the framework of project implementation (distribution of responsibilities).
• The procedure, deadlines, form, and proportions of profit (loss) distribution from the partnership's activities among participants.
• The procedure for reimbursing the expenses of partnership participants incurred during project implementation.
• Participants' responsibility to each other for the improper performance of their obligations under the agreement.
• Other general conditions (dispute resolution procedures, agreement duration, etc.).

Undoubtedly, conductingjointactivities involving two or more economic entities requires a high degree of responsibility and integrity from each participant in such cooperation, as partners are jointly and severally liable for common obligations.

As is well known, joint and several liability grants the creditor the right to demand performance from all debtors collectively, as well as from any one of them individually, either in full or in part of the debt. The creditor also has the right to claim any shortfall from one of the joint and several debtors from the remaining joint and several debtors.

Thus, in the example discussed in this article, the joint and several liability of consortium participants represents an additional risk for cooperating parties and an additional advantage for the customer in the event of entering into a single contract for the implementation of a turnkey project with the partnership.

In conclusion, it should be noted that despite the fact that the form of conducting business through a simple partnership is not the most popular, at the same time, with the due diligence of all participants in civil turnover, confirmed, including by a well-deserved business reputation, and positive experience of cooperation between economic entities in the course of entrepreneurial activities, the creation of a partnership for the purpose of realizing specific common business goals is an effective and convenient way of interaction and cooperation.

References:

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