A partner’s voluntary exit from a partnership | In Principle

In the operations of a Polish partnership, the need may arise for a partner to voluntarily exit the partnership. This can be done in several ways, depending on whether there is an agreement between the parties. The regulations provide for the possibility of transferring the totality of the partner’s rights and obligations to another person with the consent of all the partners, or lacking that, the possibility of terminating the partnership agreement. However, the code-based solutions may prove inadequate for various reasons. This raises the question of whether, and to what extent, the parties can regulate these issues outside of the code, based on their own agreement.

Transfer of the totality of the partner’s rights and obligations

One method for a partner to voluntarily exit a partnership is to transfer all of his rights and obligations under the partnership to another person. The Commercial Companies Code allows this, so long as:

• The partnership agreement provides for this possibility, and
• The other partners consent to the change in writing.

If the partnership agreement does not contain a provision allowing for the possibility of transferring the totality of a partner’s rights and obligations to another person, then, according to the commentators, in that situation the totality of the partner’s rights and obligations are untransferable. The consequence of such a disposition by the partner without authorisation in the partnership agreement would be the invalidity of the disposition, as an act contrary to statute.

However, the partners may add the relevant provision to the partnership agreement at any time, and the amendment will be effective from the time when the partners adopt the relevant resolution. Thus, immediately after the partners resolve to amend the partnership agreement to introduce the possibility of transferring the totality of rights and obligations in the partnership, and express their consent to such transfer (subject to any additional requirements in the partnership agreement), the partner transferring his rights and obligations and the person to whom the transfer is made can sign the relevant documentation.

The second condition, i.e. the partners’ written consent to the change, may be modified by the partnership agreement, for example by totally eliminating the duty to obtain the consent of the other partners, or conditioning the transfer of the totality of a partner’s rights and obligations on obtaining the consent of only selected partners.

If the partnership agreement has not eliminated the requirement to obtain the consent of the partners, such consent generally must be given prior to the transfer of the totality of the partner’s rights and obligations. According to most commentators, the lack of such consent will result in the sanction of “suspended invalidity.” This can be cured retrospectively by subsequent ratification, making the disposition effective retroactively from the time it was originally made.

It should also be mentioned that in the event of the transfer of the totality of a partner’s rights and obligations to another person, the exiting partner and the joining partner will be jointly and severally liable for:

• Obligations of the exiting partner connected with his participation in the partnership (e.g. an obligation to make a contribution to the partnership), and
• The obligations of the partnership itself to its creditors.

This joint and several liability is a rule of mandatory applicability, and therefore application of this rule cannot be excluded in the partnership agreement or other document with effect against the partnership or its creditors. It is permissible, however, to reach a separate agreement (e.g. in the contract transferring the totality of rights and obligations) in which the exiting partner and the joining partner address the issue of liability for the aforementioned obligations differently between themselves. Such an agreement will be effective only between the signatories, and will not eliminate their statutory joint and several liability to the partnership or its creditors.

It is pointed out in the legal literature that joint and several liability to the partnership does not apply to obligations arising out of relationships not connected with participation in the partnership, for example the partner’s delivery of goods or services to the partnership when the partner is acting as a counterparty to the partnership, i.e. acting as a third party. The liability to the partnership also does not apply to obligations strictly connected to the exiting partner, e.g. the exiting partner’s income tax obligations.

However, this liability does cover obligations of the exiting partner:

• To the partnership (e.g. to make a contribution to the partnership)
• To the remaining partners in connection with their participation in the partnership
• Assumed from a predecessor who previously transferred to the partner the totality of the previous partner’s rights and obligations.

Some commentators (e.g. Art. 10 in Opolski’s Commentary on the Commercial Companies Code, 2024) add that the exiting partner is not liable for obligations that became due and payable after the transfer of the totality of rights and obligations to the joining partner. Under that view, only the joining partner is liable for those obligations, under the theory that because they were not due and payable at the time of transfer of the totality of rights and obligations, the exiting partner was not obliged to perform those obligations.

With respect to the partners’ liability to the partnership’s creditors, some commentators maintain that in this case as well, the exiting partner is liable only for the partnership’s obligations which became due and payable before the partner’s exit. Under this view, if for example the partnership entered into a tenancy or lease agreement before the partner transferred the totality of his rights and obligations to another person, the exiting partner will be liable for the partnership’s obligation to pay rent only for period preceding his withdrawal from the partnership.

Other commentators (e.g. Art. 10 in Romanowski’s Commentary on the Commercial Companies Code, 2023) assert that the exiting partner remains liable for obligations existing at the time of the transfer of the totality of his rights and obligations, even if the obligations were not yet due and payable at that time. However, the exiting partner will not be liable for future obligations, even if they arise out of a legal relationship that existed at the time he transferred his rights and obligations in the partnership.

Termination of the partnership agreement

A partner may terminate the partnership agreement if:

• The partnership was formed for an indefinite period
• The termination notice period is observed, and
• The exiting partner submits a written declaration of termination of the partnership agreement to the other partners or a partner authorised to represent the partnership.

Under the dominant view in the legal literature, the partnership agreement cannot exclude a partner’s right to terminate the partnership agreement, because a partner cannot be a “prisoner” of his investment in the partnership, but must be able to withdraw from the partnership if he believes withdrawal is warranted. It is also regarded as impermissible to include provisions in the partnership agreement limiting the right to terminate it in subjective terms (depriving certain partners of this right), in time, or in objective terms (e.g. requiring just cause for termination).

With respect to the possibility of a partner’s termination of a partnership agreement concluded for a definite period, it is indicated in the legal literature that:

• Only a creditor of the partner may, exceptionally, terminate a partnership agreement concluded for a definite period, and
• Apart from the exceptions provided for in the regulations, a partnership agreement concluded for a definite period cannot be terminated by notice.

Consequently, it is impermissible for a partner to submit notice of termination of a partnership agreement concluded for a definite period. However, it is also recognised that a partner may terminate a partnership agreement concluded for a definite period if this possibility (and the grounds for exercising it) is expressly provided for in the partnership agreement.

Under the regulations, termination upon notice may be made no later than 6 months before the end of the financial year, but the Commercial Companies Code expressly provides for the possibility of shortening this period in the partnership agreement. It is a matter of dispute in the legal literature whether this period can be prolonged. Supporters of this option point out that in major investments (e.g. real estate development projects), the partnership may have difficulty in paying out to the partner the value of his capital share due to the short time frame (6 months or less), and thus the partners may be interested in prolonging this period. Others argue that this would restrict a partner’s ability to terminate the partnership agreement, and thus should not be allowed.

Here we should mention the judgment of 29 April 2009 (case no. CSK 614/08), in which the Supreme Court of Poland held that a conditional notice of termination of a partnership agreement is impermissible. Nonetheless, failure to submit a notice of termination in writing does not render the notice void. Rather, this form was provided for evidentiary reasons; that is, in the event of a dispute, apart from exceptions provided in the act, testimony from witnesses or the parties will not be admissible to show that notice of termination was submitted.

If a partner does give notice of termination of the partnership agreement, under the Commercial Companies Code the partnership will continue between the remaining partners if the partnership agreement so provides or the other partners resolve accordingly. However, if such agreement is not reached between the remaining partners at the latest by the end of the termination notice period, the exiting partner can demand the liquidation of the partnership. The partnership must pay to the exiting partner the value of his capital share in the partnership, determined on the basis of a separate balance sheet reflecting the market value of the partnership’s assets on the last day of the financial year in which the termination notice period ended. The capital share should be paid out in cash.

It is recognised in the legal literature that the foregoing rules for a partner’s termination of the partnership agreement of a registered partnership (spółka jawna) apply either directly or as relevant, with slight adjustments, to a partner’s termination of the partnership agreement of a professional partnership (spółka partnerska), a limited partnership (spółka komandytowa) or a joint-stock limited partnership (spółka komandytowo-akcyjna).

A partner’s departure by agreement with the other partners

A partner may also elect to exit the partnership based on an agreement with the other partners, without submitting a notice of termination of the partnership agreement or transferring the totality of the partner’s rights and obligations to another person. This possibility should be allowed under the principle of freedom of contract, provided however that the boundaries in this respect are set by mandatorily applicable regulations.

This approach is followed in practice, but the position of the courts on the permissibility of a partner exiting the partnership by agreement between the partners is not uniform, given that this is not a code-based solution.

The courts also indicate that the membership of a registered partnership cannot be changed (whether by the exit of a partner or joining by a new partner) without amending the partnership agreement, at least with respect to specifying the contributions made by each partner and their value—because this information is a mandatory element of the partnership agreement of a registered partnership.

Moreover, the permissibility of a partner exiting a partnership pursuant to an agreement with the other partners has been debatable in the case law. For example, in the order of 3 June 2016 (case no. XIII Ga 1120/15), the Łódź Regional Court found that the manner in which a partner exits a registered partnership is regulated exhaustively in the Commercial Companies Code, and thus there is no basis for creating other, non-code-based factual scenarios in which a partner could withdraw from a registered partnership. The court thus held that a change in the membership of a partnership is possible only in situations provided for in the Commercial Companies Code, and the members of a registered partnership cannot be changed by any other path, specifically pursuant to an agreement among all of the parties to the partnership agreement and consent to a partner’s immediate withdrawal from the partnership. In the court’s view, the principle of freedom of contract (Civil Code Art. 353¹) cannot be applied to establish the permissibility of a partner’s exit from a registered partnership by agreement among the partners, because all of the instances for a partner’s withdrawal from a partnership are expressly set forth in the Commercial Companies Code.

The Łódź Regional Court took a similar position in the order of 17 December 2019 (case no. XIII Ga 840/19), reasoning that a partner’s withdrawal from a registered partnership (or limited partnership) with immediate effect directly impacts the situation of the partnership’s creditors, because the possibility of satisfying the creditors is reduced overnight once the accounts are settled with the departing partner. Money equal to the departing partner’s capital share passes from the assets of the partnership to the assets of the ex-partner. While it is true that the ex-partner remains jointly and severally liable with the partnership for the partnership’s obligations arising before the partner left, this is secondary liability and comes into play only after it is shown that execution against the partnership itself is fruitless (Commercial Companies Code Art. 31). The secondary nature of the partner’s liability thus postpones the possibility of the creditor obtaining satisfaction out of the partner’s assets, which will often result in the creditor obtaining no satisfaction at all. Moreover, in that case the creditor’s situation is altered from one day to the next, if the partner exits under an agreement with the other partners with immediate effect.

Yet the same court took the opposite position in the order of 16 January 2020 (case no. XIII Ga 658/19), sharing the view presented in the legal literature that the possibility for a partner to contractually terminate his participation in the partnership with the consent of the other partners, although not expressly set forth in the Commercial Companies Code, is permissible in line with the principle of freedom of contract (Civil Code Art. 353¹ in connection with Commercial Companies Code Art. 2). In this case, the court stated in its opinion that the departure of a limited partner from a limited partnership with the consent of all the partners, accompanied by an amendment to the partnership agreement, is permissible under Art. 9 of the Commercial Companies Code, and in this respect the parties can opt out of the rules in the code. The court also pointed out that if the agreement is concluded by all of the members of the partnership, it cannot be said that it infringes anyone’s interests. The unanimity of all the partners on the departure of one partner with immediate effect thus cannot violate the interests of the remaining partners, or of the partnership. In the court’s view, there was also no basis for finding that the partner’s withdrawal from the limited partnership by agreement of the parties, without observing the termination notice period, infringes the interests of the partnership’s creditors. The rule in partnerships is that the partners bear unlimited liability for the partnership’s obligations. In the legal literature there is no doubt that a partner exiting a partnership continues to be liable for the partnership’s obligations arising prior to his withdrawal from the partnership. The partner’s liability for these obligations does not end as a result of loss of the status of a partner.

Our experience shows that the courts have recently registered changes in the composition of a partnership based on an agreement among the partners, as long as the agreement is properly constructed and does not raise any substantive doubts.

An agreement among the partners allows the interested parties to frame the partner’s exit more flexibly, by tailoring the solutions to suit the specific needs, such as the situation within the partnership. Such an agreement may address a range of issues, in particular the timing of the partner’s departure and the rules for settling accounts with the exiting partner, so long as they do not conflict with the partnership agreement. For example, the parties may agree that the exiting partner will receive a certain compensation for his share without the need to prepare a separate balance sheet setting out the market value of the partnership’s assets. However, it is essential that such agreement be reached with the involvement of all of the partners, to avoid injuring any other partners remaining in the partnership.

Summary

The practice shows that the two mechanisms set forth in Poland’s Commercial Companies Code for a partner’s exit from a partnership—transfer of the totality of the partner’s rights and obligations to another person, or giving notice of termination of the partnership agreement—are not always the optimal solutions under the specific circumstances. Rather, the partners may reach an agreement establishing the rules for the partner’s exit from the partnership, so long as the agreement does not infringe the regulations, the partnership agreement, or the rights of third parties, particularly the partnership’s creditors. With this solution, the partners can more flexibly arrange for the partner’s exit from the partnership, tailored to the needs of the specific case.

Dr Kinga Ziemnicka-Klebba, attorney-at-law, Wiktor Zborowski, adwokat, M&A and Corporate practice, Wardyński & Partners