News

When a partner withdraws from a partnership, it triggers the need for mutual settlement with the company, which often becomes a source of disputes, particularly since emotions can run high.

The wording of Article 65 of the Commercial Companies Code is ambiguous, and its interpretation has been the subject of debate both in legal doctrine and case law, from legal and economic perspectives.

This article discusses:

• the key concepts used in Article 65 KSH;
• the scope of the provision (i.e., which partners are entitled to settlement under this mechanism);
• whether contractual modifications of settlements between partners are permissible.

Article 65 KSH specifies, in particular, how to calculate the amount payable to a partner, their heirs, or creditors in the event of a partner’s withdrawal from a general partnership or their death, assuming the company continues its operations. It applies both to partners’ capital contributions and to their share in profits or losses. It also regulates the return of assets provided to the company by the partner, the obligation to cover any shortfall, and rules regarding a partner’s share in profits and losses for unfinished matters. This provision forms the basis of financial relations in general partnerships and, by extension, applies in other forms of personal companies under commercial law.

1.Are all withdrawing partners entitled to a settlement under Article 65 KSH?

The obligation to pay applies only to withdrawing partners who hold capital shares (i.e., those who contributed capital to the partnership). Partners who did not make a capital contribution—for example, those who provided services, labor, or other non-capital contributions—are not entitled to a settlement under this provision.

Partners without capital shares who participated in the company’s profits during their membership are entitled, upon withdrawal, to participate in profits from unfinished matters (though they also bear any associated losses). However, they generally are not required to cover any shortfall mentioned in §4 of the provision:

„If the capital share of a withdrawing partner or a partner’s heir shows a negative value in the settlement, they are obliged to cover the missing value owed to the company.”

2. Are contractual provisions contrary to Article 65 KSH “valid”? (ius dispositivi or ius cogens?)

Majority view – ius dispositivi:

It is currently widely accepted that Article 65 KSH contains dispositive norms. This means that partners can agree otherwise on the settlement rules in the partnership agreement, for example, by:

• referring to the so-called fair value of the enterprise;
• specifying a precise amount to be paid;
• establishing alternative rules for preparing the balance sheet as the basis for determining the settlement amount.

Under this approach, the limits of contractual modification of settlements with a withdrawing partner are defined only by the nature of the partnership and good business practices. In simple terms, setting a settlement that is either excessively high or excessively low may constitute an abuse of contractual freedom (Article 353¹ of the Civil Code), and in certain circumstances, such a change may be successfully challenged by a creditor as a transaction prejudicial to their rights (e.g., via a Paulian action).

Minority view – ius cogens:

This does not mean that the dispositive view is universally shared by all representatives of case law or doctrine. For instance, the Supreme Court ruled differently in 2021. The minority view holds that the article contains ius cogens norms—mandatory rules that cannot be altered by contractual provisions.

Is it permissible for partners to agree on an ad hoc settlement?

Regardless of the nature of Article 65 KSH, partners may agree on an ad hoc method of settlement; however, in such cases, it is necessary to meet the requirements for amending the partnership agreement. This does not generally apply to modifications of the method of fulfilling the obligation.

Note: For such arrangements, the timing of the actions taken is extremely important, including the status of the partners withdrawing from the company as of the date the agreement is concluded.

A law firm that understands business – For years, we have assisted entrepreneurs and have extensive experience in corporate disputes, including those arising from settlements between partners. If you have any doubts regarding mutual settlements or the interpretation of contractual clauses, contact us!