Business Partnerships
Registered Partnership - Unregistered Partnership
A partnership is a form of association between companies or individuals, who run a joint venture for profit. The Partnerships Ordinance stipulates that any partnership must be registered with the Registrar of Partnerships within 30 days of its establishment. However, In practice many partnerships are not registered. Is their status different from that of the registered partnerships? In this article, we will discuss this issue.
מאת עו״ד ונוטריון יגאל מור
דיוק בייעוץ המשפטי. מצויינות בליווי המשפטי.
What is a partnership?
In Israel, there are several different forms of association, including the partnership. Along with the enjoyment of its profits, unlike a company, the partners are personally and unlimitedly indebted to the partners’ debts, jointly and respectively. That is, each of the partners can be sued for its debts. The exception to the rule, applies in regards to a limited partnership, where one partners responsibility is limited to the level of his investment in the partnership. When deciding to create a partnership, it is important to make a partnership agreement, which is designed to anchor the rights and obligations of each partner, define the working method, profit sharing and so on. It is very important to draft the agreement before starting the business activity, in order to make sure that there is a solid basis for fruitful cooperation and to prevent disputes and frictions between the partners.
“Partnership“- a member of the people who entered into partnerships;
The Partnerships Ordinance [new version], 1975
The Obligation To Register
The Partnerships Ordinance stipulates an obligation to register for a partnership, according to which, within one month of its establishment, the partners must submit an application for registration to the Registrar of Partnerships. Failure to register the partnership can result in a fine for each of the partners. Despite this, there are many partnerships that are not registered, usually due to the desire to save costs and bureaucracy involved and due to the fact that in practice, there is no enforcement of non-registration and therefore the partners are not actually subject to a fine. However, the issue of registration has another aspect that is important to recognize. The Partnerships Ordinance stipulates that a registered partnership constitutes a separate legal entity. Hence, the question arises whether this means that an unregistered partnership is not such?
Status of unregistered partnership
Section 66 of the Partnerships Ordinance provides that a registered partnership has a separate legal personality and therefore can sue and be sued. Due to the language of the law which mentions the word “registered” it can be concluded that in the event that a partnership is not registered, it will not be considered a separate legal entity. However, it also stipulates a contradictory determination that non-registration of a partnership will not constitute a consideration as to whether the partnership exists or not. That is, under this part of the section, it can be concluded that the registration in itself does not determine the legal status of the partnership. If so, the legislature does not in fact provide an answer to this important question and when the law is not clear, it is the courts to interpret it and determine the law in the matter. In this regard the courts have yet to rule on this question, and therefore there is no unequivocal determination as to the status of the unregistered partnership.
Separate legal personality
As stated above, the question of the status of the unregistered partnership as a separate legal entity has not been decided. What is the argument in favor of recognizing it as such? There is an opinion that the registration of the partnership is in fact only declarative, technical in nature and therefore even without the registration, the partnership should have a separate legal entity. According to this argument, what is actually determines the nature of a partnership is the partnership agreement, which anchors its activities and the relationship between the partners and not the question of whether or not it is registered with the Registrar of Partnerships. Does the ambiguity in this question also affect the taxation aspect? The answer is no. According to Israeli law, a partnership is not a separate taxpayer for tax purposes unlike a limited company. Therefore, the income of the partnership is the income of the partners and they will be borne by the tax expenses, each according to his share in the partnership. This is whether it is a registered partnership or an unregistered partnership, in this matter there is no difference between the two.
Management and director legal advice
We invite you for legal advice on matters related to partnership, the establishment of a partnership and other legal matters related to business partnership and its management.
Adv. Mor & Co.’s commercial law department has experience in representing various entrepreneurs, businesses, and corporations from Israel and abroad in a wide variety of legal areas.
