1. Skip to Menu
  2. Skip to Content
  3. Skip to Footer>





Introduction to Partnerships

Partners are two or more joint owners of a business. They have the same goals and are equally responsible for the decisions made on behalf of the business. This type of partnership is known as "General Partnership". A general partnership has 2 -20 general partners (limit of 10 applies, if the partnership intends to conduct a banking business).

Partnerships are governed by a partnership contract or partnership agreement. Not all partners need to have equal holding in the partnership. However, in the absence of a written partnership agreement, partners remain equal from a legal point of view. If there is no written agreement, all partners share profits equally, cover losses equally and take equal responsibility for the business's activities and trading.  A written agreement allows partners to change these general rules and record them in the agreement.

Partners are not entitled to a share of the capital, but instead distribute the share of the profit of the partnership as per the partnership agreement. If a partner makes additional advances to the partnership beyond the amount of capital which the partner has agreed to subscribe, the partner will been entitled to a statutory amount of interest for such advances (this is also subject to agreement to the contrary).

Every partner may take part in the management of the partnership business. This rule represents one of the essential characteristics of the partnership relation. However it can be and often is, excluded by an agreement to the contrary.

A partnership can be dissolved by any partner provided it is done in the way required by the partnership agreement. A practising advocate may be needed to create the agreement as there are often certain legal formalities, particularly in relation to the formal notice that is required for wind-up.

There are also "Limited Partnerships". Limited partnership are required to be registered. A limited partnership must be comprised of at least one general partner and one limited partner.

  • A general partner's liability is not limited and is therefore liable for all debts and obligations of the partnership.
  • A limited partner's liability is limited to the agreed amount of capital or property contributed on entry to the partnership, however the limited partner is unable to draw or receive back any of that contribution during the continuance of the partnership, if he does then the limited partner will be liable for the debts and obligations of the partnership to the limit of their drawings.

Back to top


Joint Venture vs. Partnerships

The four main points that differentiate a joint venture from a partnership are:

  • although participants in a joint venture hold their interest in the assets of the venture in common, their liability is individual (as opposed to joint and several liability of a partnership)
  • a manager or operator is often interposed between the participants and the operation in a joint venture. They have no agency authority to bind one another in agreements with third parties, as they would have in a partnership
  • participants to a joint venture can dispose of their interest in it, subject to the terms of their contract. Partners are only able to assign their partnership interest within the scope of the partnership legislation and
  • joint venture's receive their interest in the profits separately and, sometimes, in kind. Partners receive their interest in the net income of the partnership.

Back to top


Limited Partnerships

The main characteristics of limited partnerships are:
Partners are in two categories - 'limited partner' and 'general partner'.
There is no limit to the number of limited partners.
The number of the general partners is restricted to comply Company Law.
General partners have unlimited liability for the debts and obligations of the partnership.
Limited partners must contribute, or undertake to contribute, a certain sum as capital which cannot be withdrawn while the partnership continues. This capital is available for the payment of debts and obligations of the partnership. Limited partners are not otherwise liable for the partnership debts and obligations.
Every limited partnership must be registered as such. Otherwise, the legislative protection afforded to limited partners is lost.
Limited partners may not take part in the management of the partnership business and they do not have any power to bind the firm. They may inspect the books and make certain enquiries as to the state and prospects of the partnership business.

Back to top 


Advantages of Partnerships

  • No formation costs, except partnership agreement costs of solicitor.
  • Partnerships do not need to file accounts or to be audited, but must keep proper books of accounts (Partnership Law)
  • Partners are personally liable for the debts of the partnership.
  • The partnership cannot own property as it is not a legal entity, the legal ownership of the assets lies with the individual partners.
  • Partners cannot be employed by the partnership; instead they share in any profits or losses. Hence if a salary is agreed in principal through a partnership agreement (i.e. for active partners), for taxation, the salary is treated as a distribution.
  • A partnership has a limited life and is must be dissolved if a new partner enters or existing partner leaves the partnership. A new partnership is then formed.
  • Initial capital raising is relied on by partners. The "partnership" cannot borrow money as it is not a separate legal entity.
    Limit of Liability

Partners in a partnership are not protected by limited liability, unless the partnership is a limited partnership and the partner is a limited partner. Each partner is personally liable to outside creditors to the full extent of the partnership's debt. Further, each partner is an agent for the partnership and therefore can bind all the other partners of the partnership.

Incoming partners to an existing partnership are not liable to the creditors of the firm for anything done before becoming a partner.

Exiting partners do not cease to be liable for partnership debts or obligations incurred before retirement, however the exiting partner may become discharged from existing liabilities by agreement between him/herself and the remaining members of the firm.

Back to top


Partners are taxed as individuals based on the percentage split of profits, or losses, per partner as per the partnership agreement. A partnership tax return still needs to be lodged to the Inland Revenue Department.

  • Tax assessments are raised in the name of each partner who declares their share of profit or loss in their individual tax returns.
  • Partnerships must submit accounts and tax returns and show the division of profits to each partner.

Back to top


Relevant Law
The primary legislation which governs partnerships is the Partnerships & Business Name Law (Cap116 (as amended by law 77/77.

Income Tax is administered by the Inland Revenue Department and is imposed under the following laws.

  • Imposition of tax - Income Tax Law of 2002, law 118(1)/2002 as amended.
  • Administration and collection - Collection of Taxes law of 1978, Law 4/78 as amended.

VAT is administered by the Department of Customs and excise. Mrs. Zeta Emilianidou is the current Director of Customs and VAT Commissioner.  VAT is imposed under the following law.

  • VAT Law Ν. 95(I)/2000.

Back to top


Partnership Agreements
Although the partnership agreement is not a statutory requirement you should nonetheless have a partnership agreement in place to safeguard all the partners' interest. Partnership agreements are registered with the Registrar.

The agreement should cover

  • The amount of money each partner brings into the partnership.
  • How the profits will be divided.
  • The different roles and responsibilities of each partner.
  • The requirements to provide financial reports.
  • The rights of partners to draw on bank accounts.
  • How partners can leave the partnership and the consequences of this.
  • What happens when the business is sold.
  • How disputes are handled.
  • The salaries.
  • The rights of departing partners to start a similar business etc.
  • The costs for registration of a business name include

 Back to top