The partnership agreed upon in the partnership agreement was not formed, but the court found that the partnership had been established

Partnership Guide | Author: Li Li

This is the 915th text of Li Li's blog and partnership guide public account

The partnership agreed to be formed was not formed, but the court found that the partnership had been formed

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These two words should be distinguished: partnership, partnership

Many people now think of partnerships, and their minds only think of partnerships, which is a misunderstanding.

Partnership, you may or may not establish a partnership.

Partnerships, in essence, are agreements.

Because of this, the partnership does not have an independent legal personality. Article 102 of the Civil Code of the People's Republic of China provides:

Unincorporated organizations are organizations that do not have legal personality, but are able to engage in civil activities in their own name in accordance with the law.

Unincorporated organizations include sole proprietorships, partnerships, professional service organizations without legal personality, etc.

Therefore, to see whether a partnership is established or not, it is to see whether the partnership agreement is established and valid, and it is not based on the establishment of the partnership as the standard.

In fact, before the promulgation of the Partnership Enterprise Law of the People's Republic of China on February 23, 1997, there were a large number of partnerships in China's law and reality. Partnerships, which have existed since ancient times, are not new. To say fresh, that is "partnership" is relatively fresh. Before 1997, there was no such type of enterprise, when individual partnerships could have a trade name, but they could not be directly registered as a business.

In the Civil Code of the People's Republic of China, which came into effect on January 1 this year, some typical contracts have been added to the contract section, including "partnership contracts". The legal definition of a "partnership contract" is:

Article 967 A partnership contract is an agreement concluded by two or more partners to share benefits and share risks for the purpose of common business.

In the legislation of the Civil Code on "partnership contracts", compared with previous legislation, there are three major changes:

For the first time, "for the common cause purpose" was emphasized. This is something that has not been explicitly stated in previous legislation. Clarifying this is conducive to distinguishing between partnership and cooperation.

In the definition of a partnership contract, there is no emphasis on "co-financing". In the original legislation, especially in the General Principles of Civil Law and its judicial interpretations, the description and definition of the partners are described as "providing funds" or "contributing capital". In the future, the nature of a partnership cannot simply be denied on the ground that there is no provision for joint capital contribution in the partnership contract.

In the definition of a partnership contract, there is no longer an emphasis on "partnership operation, joint labor" and other contents that indicate that the partners must actually undertake partnership affairs or labor services.

The case that I want to talk about today is very typical of the essence of "partnership". In this case, the partners explicitly stated in the partnership agreement that they wanted to form a partnership, but later did not form a registered partnership, but relied on a company controlled by one of the partners to carry out the partnership. After trial, the court found that although the partnership agreed in the partnership agreement had not been formed, in fact the partnership of the parties had been established.

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On January 1, 2015, Chen Jia, Li Jia, Li Yi and Kang signed a Four-Person Partnership Business Agreement (hereinafter referred to as the "Partnership Agreement") in the name of the partners.

At that time, the partnership agreement did not know whether it had been checked by professional legal personnel, and there were indeed some problems in the content of the agreement, especially in the expression of the formation of the partnership.

In the first part of the partnership agreement, it reads "This agreement is concluded for the purpose of operating Company A", which is the company in which one of the partners, Chen Jia and Chen Yi, holds shares.

However, at the same time, in the first part of the agreement, it is written that "the parties (including the former shareholders of Company A, Chen Jia and Chen Yi) unanimously agree to form a partnership enterprise according to the following terms".

Is the purpose of the agreement "to operate Company A", or to "form a partnership", or to "form a partnership to operate Company A"? The formulation was not clear, which was one of the reasons for the controversy that followed.

The specific content of this partnership agreement is written according to the framework logic of the partnership, and it is estimated that it is modified according to a partnership agreement of someone else. The content of the agreement includes: the project and scope of the partnership, the duration of the partnership, the capital contribution, the additional capital contribution, the distribution of surplus, the withdrawal of the partnership, the assumption of debts, the transfer of the capital contribution, the operation and management of the partnership affairs, the prohibited acts, the termination and post-termination matters of the partnership, the settlement of disputes, etc. The content is still relatively comprehensive.

Kang Mou (the plaintiff), one of the signatories of the partnership agreement, filed a lawsuit with the court, requesting the court to order the termination of the Four-Person Partnership Agreement and order the defendant Chen Jia and Company A to jointly return the plaintiff's partnership capital contribution of RMB400,000 and pay the corresponding interest loss. In the litigation, the plaintiff changed the first claim to confirm that the plaintiff withdrew from the partnership with the defendants Chen Jia, Li Jia and Li Yi on February 22, 2017.

Kang (the plaintiff) stated to the court that on January 1, 2015, the plaintiff and the defendants Chen Jia, Li Jia and Li Yi jointly signed the Four-Person Partnership Business Agreement, stipulating that the four persons would jointly contribute RMB2,000,000, with a capital contribution ratio of 40%, 20%, 20% and 20% respectively; since January 1, 2015, defendant Chen Jia was responsible for restructuring Defendant A into a partnership, with Chen Jia, the legal representative of the original Company A, as the person in charge of the partnership, and Chen Yi, another shareholder of the original Company A. Exit when restructuring Company A; the restructured enterprise is a partnership formed by the above four persons and operates jointly. After the agreement was signed, the plaintiff remitted RMB400,000 to the account of defendant Company A as agreed, and defendants Li Jia and Li Yi had also fulfilled all their capital contribution obligations, while defendant Chen A did not invest the agreed equity, fixed assets, technical resources and inventory at a discounted price. So far, defendant Chen Jia has not restructured the original Company A, and there has been a situation of misappropriation of a large amount of funds and illegal operation of the Company, resulting in chaos in the accounts of Company A, and its behavior has seriously infringed on the legitimate rights and interests of the plaintiff, and the plaintiff reserves the right to pursue corresponding responsibilities for the defendant Chen Jia. The plaintiff argued that the partnership had a typical personality, and that the partners had lost a minimum basis of trust and could not continue to cooperate, so they requested to withdraw from the partnership, recover the investment funds and the corresponding interest losses, and sued the court to support the plaintiff's litigation claim.

Several defendants jointly argued: First, defendant Chen Jia was not a partner, and his signature on the partnership agreement was done as the legal representative of defendant company A, not on behalf of himself, and the subject of the partnership included the plaintiff, defendant Li Jia, Li Yi, three natural persons, and defendant company A. In addition to Chen Jia and his father Chen Yi, the shareholders of Company A agreed to contribute RMB800,000 in the company's property as a partnership contribution, and the rest belonged to Chen Yi, but it has not yet been fulfilled to Chen Yi. Second, there is no reason for termination of the partnership agreement. Although the registration procedures of the partnership enterprise have not been completed, but the partnership was established on January 1, 2015, and the partnership operation was actually carried out as the main body of Company A, whether the registration is a necessary condition for the agreement to take effect. Moreover, the failure to complete the registration was also caused by the plaintiff's non-cooperation, and the plaintiff had an unshirkable responsibility for causing business chaos. ......

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The parties to the litigation are at issue as to whether the partnership in this case has been established and operated. The plaintiff insisted that the first part of the agreement explicitly stipulated that the partnership should be "formed", but now the partnership was not formed, so the partnership was not established and operated.

The reason why the plaintiff insists on this is directly related to the plaintiff's litigation objectives.

If the partnership is already in operation, then the capital contribution cannot be returned directly, but the partnership property can only be liquidated or settled. If the partnership is not formed, then the direct return of the capital contribution can be requested.

In view of this, the Court of First Instance held that:

The agreement stipulates that the agreement shall enter into force and commence business from the date of signature by the four partners. Therefore, since the date of signing of the agreement by the four partners on January 1, 2015, the partnership has been established, and whether the partnership enterprise is the main body for industrial and commercial registration is not a necessary condition for the establishment of the partnership. Moreover, the facts in the case show that since the date of signing the agreement, all the partners have carried out business activities in the name of Company A, and all the partners, including the plaintiff, have also carried out the corresponding partnership affairs in accordance with the agreement.

The Court of Second Instance held that:

The "Four-Person Partnership Business Agreement" dated January 1, 2015 is the true intention of Kang, Chen Jia, Li Jia and Li Yi, and is legal and valid. The agreement not only clearly stipulates that the four parties jointly operate Company A, but also stipulates important terms such as the duration of the partnership, the proportion of capital contribution, the distribution of surplus, the settlement of withdrawal from the partnership, the partnership affairs, the specific division of labor, and the entry into force of the contract. After the agreement was actually fulfilled, Kang fulfilled the obligation of capital contribution, participated in the partnership affairs, and obtained the division of labor. With regard to the change of shareholding in Company A, the four parties determined the "next week decision" at the shareholders' meeting on July 10, 2015. Subsequently, this matter was not actually implemented. Based on this, Kang argued that the appeal opinion that the partnership had not been established was not established. According to the agreement, the established company A is a partnership enterprise or a platform for partnership operation, but it needs to be registered for corresponding industrial and commercial changes. The partnership agreement has already taken effect and has actually been performed, and whether the industrial and commercial change registration is not a legitimate reason for Kang to withdraw from the partnership.

After the second-instance judgment, Kang submitted an application for retrial to the Shanghai Municipal High People's Court. The Shanghai Municipal Higher People's Court ruled to reject the application for retrial. In its ruling, the Shanghai Municipal Higher People's Court held that:

Upon review, the Court is of the view that the disputed partnership agreement is true and valid and that all parties should abide by it. Judging from the facts ascertained in this case, although Company A did not change its equity and register for industry and commerce in accordance with the agreement, Kang and other partners had invested capital contributions as agreed, all the partners carried out business activities in the name of Company A, and Kang also executed the relevant partnership affairs in accordance with the provisions of the partnership agreement, so the court of first instance found that the partnership of Chen Jia, Kang and other four people had been established and actually operated. According to the forensic accounting appraisal opinion, Company A's owner's equity during the partnership operation period is negative, that is, the partnership operation is in a state of loss, and the partnership agreement stipulates that the settlement of the withdrawal should be based on the property status at the time of withdrawal, so Kang's claim to return all his capital contribution and pay interest lacks factual and legal basis, and this court does not support it. ......

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The final result of the case discussed above is that Kang mou asked for the return of 400,000 yuan of capital contribution, which the court did not support. Although the court found that Kang had the right to withdraw from the partnership, the profits were negative as a result of the judicial audit, so the court could not support Kang's litigation claims.