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Ordinary Partnership
According to the Turkish Code of Obligations, an ordinary partnership is based on a contract in which two or more persons agree to combine their labor and assets to achieve a common goal. An ordinary partnership agreement is not subject to a formal written form requirement; it can arise verbally or even implicitly through conduct. However, for evidential purposes, it is highly advisable to draft the partnership agreement in writing and to detail the partners' rights and obligations as well as the operation and management of the partnership.
An ordinary partnership must be established by at least two persons; it cannot be formed by a single person. Legal entities can also form an ordinary partnership.
In order to speak of an ordinary partnership, there must be a specific goal the partners aim to achieve. For example, combining labor and capital to build a bridge or to invest in the development of a motor engine can be the subject of an ordinary partnership. The objective of the partnership must not be contrary to law, morality, public health, or public order. Although ordinary partnerships generally pursue a profit-making purpose, this is not mandatory.
Each partner contributes labor, goods, money, services, etc., towards achieving the common goal. This contribution may be material or intangible. For instance, a respected professor, recognized as an authority in the healthcare sector, may become a partner without providing any financial contribution.
An ordinary partnership resembles a prototype of commercial companies regulated under the commercial codes; however, it does not possess legal personality and is not registered in the trade registry.
Partners are jointly and severally liable towards third parties.
Unless otherwise agreed in the partnership agreement, partners share profits and losses equally.
The rights and obligations of partners in an ordinary partnership are regulated between Articles 620-645 of the Turkish Code of Obligations. Partners have certain rights and responsibilities both within the partnership and in external relations.
Rights of the Partners:
a) Right of Management (TCO Art. 625)
Unless otherwise agreed, partners manage the partnership jointly. Each partner has the right to participate in management. The right of management may be assigned to one or more partners or even to an external manager through the agreement.
b) Right of Supervision (TCO Art. 631)
Partners have the right to request information from the manager(s) and to inspect the books and records of the partnership.
c) Right to Share Profits (TCO Art. 623)
Partners, unless otherwise stated in the agreement, share profits equally and also bear losses equally.
d) Right to Withdraw and Transfer Shares
A partner may leave the partnership under conditions specified in the agreement. To transfer one's share to another person, the consent of the other partners is required, preventing unexpected changes in partnership structure.
Obligations of the Partners:
a) Contribution Obligation (TCO Art. 621)
Partners must provide the agreed contributions (money, goods, labor, etc.) necessary for achieving the partnership’s goal. Otherwise, the non-contributing partner may be held liable for resulting damages.
b) Duty of Loyalty and Care (TCO Art. 628)
Partners must avoid actions that could harm the partnership and must conduct partnership affairs carefully and honestly.
c) Non-Competition Obligation (TCO Art. 626)
As a rule, partners cannot engage in activities that compete with the partnership’s purpose. In practice, given that ordinary partnerships are usually formed for specific, temporary purposes, the boundaries of the non-compete obligation may become blurred, making enforcement more difficult.
d) Duty to Share Losses (TCO Art. 623)
Partners are generally required to share losses. An agreement relieving a partner from liability for losses is valid only for partners who contribute solely with their labor. According to TCO Art. 623/3: "An agreement that a partner will participate only in profits and not in losses is valid only if the partner's contribution consists solely of labor."
e) Joint and Several Liability (TCO Art. 638)
Partners are jointly and severally liable towards third parties for the partnership’s debts. Compared to capital companies, this feature makes ordinary partnerships more advantageous for creditors.
If a partner breaches the partnership agreement, other partners have certain rights against them. Each partner must avoid actions that could harm the partnership and must diligently contribute toward achieving the partnership's objective.
A written notice (warning letter) stating that the partner’s behavior violates the agreement and must be corrected is the first step in potential legal proceedings.
If the breach causes damage to the partnership, the other partners may claim compensation. The burden of proof regarding the existence of damage and the causal link with the breach lies with the party claiming compensation.
If the breaching partner persists in their conduct or makes the partnership relationship unbearable, other partner(s) may apply to court to request the expulsion of the offending partner.
If the breach makes the healthy operation of the partnership impossible, a court may be asked to dissolve the partnership. In this case, liquidation will also be carried out under court supervision.
If a partner violates the non-competition obligation and harms the partnership, an unfair competition lawsuit may be filed under the Turkish Commercial Code to stop harmful activities, claim compensation, and transfer any illicit gains to the partnership.
The ownership status of the assets in an ordinary partnership is quite special under the Turkish Code of Obligations. Since an ordinary partnership lacks legal personality, it cannot own property like commercial companies do.
According to TCO Art. 638, the ownership regime of partnership assets is based on joint ownership (co-ownership in entirety) among partners. In joint ownership, partners collectively own the whole property, and no single partner has an individual share. Disposals of partnership assets require unanimous consent of all partners.
Assets and rights contributed to the partnership become part of the partnership’s assets. However, if ownership transfer has not been formally carried out, legal ownership remains with the contributing partner, and the disposal authority also remains with them.
Upon dissolution of the partnership, the partnership assets are first used to pay off debts. Any surplus is distributed among the partners according to their contributions and the provisions of the partnership agreement (TCO Art. 643 and following).
Causes of Termination of an Ordinary Partnership:
Termination causes and procedures are regulated between Articles 639-645 of the Turkish Code of Obligations.
a) Expiration of the Agreed Term (TCO Art. 639)
If the partnership was established for a specific period, it automatically terminates at the end of that period. Partners may agree to extend or shorten the term.
b) Achievement or Impossibility of the Objective (TCO Art. 639)
If the partnership’s objective is achieved (e.g., a construction project is completed) or becomes impossible (e.g., the land for the project is rezoned and construction is prohibited), the partnership terminates.
c) Death, Presumed Death, or Bankruptcy of a Partner (TCO Art. 639)
In principle, the partnership terminates if a partner dies, disappears, or is declared bankrupt. However, the partners may agree otherwise.
d) Notice of Termination (for Fixed-term or Open-ended Partnerships) (TCO Art. 639)
A partner may terminate the partnership at any time for just cause. Termination without just cause in a fixed-term partnership may result in liability for damages. In open-ended partnerships, a reasonable notice period must be given.
e) Unanimous Decision
Partners may unanimously agree to terminate the partnership at any time.
f) Court Decision (TCO Art. 639)
A partner may apply to the court to terminate the partnership under certain conditions, such as serious breach or if continuation has become intolerable.
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