Apr 8, 2025
Organization of Partnerships – Function and Competence of Corporate Bodies
Partnerships are characterized by the participants having unlimited and joint liability for the company's obligations. This form of responsibility also affects the organization of such companies, which is less formalized than in limited companies. The Companies Act imposes fewer demands on the formal organizational structure, but at the same time provides clear frameworks for how decision-making authority is distributed between the company's bodies. This article provides an overview of the organization of partnerships, with a particular focus on the company meeting, the role of individual participants, the board, and the daily manager.
Company meeting as the highest body
Company meeting's mandatory status
The company meeting is the only mandatory body in a partnership, cf. the Companies Act § 2-8 first paragraph. Unlike limited companies, the Companies Act does not explicitly require that decisions be made in formal meetings. The decisive factor is that:
Participants take part in the decision-making process
They agree on an informal handling method
The decisions meet certain requirements for notoriety
If the employees have representation rights according to the Companies Act § 2-9, however, the formal requirements must generally be stricter. Informal treatment can still happen if the matter is urgent and there is no time to hold a meeting with reasonable notice.
Composition of the company meeting
The general rule, which can be waived by agreement, is that all participants have the right to attend the company meeting (sel § 2-8 second paragraph). Waiving this right is generally not advisable, as any participant can be held liable for the entire company debt in the event of insolvency, regardless of the size of their contribution.
Participants are under no obligation to attend the company meeting, but regular absence can under the circumstances constitute a breach of company obligations, which in the extreme consequence can lead to the exclusion of the participant (sel § 2-36).
For companies with a board or daily manager, they have a duty to be present at the company meeting when it is not obviously unnecessary or there is valid absence (sel § 2-8 third paragraph). In companies with employee representation, the employee representatives have both the right and obligation to attend the company meeting. Note that it is only the company participants who have voting rights, not the employee representatives, reflecting the principle that responsibility and authority go hand in hand.
Competence of the company meeting
The company meeting is the company's highest authority (sel § 2-8 first paragraph). This means that the company meeting can:
Make decisions in all matters concerning the company
Instruct other company bodies (board or daily manager)
Reverse decisions of other bodies
Even if the company has a board and/or daily manager, the company meeting retains its position as the highest authority. In practice, this means that it will always be the company meeting's opinion that is the last and decisive.
Some matters always belong under the company meeting, even if the company has other bodies. These are matters where the Companies Act explicitly places decision-making authority in the company meeting.
Case handling in the company meeting
Although the Companies Act does not explicitly require that at least one meeting a year be held, this indirectly follows from the obligation to submit annual accounts (sel § 2-24). The meeting form is required if the employees have representation rights and will usually otherwise be the main rule.
Summoning rules:
The company meeting itself, the individual participant, board member or daily manager can summon a company meeting
The employee representatives can collectively summon a company meeting
The summon should occur in an appropriate manner and with necessary notice
The issues to be addressed must be specified in the summon
Voting rights and majority requirements:
Only the participants have voting rights (can be waived by agreement)
The main rule is unanimity: everyone with voting rights must vote for the proposal for it to be considered adopted
This practically gives each participant veto power against changes
The unanimity requirement can be waived in the company agreement
Protocol recording:
It is generally required to record a protocol over the negotiations in the company meeting
The protocol should at least identify the meeting with time, place and participants
It should refer to the issues addressed and decisions made
The protocol obligation is unconditional in company meetings with members elected by the employees
The role and authority of individual participants
In informal partnerships with few participants and with the company meeting as the only body, the individual participant can have a central role in the company's management.
When the company does not have a board or daily manager, the individual participant can:
Carry out actions that are natural and reasonable parts of the ongoing operations
Act on behalf of the company as long as no other participant has opposed it
In companies with a board or daily manager, the opposite rule applies - the individual participant is generally precluded from acting on behalf of the company. This is logical because it would interfere with the management assigned to the board or daily manager.
There is, however, one important exception to this main rule: A participant can always perform actions necessary to avert loss or damage for the company.
Board in partnerships
Board's optional status
Unlike limited companies, the board is never a mandatory body in partnerships. The Companies Act § 2-13 leaves it up to the participants to decide whether the company should have a board. This means that employees in a company with representation rights cannot demand this to happen in the board - they must be content with representation in the company meeting.
If the company has a board, however, the employees have the right to representation there as well (in addition to in the company meeting).
A board is particularly practical in larger partnerships with many owners and a spread of ownership interests. In smaller companies, it is often unnecessary, as the owners can control the company directly through the company meeting with minimal formality.
Composition of the board
The Companies Act does not impose minimum requirements for the number of board members - one-man boards are permitted in all partnerships. However, this is not particularly practical as a partnership by definition has at least two participants, and these usually want to take part in the management of the company.
The board members are elected by the company meeting, and only adult, physical persons can be board members. A limited company or another partnership cannot be a board member in a partnership due to the need to associate duties and responsibility with physical persons.
Authority and tasks of the board
The board's objective authority in partnerships is in principle the same as in limited companies - the board oversees the general management of the company (sel § 2-13 first paragraph).
The relationship between the board's and company meeting's competence is not explicitly regulated but must be determined concretely. Rules on the daily manager's competence indicate, however, that the board cannot make decisions in all matters which according to the company's circumstances are of unusual nature or of great significance.
The board's main tasks include:
Facilitating operations in accordance with participants' expectations
Ensuring the business is conducted within the framework of the company agreement and legislation
Monitoring the company's financial development
Keeping informed about developments in the industry
Engaging in long-term planning of the company's operations
Board's case handling
Although it is assumed that the board usually handles matters in meetings, the Companies Act does not require this. Other proper handling forms such as telephone meetings or circulating documents are allowed.
Case handling rules:
Decision can only be made when all board members have been given the opportunity to participate
The board must have a leader, chosen by the board unless otherwise agreed
The rules of the Limited Companies Act regarding the leader's duties and protocol recording in board meetings apply correspondingly
Decision-making and voting:
The board is quorum when more than half of the members participate in the case handling
Decisions are made with a simple majority among those present
In the case of a tie, the leader's vote is decisive
Those voting for a decision must constitute more than one-third of all board members
In the election of personnel or employment, a relative majority is sufficient
In partnerships, rules of disqualification apply to board members and daily managers. A board member cannot participate in handling matters where they have a prominent personal or financial interest conflict with the company's interests.
Daily manager
As with the board, the daily manager is not mandatory in partnerships. The company meeting can hire one or more physical persons to conduct daily management. Note that a legal entity, such as another company, cannot be appointed as a daily manager.
Daily manager's objective authority includes daily management but not matters that according to the company's circumstances are of unusual nature or of great significance. The limits of the daily manager's competence must be assessed specifically based on the nature and size of the business.
Auditor
The auditor is a company body, but not part of the management. The auditor's task is to control the management's dispositions. Not all partnerships are required to have an audit, cf. the Audit Act § 2-1 second paragraph letter e.
The audit obligation for partnerships is conditional upon:
The company's operating revenues are equal to or exceed the threshold values established in accordance with the Limited Companies Act § 7-6, or
The average number of employees constitutes ten full-time equivalents or more
Summary
The organization of partnerships is characterized by great flexibility, with the company meeting as the only mandatory body. This flexibility reflects the nature of the corporate form, where participants have unlimited and joint liability for the company's obligations.
The form of responsibility is also reflected in decision-making rules, where the starting point is unanimity in the company meeting and each participant's right to oppose certain dispositions. This ensures that no participant is exposed to risks resulting from other participants' decisions against their will.
The rules of the Companies Act are largely waivable, allowing participants to adapt the company organization to their needs and wishes, such as through majority decisions and establishing a board or daily manager. This flexibility makes partnerships a suitable corporate form for smaller businesses with few participants, particularly where there is a need for simple organization with minimal formal requirements.
