DealMakers - Q3 2020

Disclosing the existence of an en commandite partnership

Clem Daniel

In an ordinary partnership constituted under South African law, the moment that parties become partners, each party becomes jointly and severally liable for the debts of the partnership; all partners are joint co-creditors and joint co-debtors vis-a-vis outsiders. 

 

However, in the case of an en commandite partnership, one of the partners (referred to as the commanditarian partner and commonly also referred to as the “limited partner”) contributes money while the other partner acts as the face to the outside world, negotiates with creditors and conducts the general business of the partnership. In the event of loss, the commanditarian partner is liable to its co-partners only to the extent of the fixed amount of its agreed capital contribution.

Clem Daniel

There is a widely held view that it is necessary to withhold entirely the participation of the commanditarian partner in the partnership from the knowledge of outsiders, failing which the commanditarian partner will also become jointly and severally liable for the debts of the partnership. Sometimes, this creates difficulties in the context of commercial interactions where the disclosure of the commanditarian partner is either necessary or desirable.

 

The view would seem to have its origin in the statement by Van Der Keessel (a Dutch jurist of the second half of the 18th century and early 19th century) that the commanditarian partner must not “hold himself out publicly as a partner nor be designated as such in the name of the firm used by the other partner”. This view has subsequently been expressed – and often is quoted – that “Although he may be described as a partner, the essence of the arrangement is that it must be carefully concealed from the outside world”.

 

More correctly though, the issue is rather whether an impression is created, either by words or conduct, that the partnership is an ordinary partnership and that creditors of the partner are entitled to rely on the credit of the commanditarian partner.

 

Van Der Keessel put it that the identity of the commanditarian partner should not be disclosed “Lest… the persons who contract with the working partner should rely on the credit of the money partner to their own prejudice… it would seem to be required amongst us, where the terms of the partnership have not been made public, that the money partner should not hold himself out publicly as a partner…” [underlining for purposes of emphasis].

 

This theme was echoed by the Supreme Court of Appeal in 2011 in Van Oudtshoorn v Investec Bank Ltd [1 ] when it addressed the “misconception of the legal effect of such disclosure”, making clear that it is not the “mere fact of disclosure” that serves to render the commanditarian partner liable but that “the reason for anonymity” is to avoid a situation in which “third parties [are] induced to deal with the managing partner in reliance on the credit of the other members of the partnership”.

 

As was succinctly expressed in Mmabatho Food Corporation (Pty) Ltd v Fourie en Andere [2]  “those persons to whom the true position is known will not be misled”.

 

In summary, there is no good reason not to disclose the existence of an en commandite partnership or the identity of the commanditarian partner, provided that the true terms of the partnership insofar as it relates to its commanditarian nature are disclosed to those persons with whom the partnership deals. n

 

Daniel is a Director in Corporate & Commercial, Cliffe Dekker Hofmeyr.

 

  1. (588/10) [2011] ZASCA 205 (25 November 2011)

  2. 1985 (1) SA318 (T)

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