General Partnerships

derecho general partnerships law legal translation sociedad en nombre colectivo traducción traducción jurídica translation Jan 11, 2023
 

GENERAL PARTNERSHIPS

 Before moving on to GENERAL PARTNERSHIPS (GP), I want to recap what we discussed in the previous video where we touched briefly on the linguistic side of legal translation, and there are two main points I’d like you to take away from it:

  1.  In order to improve our understanding, and thus, avoid erroneous interpretations of the source text, it is important to have a complete grasp of the civil law and common law systems, specifically (in this case) the Mexican and US legal systems.
  2. Despite a legal concept being freely adaptable between the two systems, it is highly likely that they will not be 100% equal, and that there will be certain elements that they will not share or that are different.

 This is important to take note of going forward, starting with the next business entity on our list—the General Partnership.  If you remember when we discussed sole proprietorships, one of the main differences between how the US and Mexico treat corporate law is that in the US, business entities are regulated on a state level while in Mexico they’re regulated on a federal level; and what’s more, the types of legal entities regulated are also different, which is the case here.  Just like the sole proprietorship, the general partnership has no initial filing requirements with the state, but this is not the case in Mexico, which means there are certain requirements that must be satisfied before the partners can legally form a partnership. 

 Now, what is a General Partnership?  Well, a general partnership is a business relationship made up of two or more people (called PARTNERS or in Spanish SOCIOS) who share in the company’s assets, profits, losses, and liabilities.  The partnership normally has an executed written partnership agreement, which will define and outline certain aspects of the partnership, such as its:

1. BUSINESS NAME (RAZON SOCIAL)

2. DURATION (DURACIÓN)

3. (CORPORATE) ADDRESS (DOMICILIO (SOCIAL))

4. THE ROLE, DUTIES, AND RESPONSIBILITIES OF EACH PARTNER (FUNCIONES, OBLIGACIONES Y RESPONSABILIDADES DE CADA SOCIO)

5. CAPITAL CONTRIBUTIONS (APORTACIONES DE CAPITAL)

6. DISTRIBUTION OF PROFITS (REPARTO DE UTILIDADES)

7. DISPUTE RESOLUTION (RESOLUCIÓN DE CONTROVERSIAS)

8. ENTRY AND EXIT OF EXISTING OR NEW PARTNERS (ADMISIÓN Y SEPARACIÓN DE SOCIOS)

9. WHAT HAPPENS IF A PARTNER DIES OR BECOMES INCAPACITATED (LA MUERTE O INCAPACIDAD DE UN SOCIO)

10. GOVERNING LAW (LEY APLICABLE)

Like in other types of entities (such as an LLC) this contract is usually referred to as an OPERATING AGREEMENT (CONTRATO SOCIAL) but may also be referred to as a PARTNERSHIP AGREEMENT.  Again, in the US, the GP is not regulated, meaning there are no legal requirements for its formation or subsistence.   However, most states in the US have adopted the (Revised) Uniform Partnership Act, which governs aspects of a partnership as default provisions in the event the partnership in question does not have an operating agreement or the operating agreement is silent on certain things.  The RUPA text states:

The Uniform Partnership Act (1994) ("Revised Act" or "RUPA") gives supremacy to the partnership agreement in almost all situations. The Revised Act is, therefore, largely a series of "default rules" that govern the relations among partners in situations they have not addressed in a partnership agreement.

 Most of the provisions that are mandatory under RUPA refer to what happens to the partnership if one part “disassociates” (separarse) from the partnership.  Previously, a disassociation of one general partner automatically dissolved the partnership, but the RUPA now provides for situations in which the partnership may remain operational in this circumstance. 

 Another significant change introduced by RUPA is the provision for the public filing of statements containing basic information about a partnership, such as the agency authority of its partners.

 In accordance with this provision, California requires a GP to file a STATEMENT OF PARTNERSHIP AUTHORITY (DELARACIÓN DE SOCIOS CON FACULTADES DE REPRESENTACIÓN) with the Secretary of State, which would be beneficial in the event of a dispute between partners, since the filed agreement would serve as IRREFULTABLE PROOF (HACER PRUEBA PLENA) of the agreed terms. 

 

Also like the sole proprietorship, if the GP uses a DBA (DOING BUSINESS AS) or FICTICIOUS BUSINESS NAME (NOMBRE FICTO), the partners must first determine if the name is available by conducting an online search with the appropriate database for the county in which the GP will be located.  Also, there may be other paperwork that must be filed with the city, county, or state where the GP operates depending on the GP’s TYPE OF BUSINESS (GIRO DE NEGOCIO).

 The legal ramifications of this treatment are that GPs do not legally create a separate business entity, which means the law does not provide GPs with any liability protection.  Therefore, the GP's partners are personally liable for all the GP’s debts and liabilities in the event the GP is dissolved or is sued for default or breach of contract or any other contractual or tortious act and their personal assets (property, bank accounts, etc. may be SEIZED or a LIEN ATTACHED (EMBARGADOS).  In addition, given that the law does not shield partners from liability, partners are forbidden from limiting their liability through the GP’s operating agreement.  This is why most, if not all, GPs will take out PROFESSIONAL LIABILITY INSURANCE (AKA ERRORS AND OMISSIONS INSURANCE) (SEGURO DE RESPONSABILIDAD PROFESIONAL).

 

Now, under Mexican law, the GENERAL PARTNERSHIP is referred to as a SOCIEDAD EN NOMBRE COLECTIVO (SNC), which is regulated by Articles 25 to 50 of the LEY GENERAL DE SOCIEDADES MERCANTILES (LGSM) (GENERAL CORPORATIONS LAW)

 Linguistically, we need to clarify and distinguish between the business entity PARTNERSHIP and PARTNERSHIP as a common noun and (TO) PARTNER as a verb.  When these terms are not referring specifically to the type of business entity, PARTNERSHIP will refer to the act of two individuals or entities “joining forces” for a specific objective or ASOCIACION (noun) ASOCIARSE (verb): 

 

 XYZ law firm partnered with the union.

El despacho jurídico XYZ se asoció con el sindicato.

 

Now, back to the SNC.  Given that it is a regulated entity, the law sets forth certain requirements that must be satisfied before a legally existing SNC can be formed.  These requirements can only be legally satisfied if done before a NOTARY PUBLIC (NOTARIO PÚBLICO).  So, the first step is to FORM or ORGANIZE (CONSTITUIR) with a notary public by drafting (redactar) and ratifying (ratificar) its ARTICLES OF ORGANIZATION (ACTA CONSTITUTIVA) and OPERATING AGREEMENT (CONTRATO SOCIAL), which are then EXECUTED (OTORGADO) BEFORE (ANTE LA FE DE) the NOTARY PUBLIC (NOTARIO PÚBLICO).   

 We will discuss notary publics and their role under Mexican law during a future video but suffice to say that a notary public in Mexico is far different than one under US law.  Case in point—a notary public in Mexico is an attorney who must pass a rigorous examination and meet all other requirements before being able to act as a notary public.  In the US, anyone who meets the state requirements to act as a notary public can do so.  Typical qualifications include being 1) a US citizen, 2) a resident of the state where you wish to practice, 3) at least 18 years of age, 4) able to read and write English.  Then the person must pass a written examination and a background check.  

 The SNC provides for two types of PARTNERS (SOCIOS): 1) CAPITALISTA (CAPITAL) and 2) INDUSTRIAL (WORK/LABOR), although the law does not stipulate that a SNC must have these two types.  Articles 46 and 49 are the only articles that specify the existence of these two types of partners but never specifically state that the SNC must have both.   

Side note: As you probably noticed above, PARTNER is translated into Spanish as SOCIO.  There’s no issue here when translating from English to Spanish because SOCIO is a more comprehensive term whereas in English, under U.S. corporate law, the term used depends on the type of entity.  Therefore, when we are referring to PARTNERSHIPS, SOCIOS are PARTNERS, but if we are referring to a LIMITED LIABILITY COMPANY (LLC), a SOCIO is referred to as a MEMBER

OK now so back to the SNC.   The company’s BUSINESS NAME (RAZON SOCIAL) is comprised of the names of each partner, or with the words “y compañía” or equivalent.  So, if partners Clemente Molina and Marco Corral wish to form an SNC, their name would be Molina y Corral, Sociedad en Nombre Colectivo or Molina y Corral, S. en N.C.

Just like in the U.S., use of your business name must be authorized—we don’t want more than one company using the same name—that would confuse the public.  So, in Mexico, this authorization is given by the SECRETARÍA DE ECONOMÍA (SECRETARY/DEPARTMENT OF THE ECONOMY (Note: The U.S. Federal Government is organized differently from the Mexican Federal Government, so the department most closely related is probably the Treasury Department, which is then divided into UNDERSECRETARIES (SUBSECRETARÍAS). 

Side Note: Localization is very important when deciding which terms to use when translating the names of government agencies.  Since we are translating between Mexican and U.S. legal systems and governments, where our audience is almost always going to be legal professionals from the U.S. or Mexico, we need to employ the terms used by these countries and professionals.  The U.S. government does not have SECRETARIATS or MINISTRIES, but instead have DEPARTMENTS or OFFICES (OFFICE OF THE SECRETARY OF STATE) (TREASURY DEPARTMENT) (SECRETARÍA), which are headed by a SECRETARY (SECRETARIO).

 If you’re interested in learning about the other provisions of the SNC, I would strongly suggest you read Articles 25-50 of the LGSM.  Most of these discuss the partnership’s formation, administration, and dissolution, although in many cases, these provisions act as more of a default and defer to the stipulations set forth in the operating agreement—except that, just like in the US, the operating agreement cannot limit the partnership’s liability, although Article 26 does allow for the operating agreement to limit a certain partner or partners liability to their CAPITAL CONTRIBUTIONS (APORTACIONES DE CAPITAL). 

 If you’re interested in any additional reading on the SNC in Mexico or General Partnership in the U.S., please email me and let me know at [email protected].  Next time we are going to discuss LIMITED PARTNERSHIPS or the SOCIEDAD EN COMANDITA SIMPLE.  See you then!

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