Two construction companies teaming up for a tender, two traders opening a shop together, investors shaking hands to run a project jointly: most of these are, whether they realise it or not, simple partnerships. How are profits shared, who is liable to third parties, and how does the partnership end if the partners fall out? This article starts from the Majalla’s contractual partnership (shirkat al-‘aqd), then covers the simple partnership (adi ortaklık) under the Turkish Code of Obligations, English partnership law and arbitration practice in partnership disputes.
The Majalla: shirkat al-‘aqd
The Majalla divides partnership into co-ownership of property (shirkat al-milk) and partnership based on contract (shirkat al-‘aqd). The contractual partnership is an agreement between two or more persons to combine their capital, labour or commercial credit and share the resulting profit (Art. 1329 et seq.).
The Majalla classifies contractual partnerships by the equality between partners, as mufawada and ‘inan, and by what they rest on, as partnerships of capital, labour or credit. In an ‘inan partnership, where equality is not required, the partners are not sureties for one another; in a mufawada, a broad mutual agency and suretyship is accepted. Today’s definition of the simple partnership as “combining labour and assets for a common purpose”, and the debate over the partners’ liability to third parties, are the modern counterparts of this classical distinction.
Turkish law: the simple partnership under the TCO
- Definition (TCO Art. 620): a simple partnership contract is one in which two or more persons undertake to combine their labour and assets to achieve a common purpose. No special form is required; a partnership may be inferred from the parties’ conduct.
- No legal personality: a simple partnership has no legal personality and therefore no capacity to be a party to proceedings. The partners hold partnership assets in joint ownership. In Court of Cassation practice, lawsuits and enforcement proceedings on behalf of the partnership must be brought by all partners together, and a claim against the partnership is treated as directed at all partners. For money claims, because the partners are jointly and severally liable, one or several of them may be sued.
- Liability to third parties (TCO Art. 638): as a rule, partners are jointly and severally liable for obligations they assumed together or through a representative. This liability does not end automatically when the partnership ends. In tender consortia, joint and several liability towards the employer is also set out in the contract; for security arrangements, see our article on suretyship and guarantees.
- Termination (TCO Art. 639): the partnership ends when its purpose is achieved or becomes impossible, when its term expires, by unanimous decision of the partners and on other grounds. Where there are just reasons, any partner may ask the court to dissolve the partnership; this route is open for both fixed-term and indefinite partnerships.
- Leaving an indefinite partnership (TCO Art. 640): in a partnership formed for an indefinite term or for a partner’s lifetime, partners may terminate the contract by giving six months’ notice. Termination must be in good faith and not at an inopportune time.
- Liquidation: a termination ground does not end the partnership at once; it enters liquidation. Partnership debts are paid, contributions are returned, and the remaining profit or loss is shared. In practice, most disputes concern partnership accounts and how one partner’s expenses are taken into account in liquidation.
In practice, simple partnerships are often formed without a written contract, simply by running a business together. Profit sharing, management authority and exit rules are then left to the default provisions of the Code. Documenting the start date, the joint account and each partner’s contribution is decisive in later liquidation disputes.
The English law view: partnerships and joint ventures
The English counterpart of the simple partnership is the general partnership governed by the Partnership Act 1890. Under section 1, partnership is the relation which subsists between persons carrying on a business in common with a view of profit. Whatever label the parties give their relationship, a partnership exists if that definition is met.
- Default rules: unless otherwise agreed, partners share equally in capital and profits (s.24). Every partner is liable jointly with the other partners for the firm’s debts (s.9). The court may dissolve the partnership where it considers this just and equitable (s.35).
- Khan v Miah [2000] UKHL 55, [2000] 1 WLR 2123: the parties opened a joint bank account, took out a loan, leased premises and bought equipment to open a restaurant; the relationship broke down before it opened. The Court of Appeal had held that no partnership existed because trading had not started. The House of Lords rejected that view: preparatory steps forming part of the joint venture can show that a partnership has begun even before the first sale.
Comparison: in both systems a partnership needs no formalities and can arise from the parties’ actual conduct. So the defence “we never formed a partnership, we just worked together” often fails in the face of shared preparatory expenses. In English practice, commercial joint ventures are frequently structured as companies or detailed contracts that expressly exclude the statutory default rules; in Türkiye, the same need is met in tender consortia by a detailed partnership agreement.
An example from international arbitration
The hardest question in joint venture arbitration is often whether the partners behind the venture are bound by the arbitration agreement.
- Westland Helicopters v Arab Organization for Industrialization (ICC): the Arab Organization for Industrialization (AOI), set up by the United Arab Emirates, Saudi Arabia, Qatar and Egypt, had formed a joint company with the British company Westland to manufacture helicopters. After the states decided in 1979 to wind up the organisation, Westland started ICC arbitration. In a 1984 interim award, the tribunal accepted jurisdiction not only over the organisation but also over its member states. The Swiss courts held that the arbitrators had jurisdiction over the organisation but not over the member states, which had not signed the arbitration agreement; the Swiss Federal Supreme Court confirmed this on 19 July 1988.
The case shows that where a joint venture is set up as a separate entity, the partners’ personal liability and whether they are bound to arbitrate are assessed separately. Under Turkish law the picture is different because a simple partnership has no legal personality: an arbitration clause in the partnership agreement applies directly between the partners. Turkish scholars also debate whether a claim for dissolution on just grounds is arbitrable, so an arbitration clause in a partnership agreement should be drafted to cover termination and liquidation disputes expressly.
Frequently asked questions
We never signed a contract; is there a partnership? There may be. A simple partnership needs no particular form. Where labour and assets are combined for a common purpose, for example by opening a joint account or sharing expenses, a partnership may be found to exist.
Am I liable for debts my partner incurred? As a rule, partners are jointly and severally liable for obligations assumed on behalf of the partners (TCO Art. 638). That liability continues after the partnership ends.
How can I leave the partnership? An indefinite partnership can be terminated with six months’ notice. In a fixed-term partnership, the court can be asked to dissolve it if there are just reasons. Either way, the partnership is then liquidated.
Can we sue in the partnership’s name? A simple partnership cannot be a party to proceedings, so the claim must be brought by all partners together. A partner who does not join must be brought into the case.
For general information only; not legal advice. Whether a partnership exists and its consequences depend on the contract and the facts. Sources: Majalla Art. 1329 et seq. (as reported in secondary sources); Turkish Code of Obligations Arts. 620, 638, 639, 640; Partnership Act 1890 ss.1, 9, 24, 35; Khan v Miah [2000] UKHL 55, [2000] 1 WLR 2123; Westland Helicopters Ltd v Arab Organization for Industrialization, ICC interim award (1984) and Swiss Federal Supreme Court, 19 July 1988.