Commanditary Partnerships

In this post we will discuss commanditary partnerships (German: Kommanditgesellschaft, French: société en commandite, Dutch: commanditaire vennootschap) as a way to fund (worker) cooperatives.

A commanditary partnership is a contract between one (or more) active partner and one (or more) silent partner to be involved in a certain business. The partners could be natural persons, but also organizations, banks, governments and so on.

The active partner is responsible for the day-to-day affairs of the partnership, while the silent partner is limited to a financial contribution. Since the silent partner is not actively involved in the actual management of the partnership, he could not lose more than his contribution. The active partner, however, is fully liable for the debts of the partnership.

In return for his financial contribution, the silent partner is entitled to a share in the profits of the partnership.

Why would a commanditary partnership be interesting for cooperatives? First, this construction allows a cooperative raise external capital to fund its activities without having to resort to borrowing. Unlike a loan, the contribution of the silent partner is not debt but equity of the partnership.

A second benefit for cooperatives, is that silent partners have no say in daily business operations. Nor does the partnership affect the internal structure of the cooperative. Consequently this type of partnership does not jeopardize the self-employment principle of the cooperative.

Of course, the cooperative has, as active partner, to comply with the agreements it has made with its silent partners. However, the silent partners cannot demand to removal of the cooperative’s board in case of conflict, any clause to the contrary should be void. At best the silent partners could terminate the partnership and seek return of their investment, to the extent that is reasonable.

Silent partners are typically investors, this construct is much less attractive for speculators. For investors this type of investment is attractive since their risk is limited to their contribution, i.e. the cannot lose more that their contribution.

Other methods for funding cooperatives are leasing of equipment and issuing cooperative bonds.

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