However great the success of partnership may be, there is a fly in the ointment. Before the turn of the year, the Flemish Tax Authority (Vlabel for short) expressed criticism in three previous decisions about the use of partnerships in planning structures. Vlabel wants to make it clear that there are limits to the way in which control over donated assets can be regained with the partnership after the donation.

Incidentally, the decisions are not the first shot fired at partnership.

Previously, Vlabel had developed the contestable doctrine that undistributed but reserved profits within a partnership do not accrue to the bare owner of the partnership shares, but to the usufructuary. In planning, donors traditionally retain the usufruct. With this doctrine, Vlabel is attempting to ensure that upon the death of the usufructuary, the accumulated profits can still be attributed to him/her and are therefore subject to inheritance tax.

Since the partnership has brought about independent assets, it is considered a normal joint ownership or co-ownership, precisely because the partners permanently delegate the management of the assets. They waive their direct right of disposal and decision-making. With regard to estates, it has been observed that financial institutions have been increasingly approaching partnership as a simple joint ownership. The result? A financial institution will block the partnership account upon the death of one of the partners. This is the typical approach applying to an undivided ownership, not a partnership. In that case, the part – that is to say, the partnership’s share – falls into the estate and the partnership’s assets – and therefore also its accounts – remain completely untouched.

And that has implications. The board of the partnership then loses some of its essential decision-making powers to manage and represent the partnership as a real special-purpose asset.

In a sense, notaries also agree with this. In practice, partnerships are often established to make it easier to structure and manage the assets of minors. This can be done more autonomously under the partnership, which in turn partly relieves them of the burden. However, it could now be inferred from a number of positions taken by notaries that they too are of the opinion that if there are minors among the partners, the management structure of the partnership should be set aside at least on certain points. Even though the partnership in that case was established precisely to prevent this.

In the Code of Companies and Associations introduced in 2019, the legislator wanted to identify the partnership more as a quasi-legal entity. What precedes consists of practical examples that directly contradict this. Perhaps the partnership is still too often insufficiently known in day-to-day practice. Admittedly, a partnership without legal personality, with assets that are separated based on size, is far from easy to understand and apply. In this sense, when redrafting company law, the legislator would have been better off granting legal personality to the partnership and maintaining its transparent operation at every possible level. This is, by the way, how a number of other countries deal with such entities.

All this should by no means lead to giving up on the partnership structure, nor should the use of this medium be abandoned. However, more awareness must be created regarding the functioning of the partnership in practice.