Partnership agreement: the I/S and joint liability

A general partnership (interessentskab, I/S) is one of the oldest and most flexible business forms in Denmark. Two or more people run a business together, share profit and risk, and are jointly and personally liable for all the business's obligations. That flexibility and that responsibility make a clear, written partnership agreement important.

This guide explains what a partnership is, what the agreement should contain, and when an I/S is the right choice.

What is a general partnership (I/S)?

A partnership arises when two or more natural or legal persons, the partners, run a business together with the aim of making a profit.

An I/S has a degree of independent legal capacity: it can enter into agreements, own assets and act as a party in its own name. But unlike an ApS or A/S, there is no limited liability. The partners are liable personally, jointly and directly for all the business's debt.

Joint liability: what does it mean in practice?

Joint liability means that a creditor can demand the whole debt from one partner, even though there are several. Example:

The partnership I/S Svendsen & Hansen owes a supplier DKK 500,000. The supplier can choose to demand the whole amount from Svendsen, even though Hansen is internally liable for half. Svendsen can then seek recourse from Hansen for his share.

The consequence is that the I/S form is best suited to collaborations where the partners know and trust each other, and where the risk of large debt is limited.

What is a partnership agreement?

A partnership agreement is the written agreement that governs the relationship internally between the partners. It sets out, among other things:

• Who the partners are and what they contribute
• How profit and loss are shared
• Who has authority to bind the partnership and to make decisions
• What happens if a partner wants to leave
• What happens if a partner dies or loses the ability to act

The agreement is not required by law; an I/S can exist without a written agreement. But an oral agreement is almost impossible to enforce, and without a contract the partners are left with the sparse rules that follow from the Act on certain commercial undertakings and from case law.

A partnership agreement is always recommended, even in the simplest two-person partnerships.

What should a partnership agreement contain?

1. The parties and the business's identity

Full names and CPR or CVR numbers of all partners, and the partnership's name, CVR number and purpose.

2. Contributions and ownership shares

Describe what each partner contributes: cash, assets (machinery, customer base, know-how) or work. State each person's ownership share clearly, and whether a contribution is made as a loan (repayable) or as a capital contribution.

3. Sharing profit and loss

Decide how profit and loss are shared: equally, by ownership shares, or by an agreed key based on work or capital. Also state when and how profit is paid out.

4. Management and authority to bind

Set out who runs the day-to-day operations and who can enter into agreements on the partnership's behalf. Typical models are joint authority (all must sign above a certain size), individual authority within agreed limits, or an appointed manager. State amount thresholds, for example that decisions over DKK 50,000 require everyone's consent.

5. Decision-making

Describe how larger decisions are made: is unanimity or a simple majority required, what happens in a tie, and which decisions require everyone's consent?

6. Remuneration to the partners

Do the partners receive salary or a fee beyond their profit share? Set the amount, the form of payment and a procedure for adjustment.

7. Leaving and new partners

Describe the conditions for a partner's voluntary exit (notice, valuation of the share, any non-compete clause), for admitting new partners, and how the price on exit is set (market value, book value or an agreed model). Without clear rules, one partner's wish to leave can paralyse the whole business.

8. Death and loss of capacity

What happens if a partner dies or permanently loses the ability to run the business? Can the heirs take over the share, must the others buy it out, and is insurance in place as cover?

9. Non-compete and confidentiality

Should the partners be barred from running a competing business during and after the partnership? State the terms clearly and within the limits of the law.

10. Dissolution and liquidation

Describe under what circumstances the partnership is dissolved and how the assets are distributed.

General partnership (I/S) vs. ApS: when do you choose which?

This is one of the most frequent questions from entrepreneurs. Here are the key differences:

	General partnership (I/S)	ApS
Liability	Unlimited, joint, personal	Limited to the share capital
Start capital	No legal requirement	At least DKK 20,000
Accounts	I/S with personal liability are as a rule exempt from the Financial Statements Act	Always an annual report
Tax	The partners are taxed personally	Corporation tax 22% and then dividend tax
Formation	Simple: registration and agreement	Formation document, articles, registration
Flexibility	High, with wide freedom of contract	Governed by the Companies Act

When do you choose an I/S?

• The partners know and fully trust each other
• The business has a limited debt risk
• You want the simplest and cheapest form
• Personal taxation suits your situation

When is an ApS better?

• The activity involves a risk of large debt
• You want limited personal liability
• You plan to raise external capital
• You want to be able to sell the business more easily

Registering a partnership

An I/S with commercial activity must have a CVR number, and registration is done via virk.dk. The partnership agreement itself is not published, but the CVR registration is publicly available.

Accounts and tax in an I/S

In an I/S, the partners are taxed personally on their share of the profit, as income from self-employment. It is not the business's income that is taxed, but each partner's share. An I/S with personally liable partners is as a rule not covered by the Financial Statements Act, but it is good practice to keep clear accounts, among other things for tax and internal control.

Frequently asked questions about partnership agreements

Can a company be a partner in an I/S?

Yes. A partner can be a legal person, for example an ApS or A/S, and not only a natural person. This can give limited liability at the company level, although the management of the legal person can still have a responsibility.

Must all partners have equal ownership shares?

No. The split is free to agree; you can, for example, have a 60/40 split. Set it out clearly, as it affects profit sharing, votes and the valuation on exit.

Can we change the partnership agreement?

Yes, with all partners' consent. The change should be documented in writing and signed by everyone.

What happens if there is no partnership agreement?

The partnership is still valid but is governed by the law's sparse background rules and by case law. In practice, any dispute can end in a long and expensive process. An agreement is not required by law but is always recommended.

Can an I/S be converted into an ApS?

Yes. Under certain conditions an I/S can be converted into an ApS under the rules on tax-free conversion of a business. This normally requires advice from an accountant and a commercial lawyer.

Conclusion

A partnership is a flexible and simple business form, but the unlimited, joint liability makes a solid partnership agreement a must. Investing in a clear, written agreement can save you a lot of money and trouble if the collaboration one day does not go as planned.

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The content of this article is for guidance only and does not constitute legal advice. Consult a commercial lawyer or accountant for advice on your specific situation.