Explanation of Article 535
The article included three types of conditions that are not valid to stipulate in a partnership contract:
The first condition: the agreement that a partner's share of the profit is a fixed amount, such as a partner stipulating that his profit be one hundred thousand riyals; rather, the partner's share of the profit must be a common percentage like a quarter, a third, a half, or similar; whether it equals his share in the capital, increases, or decreases; because stipulating a fixed amount leads to cutting off the sharing of profit among partners, which is the main purpose of the partnership contract; the company may not profit except for that stipulated amount for the partner or less, thus he takes all the profit without the other partners; and thus the contract's pillar, which is the profit, is negated.
The second condition: the agreement that one of the partners does not benefit from the profit; it is not permissible to stipulate in the partnership contract that a partner does not share in the profit; because this condition contradicts the purpose of the partnership, which is to share in its profit.
The third condition: the agreement to exempt one of the partners from the loss; because this condition contradicts the purpose of the partnership, which is to share in its profit and loss.
The article clarified that the penalty for stipulating any of the three conditions is the invalidity of the condition; that is, the condition is void, but the partnership contract remains valid except for that condition; in accordance with the principle of contract divisibility stated in paragraph (2) of Article (74), which reads: (If the contract includes a void condition, the condition alone is void, and the contracting party may request the annulment of the contract if it becomes clear that he would not have agreed to the contract without that condition), and thus profits are divided among the partners according to their shares or according to the agreement after excluding the void condition, and losses are divided according to the shares; and if one of the partners proves that he would not have agreed to enter into the partnership without the condition that was annulled, he may request the annulment of the contract.
Related To
Article 535
A condition stipulating that a partner’s share in the profits is a fixed amount or that a partner does not benefit from profits or is exempted from losses shall be deemed null and void.