Partnership

Subdecks (1)

Cards (151)

  • Partnership
    An association of two or more persons to carry on as co-owners of a business for profit
  • Partnership
    Two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves
  • Two or more persons may also form a partnership for the exercise of a profession
  • How partnerships are formed
    1. By a verbal agreement
    2. By written agreement
    3. By implied conduct
  • Partnerships are fairly easy to form
  • A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary (Art. 1771)
  • When a person, by words spoken or written or by conduct, represents himself or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made (Art. 1825)
  • Requirements for establishment of a partnership (Art. 1770)
    • Lawful object or purpose
    • Established for the common benefit or interest of the partners
  • When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime
  • Every contract of partnership having a capital of P3,000 or more in money or property, shall appear in a public instrument, which must be recorded in the Office of the SEC. Failure to comply with the requirements shall not affect the liability of the partnership and the members thereof to third persons (Art. 1772)
  • A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument (Art. 1773)
  • A stipulation which excludes one or more partners from any share in the profits or losses is void (Art. 1799)
  • Partnerships
    • A partnership is a legal entity
    • A partnership is an accounting entity
    • Based on the Tax Code, partnership is generally taxed as a corporation (except for a general professional partnership (GPP))
  • Partnership (Art. 1768)

    The partnership has a judicial personality separate and distinct from that of each of the partners
  • Characteristics of Partnerships
    • Mutual agency
    • Limited life
    • Voluntary
    • Involuntary
    • Unlimited liability
    • Co-ownership of property
  • Co-ownership (Art. 484)
    • Ownership of an undivided thing or right belongs to different persons
    • Unlike partnership, co-ownership is not a judicial person, there is no mutual agency and there is no extinguishment upon death of any co-owner
    • A co-owner is a trustee for the other co-owners
  • Organizations with Partnership Characteristics
    • Limited Partnership (Ltd. or LP)
    • Limited Liability Partnership (LLP)
    • Limited Liability Corporation (LLC)
    • Incorporated Limited Partnership (ILP)
  • Advantages of Partnerships
    • Combining skills and resources
    • Ease of formation
    • Freedom from government regulations and restrictions
    • Ease of decision making
  • Disadvantages of Partnerships
    • Mutual agency
    • Limited life
    • Unlimited liability
  • Different Types of Partners
    • General versus Limited Partners
    • Industrial versus Capitalist Partners
  • In what form should the contributions of the limited partner be? (Art. 1845)
  • Are industrial partners liable to third persons dealing with the partnership with their personal properties? (Art. 1816)
  • Accounting for Partnership Formation
    1. Each partner's initial investment recorded at fair market value
    2. All partners must agree to the values assigned
    3. Contributions can be money, property or industry
    4. Appraisal of goods must be made as prescribed in the contract or by experts
    5. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital
  • Art. 1767: money, property or industry
  • Art. 1787: goods (appraisal must be made as prescribed in the contract and in the absence of stipulation, appraisal shall be made by experts chosen by the partners and according to current prices)
  • Art. 1790: unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership
  • Partnership formation
    • Each partner's initial investment in a partnership is recorded at the fair market value of the assets at the date of their transfer to the partnership
    • All partners must agree to the values assigned
  • What partners can contribute to the partnership
    • Money
    • Property
    • Industry
  • Valuation of goods contributed to the partnership
    1. Appraisal must be made as prescribed in the contract
    2. In the absence of stipulation, appraisal shall be made by experts chosen by the partners and according to current prices
  • Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership
  • Accounting for partnership formation
    1. Prepare journal entries to record each partner's investments
    2. Calculate total owner's equity immediately after the investments
  • Dividing profit or loss in a partnership
    • In conformity with the agreement
    • If only the share in profit has been agreed upon, share in loss shall be in the same proportion
    • If no stipulation, share in profits and losses shall be in the proportion of partners' contributions
  • A stipulation which excludes one or more partners from any share in the profits or losses is void
  • Distributing net income in a partnership
    1. Prepare a schedule showing the distribution
    2. Journalize the allocation of net income
  • A limited liability partnership (LLP) provides limited liability protection to all partners, shielding them from debts incurred by the partnership.
  • A limited partnership consists of both general partners, who have unlimited liability, and limited partners, whose liability is limited to their investment.
  • The partners have unlimited liability for the debts of the firm
  • A general partnership involves two or more individuals who share management responsibilities and profits equally.
  • Partners are jointly liable for all debts, obligations, and other liabilities of the firm
  • A partnership is an association of two or more persons to carry on as co-owners a business for profit.