Handout

• Partnership


  An association of two or more persons carrying on a business in common with a view to making a profit
• Partnership


  (Civil Code definition) 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 are partnerships formed

  1. Verbal agreement

  2. Written agreement

  3. Implied conduct of two or more partners
• Article 1771

  A partnership may be constituted in any form except when immovable property is contributed, in which case it shall appear in a public instrument
• Article 1825

  When a person represents himself or consents to another representing him as a partner, he is liable to any such persons to whom such representation has been made
• Article 1770

  A partnership must have a lawful object or purpose and must be established for the common benefit or interest of the partners
• If an unlawful partnership is formed or the object/purpose becomes unlawful, it will be dissolved by a judicial decree and the profits will be confiscated in favor of the State
• Situations requiring a public instrument

  • Partnership having a capital of Php3,000 or more in money or property
  • Whenever immovable property is contributed
• Failure to comply with Article 1772 (requiring a public instrument for partnerships with capital of Php3,000 or more) does not cancel the formation of a partnership or render the contract void
• Article 1773

  A contract of partnership is void whenever immovable property is contributed and an inventory of said property is not made, signed by the parties and attached to the public instrument
• Article 1799

  A stipulation or agreement which excludes one or more partners from any share in the profits or losses is void
• Partnership


  • Separate entity distinguishable from its owners (partners) and from other entities
  • Mutual agency - each partner acts on behalf of the partnership
  • Limited life - may end voluntarily or involuntarily
  • Unlimited liability - each partner is personally and individually liable for all partnership liabilities
  • Co-ownership of property - partnership assets are owned jointly by the partners
• Article 1768

  The partnership has a judicial personality separate and distinct from that of each of the partners
• Article 1803 (1)

  All partners shall be considered agents and whatever any one of them may do alone shall bind the partnership
• Article 1818

  Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership
• Article 1828

  The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up (liquidation) of the business
• Article 1816

  All partners, including industrial ones, shall be liable pro-rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership
• Article 1797

  The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses
• Co-ownership


  The state where an undivided thing or right belongs to two or more 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
• Types of Partnerships


  • Universal partnership
  • Particular partnership
  • General partnership
  • Limited partnership
• Universal partnership


  May refer to all the present property, or all the profits. If the nature is not specified, it constitutes a universal partnership of profits only
• Particular partnership


  Has for its object determinate things, their use or fruits, or a specific undertaking or the exercise of a profession or vocation
• General partners


  Have unlimited liability
• Limited partners


  Have limited liability, responsible for debts up to the limit of their investment. Cannot contribute services, their surname cannot appear in the partnership name unless also a general partner
• Article 1810

  The property rights of a partner are: his rights in specific partnership property, his interest in the partnership, and his right to participate in the management
• Article 1811

  A partner is co-owner with his partners of specific partnership property
• Article 1812

  A partner's interest in the partnership is his share of the profits and surplus
• Article 1813

  A conveyance by a partner of his whole interest in the partnership does not dissolve the partnership, but merely entitles the assignee to receive the profits
• Limited Liability Partnership (LLP)


  Partnership in which some or all partners have limited liabilities, designed to protect innocent partners from malpractice or negligence claims
• Limited Liability Companies (LLC)


  Usually have a limited life, owners are referred to as members who assume an active management role
• Incorporated Limited Partnership (ILP)

  Special type of partnership primarily set up to engage in high-risk venture capital projects
• Advantages of Partnership


  • Ease of formation
  • Combining skills and resources of two or more individuals
  • Freedom from governmental regulations and restrictions
  • Ease of decision making
• Disadvantages of Partnership


  • Limited life
  • Mutual agency
  • Unlimited liability
• Industrial partner


  Usually contributes time and expertise, cannot engage in business for himself unless the partnership expressly permits
• Capitalist partner


  Usually contributes only physical assets, cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary
• Industrial partners shall receive a share in the profits as may be just and equitable, but shall not be liable for the losses
• Industrial partners are liable with their property to third persons dealing with the partnership
• Capitalist partner


  Cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary
• Industrial partners


  Shall receive such share of the profits as may be just and equitable under the circumstances, but the industrial partner shall not be liable for the losses
• Industrial partners, who contributed services to the partnership, should not be expected to share in the losses anymore