Partnerships

• What is a partnership?

  A partnership is a contract whereby two or more persons contribute to a common fund to divide profits or exercise a profession.
• What are the characteristics of a partnership?

  • Consensual: perfected by mere consent.
  • Bilateral or Multilateral: entered into by two or more persons.
  • Nominate: designated by a specific name.
  • Principal: existence does not depend on another contract.
  • Onerous: certain contributions must be made.
  • Preparatory: allows for other essential contracts.
• How does a partnership differ from a corporation in terms of creation and existence?

  Partnership:

  • Created by voluntary agreement.
  • No time limit unless agreed upon.

  
  

  Corporation:

  • Created by the state or enabling law.
  • Existence limited to not more than 50 years.
• What is the liability of partners in a partnership?

  Liability may extend to private property of the partners.
• What is required for the transferability of interest in a partnership?

  All partners need to consent to the transfer of interest to another.
• How can partners bind the partnership?

  Partners acting on behalf of the partnership are agents thereof.
• What happens if a partner mismanages the partnership?

  A partner can sue another partner who mismanages.
• What is the nationality of a partnership?

  A partnership is a national of the country where it was created.
• When does a partnership dissolve?

  Death, retirement, insolvency, civil interdiction, or insanity of a partner dissolves the partnership.
• What is the legal personality of a partnership?

  A partnership has a judicial personality separate from that of each partner.
• What can a partnership do in general?

  • Acquire and possess property.
  • Incur obligations.
  • Bring civil or criminal actions.
  • Be adjudged insolvent even if individual members are solvent.
• What is the significance of co-ownership or co-possession in establishing a partnership?

  Co-ownership or co-possession does not establish a partnership by itself.
• What does the sharing of gross returns indicate about a partnership?

  The sharing of gross returns does not establish a partnership by itself.
• What is prima facie evidence of partnership?

  The receipt of a share of the profits is prima facie evidence that a person is a partner.
• What are the exceptions to the inference of partnership from profit sharing?

  No inference shall be drawn if profits were received as debt payments, wages, rent, annuities, interest on loans, or for the sale of goodwill.
• What are the formal requirements for constituting a partnership?

  • Public instrument required for immovable property contributions.
  • Contract void if no inventory is made for immovable property.
  • If capital exceeds P3,000, must be recorded in the SEC.
• What is the difference between a universal partnership of all profit and a universal partnership of all present property?

  Universal partnership of all profit:

  • Only usufruct becomes common property; naked ownership retained.

  
  

  Universal partnership of all present property:

  • All property belonging to partners is contributed, including ownership.
• What happens to profits from other sources in a universal partnership?

  Profits from other sources may become common only if there is a stipulation to that effect.
• What properties cannot be included in a universal partnership?

  Properties acquired by inheritance, legacy, or donation cannot be included, but their fruits can be.
• Who is prohibited from forming a universal partnership?

  • Husband and wife.
  • Those guilty of adultery and concubinage.
  • Those guilty of the same criminal offense if entered into for the same consideration.
• Why are certain persons prohibited from forming a universal partnership?

  Because a universal partnership is virtually a donation of properties, and those prohibited by law to donate should not be allowed to do so indirectly.
• What are the types of partnerships according to liability?

  • General: all partners are general partners with liability extending to individual properties.
  • Limited: at least one partner is liable only up to the extent of their contribution.
• What are the types of partnerships according to term?

  • Partnership with a fixed term: dissolved upon arrival of the term or fulfillment of the undertaking.
  • Partnership at will: no fixed term or undertaking.
• What are the obligations of a partner?

  • To give his contribution.
  • Exercise due diligence in preserving contributions.
  • Deliver the fruits of contributions.
  • Warrant against eviction.
  • Not convert partnership funds for personal use.
  • Not engage in unfair competition.
  • Account for unauthorized profits.
  • Pay for damages caused by fault.
  • Credit payments made by debtors to the firm.
  • Share with partners the share of partnership credit received from insolvent debtors.
• What is the risk of loss borne by a partner?

  A partner bears the loss if the contributed thing is specific and determinate, and there is a stipulation to bear the loss.
• What is the risk of loss borne by the partnership?

  The partnership bears the loss if the contributed things are fungible, cannot be kept without deteriorating, or were contributed to be sold.
• What happens if a partner engages in unfair competition?

  The capitalist partner may be excluded from the firm or the benefits obtained may be availed by the other partners.
• What is the effect of a capitalist partner engaging in other businesses?

  The capitalist partner must bring all profits illegally obtained to the partnership and is personally liable for losses.
• What happens if a partner refuses to contribute additional capital to save the business?

  The partner must sell his interest to the other partners.
• How are profits and losses distributed in a partnership?

  • Profits: according to agreement or proportionate to contribution.
  • Losses: according to agreement; if no agreement, proportionate to contribution, but industrial partners are not liable unless stipulated.
• What are the rules on management in a partnership?

  • Managing partner may execute acts of administration in good faith.
  • Power can be revoked by a vote of partners representing controlling interest.
  • Multiple managing partners can exist.
• What is the role of a managing partner in a partnership?

  A managing partner may execute all acts of administration in good faith.
• How can the power of a managing partner be revoked?

  The power can be revoked by a vote of partners representing the controlling interest, even without just cause.
• What happens if there are multiple managing partners?

  • They can execute acts of administration.
  • Their powers can be revoked by a vote of partners representing controlling interest.
• What share shall the industrial partner receive in the event of contribution?

  Such share as may be just and equitable.
• How are losses distributed among partners?

  • In accordance with agreement.
  • If there was agreement as to profits but not losses, in the same proportion.
  • In proportion to contribution, but the industrial partner shall not be liable for losses.
  • An industrial partner may be made liable for losses only if there was a stipulation to that effect.
• What is a void stipulation in a partnership context?

  A stipulation that excludes one or more partners from any share in the profits or losses.
• What are the rules regarding the managing partner in a partnership?

  • The managing partner may execute all acts of administration in good faith, even with opposition.
  • The power can only be revoked with just cause and by a vote of the controlling interest.
  • After the partnership is constituted, the power may be revoked without just cause by a vote of the controlling interest.
• What happens if two or more partners are managing the partnership without specified duties?

  Each partner may separately execute all acts of administration.
• How is a tie in votes among managing partners resolved?

  • The controlling interest of ALL partners shall prevail.