UNIVERSITY OF NUEVA CACERES

COLLEGE OF BUSINESS AND ACCOUNTANCY

BUSINESS LAWS AND REGULATIONS
SY 2020-2021

PARTNERSHIP_Part 1
MADBOLIVAR

Partnership
By the contract of 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.

Nature and as distinguished from corporation

A partnership must have a lawful object or purpose, and must be established for the common
benefit or interest of the partners.

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

The partnership has a juridical personality separate and distinct from that of each of the partners.

A partnership begins from the moment of the execution of the contract, unless otherwise
stipulated.

Partnership Corporation (RCC)

Has juridical personality separate and distinct from its individual members
Can only act through agents
Composed of an aggregate of individuals
Distributes its profits to those who contributed capital to the business
Can only be organized where there is a law authorizing its organization
Created by agreement Created by operation of law
Involves at least two persons Requires at least one incorporator (OPC)
Personality commences from the moment of Personality commences from the issuance of
execution of the contract certificate of incorporation
Can exercise any power authorized by Can exercise only powers conferred by the
partners Revised Corporation Code or by its articles of
incorporation, and such as are necessary or
incidental to the exercise of such powers
When management is not agreed upon, Management is vested in the board of
every partner may act for the partnership directors or trustees
Partners are generally liable for partnership Stockholders are liable only to the extent of
debts their shares
A partner cannot dispose of his interest, so as A stockholder has the right to transfer his
to make the assignee a partner, without shares without consent of others
consent of others
Duration has no limitation Perpetual Existence

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 May be dissolved at any time by one or May only be dissolved with the consent of the
all of the partners state

Elements and kinds

ELEMENTS:
(1) Two or more persons bind themselves to contribute money, property, or industry to a
common fund,
(2) With the intention of dividing the profits among themselves

Intention to Divide Profits

If the common fund’s work is “indispensable, beneficial and economically useful to the
business” of the partners and the profit motive is the primordial reason to establish the
partnership, even if there are no actual profits, then there is partnership.

ESSENTIAL FEATURES
(1) There must be a valid contract;
(2) The parties must have legal capacity;
(3) There must be a mutual contribution of money, property, or industry to a common fund;
(4) The object must be lawful;
(5) The primary purpose must be to obtain profits and to divide the same among the parties
(6) The partnership has a juridical personality separate from individual partners

PARTIES
General Rule: Any person capacitated to contract may enter into a contract of partnership.
Exceptions: The capacity of the following persons to enter into a contract of partnership, though
capacitated to contract generally, are limited:
(1) Those who are prohibited from giving each other any donation or advantage cannot enter into
a universal partnership [Article 1782];
(2) A corporation cannot enter into a partnership in the absence of express authorization by
statute or charter.

Note: There is no prohibition against a partnership being a partner in another partnership.

OBJECT
OBJECT OF UNIVERSAL PARTNERSHIP A universal partnership may refer to:
(1) All present property :
(a) The partners contribute all the property which belongs to them to a common fund, with the
intention of dividing the same among themselves, as well as the profits they may acquire
therewith
(b) The property contributed includes all those belonging to the partners at the time of the
constitution of the partnership.
(c) A stipulation for the common enjoyment of any other profits may also be made. However, the
property which the partners may acquire subsequently by inheritance, legacy or donation cannot
be included in such stipulation, except the fruits thereof
(2) All the profits:
(a) It comprises all that the partners may acquire by their industry or work during the existence
of the partnership.
(b) Only the usufruct over the property of the partners passes to the partnership

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Note: When the articles of universal partnership do not specify its nature (all present property or
all the profits), the partnership will be considered as one only of all the profits.

OBJECT OF PARTICULAR PARTNERSHIP

A particular partnership has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation.

KINDS OF PARTNERSHIPS
AS TO THE LEGALITY OF ITS EXISTENCE:
(1) Partnership de jure is one which has complied with all the requisites for its lawful
establishment;
(2) Partnership de facto is one which failed to so comply.
AS TO ITS OBJECT:
(1) Universal partnership:
(a) Of all present property;
(b) Of profits;
(2) Particular partnership.
AS TO ITS DURATION:
(1) For a fixed term or particular undertaking;
(2) At will.
AS TO THE LIABILITY OF THE PARTNERS:
(1) General partnership, consisting of general partners only, who are personally liable pro rata for
partnership obligations after exhaustion of partnership assets;
(2) Limited partnership, includes, aside from general partner/s, limited partners, who are not
personally liable for partnership obligations.
AS TO ITS PUBLICITY:
(1) Secret partnership, where the existence of certain persons as partners is not made known by
the partners;
(2) Open or notorious partnership, the existence of which is made known to the public by the
partners.
AS TO ITS PURPOSE:
1. Commercial or trading partnership, for transaction of business;
2. Professional or non-trading partnership, for the exercise of profession.

KINDS OF PARTNERS
(1) Capitalist partner, whose contribution is money or property;
(2) Industrial partner, contribution is only his industry;
(3) General partner, whose liability to third persons extends to his separate property;
(4) Limited partner, whose liability to third persons is limited to his capital contribution;
(5) Managing partner, who was designated to manage the affairs or business of the partnership;
(6) Liquidating partner, who takes charge of the winding up of partnership affairs;
(7) Partner by estoppel, who is not really a partner but is liable as such for the protection of
innocent third persons;
(8) Continuing partner, who continues the business after dissolution of the partnership by
admission of a new partner, or retirement, death or expulsion of existing partners;
(9) Surviving partner, who remains a partner after dissolution by death of any partner;
(10) Subpartner, who is not a member of the partnership but contracts with a partner with regard
to the share of the latter in the partnership;

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(11) Ostensible partner, who takes active part in the business of the partnership and is known by
the public;
(12) Secret partner, who takes active part in the business, but is unknown to the third persons as a
partner;
(13) Silent partner, who does not take active part in the business, but may be known to be a
partner by third persons;
(14) Dormant partner, who does not take active part in the business and is not known or held out
as a partner;
(15) Original partner, who has been a partner since the constitution of the partnership;
(16) Incoming partner, who is about to be taken as a member into an existing partnership;
(17) Retiring partner, who is withdrawing from the partnership.

Formalities required
General rule: The contract may be constituted in any form.
Exceptions:
(1) Where immovable property or real rights are contributed:
(a) The contract must appear in a public instrument; and
(b) Attached to such instrument must be an inventory, signed by the parties, of the property
contributed and
(2) Where the capital is at least P3,000, in money or property:
(a) The contract must appear in a public instrument; and
(b) It must be recorded in the Office of the Securities and Exchange Commission (SEC).
Note: As to the second, failure to comply with these requirements, however, does NOT affect the
liability of the partnership and the partners to third persons.

RULES TO DETERMINE EXISTENCE

When the intent of the parties is clear, such intent shall govern. When it does not clearly appear,
the following rules apply:
(1) Persons who are not partners to each other are not partners as to third persons, subject to the
provisions on partnership by estoppel.
(2) Co-ownership or co-possession does not of itself establish a partnership, even when there is
sharing of profits in the use of the property.
(3) Sharing of gross returns does not of itself establish a partnership, even when the parties have
joint or common interest in any property from which the returns are derived.
(4) The receipt by a person of a share in the profits of a business is prima facie evidence that he
is a partner.

As to the fourth, no such inference is drawn if the profits are received in payment:
(1) As a debt by installments or otherwise;
(2) As wages of an employee or rent to a landlord;
(3) As an annuity to a widow or representative of a deceased partner;
(4) As interest on a loan, though the amount of payment vary with the profits of the business;
(5) As the consideration for the sale of a goodwill of a business or other property by installments
or otherwise

Rules of management
MUTUAL AGENCY

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When the manner of management has not been agreed upon, the following rules shall be
observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall
bind the partnership, without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important alteration in
the immovable property of the partnership, even if it may be useful to the partnership. But if the
refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership,
the court's intervention may be sought.

An act of a partner which is not apparently for the carrying on of business of the partnership in
the usual way does not bind the partnership unless authorized by the other partners.

Except when authorized by the other partners or unless they have abandoned the business, one or
more but less than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the
debts of the partnership;
(2) Dispose of the goodwill of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a
partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the partnership to
persons having knowledge of the restriction.

MANAGEMENT
Management of the partnership is primarily governed by the agreement of the partners in the
articles of partnership. It may be stipulated that the partnership will be managed by:
(1) All the partners; or
(2) A number of partners appointed as managers, which may be appointed:
(a) In the articles of partnership; or
(b) After constitution of the partnership.

POWERS OF A MANAGING PARTNER

General rule: The partner designated as manager in the articles may execute all acts of
administration despite opposition by the other partners.
Exception: He cannot do so when he acts in bad faith.

REVOCATION OF POWER OF MANAGING PARTNER

The powers of the managing partner may be revoked:
(1) If appointed in the articles of partnership, when:
(a) There is just or lawful cause for revocation; and
(b) The partners representing the controlling interest revoke such power.
(2) If appointed after the constitution of the partnership, at any time and for any cause.

MANAGEMENT BY TWO OR MORE PARTNERS

When there are two or more managing partners appointed, without specification of their duties or
without a stipulation on how each one will act:
(1) Each one may separately execute all acts of administration.
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 (2) If any of them opposes the acts of the others, the decision of the majority prevails.
(3) In case of a tie, the partners owning the controlling interest will decide

STIPULATION OF UNANIMITY
In case there is a stipulation that none of the managing partners shall act without the consent of
others, the concurrence of all is necessary for the validity of the acts. The absence or disability of
one cannot be alleged, unless there is imminent danger of grave or irreparable injury to the
partnership.

MANAGEMENT WHEN MANNER NOT AGREED UPON

When there is no agreement as to the manner of management, the following rules apply:
(1) All the partners are considered agents [mutual agency]. Whatever any one does alone
binds the partnership, unless there is a timely opposition to the act, under Article 1801.
(2) Any important alteration in the immovable property of the partnership, even if useful to
the partnership, requires unanimity. If the alteration is necessary for the preservation of the
property, however, consent of the others is not required.
If the refusal is manifestly prejudicial to the partnership, court intervention may be sought.

Distribution of profits and losses

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. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in proportion to his capital.

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

Industrial partner Capitalist partner

Form of contribution
Industry Money or property
Share in profits
Just and equitable share According to agreement; if none, in
proportion to contribution
Share in losses
Exempted as to losses as between partners, According to agreement; if none, in the same
but liable to third persons, without prejudice proportion as the agreed share in profits; if
to reimbursement from capitalist partners none, in proportion to contribution
Engagement in business
Cannot engage in business for himself, unless Cannot engage, for his own account, in
the partnership expressly permits him to do the same kind of business as that of the
so; should he do so without permission, the partnership, unless there is a stipulation to the
capitalist partners may: contrary; should he do so, he shall bring to the
[1] exclude him from the firm; or common fund any profits accruing to him
[2] avail themselves of the benefits obtained from his transactions and shall personally
in violation of the prohibition, with right bear all the losses
to damages in either case

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