What is Partnership?

 As to creation, Partnership is created by

mere consent of the parties, whereas a
 is a contract whereby two or more
Corporation is created by operation of
persons bind themselves to contribute
law.
money, property or industry to a
 As to exercise of power, a Corporation
common fund, with the intention of
can only exercise such powers and
dividing the profits among themselves,
functions expressly granted to it by law
or in order to exercise a profession.
and those that are necessary or
 It is both a contract and a business
incidental to its existence. While a
organization.
partnership can do anything by
agreement of the parties.
NATURE  As to existence, a Corporation has the
right of succession which presupposes
 By its nature, partnership is a that it continues to exist despite death,
consensual contract as it is perfected by withdrawal of the stockholders or
mere consent or meeting of the minds members whereas in a Partnership since
between parties. it is based on mutual trust, death,
withdrawal, incapacity, and insolvency
As distinguished from Joint Venture
of one partners would result in its
 As to transaction, JV is ordinarily limited dissolution
to a single transaction, whereas  As to dissolution, a Corporation needs
Partnership usually contemplates the the consent of the State for it to cease
undertaking of a general and continuous as a body corporate while a Partnership
business of a particular kind can be dissolved by mere agreement of
 As to property, in both, property parties.
contributed becomes the property of
As distinguished from Cooperatives
the business entity
 As to name, a JV has no firm name,  As to purpose, a Partnership is organized
while a partnership is required to for profit while a Cooperative is
operate under a specific firm name. organized primarily for self-help
 As to conduct of business, in JV none of  As to personality, both Partnership and
the co-venturers can bind the JV or his Cooperative have their own separate
co-venturers, while a partner, when juridical personality
acting in pursuance of the firm business,  As to creation, Partnership is created by
binds not only himself as a principal but mere consent of the parties, whereas a
as their agent as well, also the Cooperative is created by operation of
partnership and his co-partners law.
As distinguished from Corporation
  Nominal/Ostensible Partner - is one who
does not have any real interest in the
ELEMENTS OF PARTNERSHIP
business but lends his name to the firm,
1. CONSENT without any capital contributions, and
doesn’t share the profits of the business.
2. SUBJECT MATTER  Partner by estoppel – is a person who
3. CONSIDERATION misrepresents himself as a partner and
as a result, incurs liability, is liable as if
LAWFUL OBJECT OR PURPOSE – it must be he is actually a partner to the
within the commerce of man, possible and not partnership he misrepresented.
contrary to law, morals, good customs, public -He will never become a partner of the
order. ( Article 1352. Contracts without cause, partnership and he has no rights.
or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary According to Object
to law, morals, good customs, public order or
a. Universal
public policy)
▪ With all present property
KINDS OF PARTNERS (COMMON FUND)
- Properties which belongs to the
 General Partner – contributes property partners at the time of constitution of
and whose liability extends to his/her the partnership
personal property after the assets of the - Profits that they may acquire
Partnership have been exhausted. therewith.
 Limited Partner – contributes property - Except (properties acquired
and whose liability only extends to SUBSEQUENTLY by inheritance, legacy,
his/her contribution to the partnership or donation EXCEPT fruits thereof)
 Industrial Partner – A partner who
contributes services to the partnership ▪ With all profits (COMMON FUND)
 Managing Partner - A person who takes - All profits acquired by industry
active interest in the conduct and or work of the partners becomes
management of the business of the firm common property
is known as active or managing partner. b. Particular
 Dormant Partner – A person does not
According to Liability
take active part in the management of
the business. Such a partner only  General – All partners are general
contributes to the share capital of the partners whose liability extends to their
firm, is bound by the activities of other individual properties, after the assets of
partners, and shares the profits and the partnership have been exhausted.
losses of the business.
  Limited – Where at least one of the Except:
partners are liable only up to the extent 1.When there is managing partner
of his contribution 2.When a partner is considered as Dormant
Partner

APPOINTMENT OF MANAGING PARTNER

As to duration
MANAGING PARTNER IN THE ARTICLES
a. Partnership with Fixed Term OF PARTNERSHIP
b. Partnership for a particular
1. May execute all acts of administration, in
undertaking
good faith, even with opposition from the
c. Partnership at will
other partners;
FORMALITIES REQUIRED 2.administration can only be revoked if (a)with
just or lawful cause; and (2) by a vote of the
 As a general rule, a partnership may be
partner representing the controlling interest.
constituted in any form. However, there
are certain exceptions which require a
particular form to make a partnership MANAGING PARTNER AFTER PARTNERSHIP
enforceable Article 1771 Civil Code HAS BEEN CONSTITUTED:
1. When capital contribution total 1. May execute all acts of administration, in
Php3,000.00 or more - Shall appear in a good faith, even with opposition from the
public instrument; and other partners;
- Recorded in the office of SEC (Article 2. The power as manager may be revoked by a
1772) vote of the partners representing the
Effect of non-compliance: Does not controlling interest EVEN WITHOUT just or
affect the validity of the partnership. For lawful cause
enforceability or greater efficacy. APPOINTMENT OF MULTIPLE MANAGING
2. When immovable property is PARTNER
contributed
- Must be in a pubic instrument 1. Each partner may separately execute all
- Inventory of the property must be acts of administration;
made, signed by the parties and
2. Should one of the managing partners
attached to the public instrument.
oppose the act of another, the matter
Effect of non-compliance: Partnership is
shall be decided by a majority of the
void. (Article 1773)
managing partners per head count; (Any
RULES ON MANAGEMENT of the partners may oppose the acts of
administration)
As a GENERAL RULE, every partner has the right
to manage the Partnership.
 3. Should there be a tie in the votes of the  Designation of losses and profits
managing partners, the controlling CANNOT be entrusted to one of the
interest of ALL the partners shall prevail. partners
 A stipulation which excludes one or
more partners from any share in the
profits or losses is void. (in relation to
Art. 1797)

Distribution of Profits and Losses

I. Rules on distribution of Profits

Sharing of losses and liabilities
▪ In accordance with the agreement;
I. Liabilities of a Partner
▪ If there is no agreement, in proportion
to contribution; the industrial partner ▪ Liable for whatever (money, property, or
shall receive such hare as may be just service) that may have promised to
and equitable. contribute. (Article 1786)

▪ If the industrial partner contributed ▪ Liable in case of eviction with regard to

capital, he shall also receive a share in specific and determinate things which
the profits in proportion to his capital he may have contributed to the
partnership. (Ibid.)
II. Rules on distribution of Losses
▪ Liable for any amount that he may have
▪ In accordance with the agreement; taken from the partnership funds which
▪ If there is a stipulation as to profits only, he converted for his own use. (Article
sharing of losses shall be based on the 1788)
same proportion ▪ Liable to contribute additional fund in
▪ No stipulation or agreement, based on case of an imminent loss of the business
capital contribution of the partnership. (Article 1791)

▪ Industrial partner shall not be liable for ▪ A new partner is liable for the
losses unless he also contributed capital obligations already contracted before
his admission but only to the extent of
What if the agreement is not valid? this contribution.
- As if NO agreement or stipulation. The apply ▪ A new partner is liable to the extent of
the rule when there is no agreement his personal property (if general partner)
for subsequent obligations like an
original partner.
 ▪ Responsible to the partnership for ▪ Associate shall not be admitted to the
damages suffered by it through his fault. Partnership without the consent of ALL
(Article 1794 ) the partners

▪ An industrial partner cannot engage in ▪ What happens when a partner associate

business for himself, unless the someone with his partnership interest?
partnership expressly permits him to do
▪ What happens when a partner assign or
so. (Article 1789)
convey his interest to another?
▪ Partners shall render on demand true
▪ Can a partner be forced to assign his
and full information of all things
interest to another person?
affecting the partnership to any partner
or the legal representative of any
deceased partner or of any partner
under legal disability. (Article 1806) II. ASSIGNMENT OF PARTNER’S INTEREST :

▪ Every partner must account to the ▪ Can be done without the consent of the
partnership for any benefit, and hold as other partners
trustee for it any profits derived by him ▪ Does not dissolve the partnership,
without the consent of the other unless there is an agreement.
partners from any transaction
connected with the formation, conduct, ▪ Does not entitle the assignee to
or liquidation of the partnership or from interfere in the management and
any use by him of its property. (Article administration of the partnership affairs.
1807) ▪ Assignee merely receives his share in
▪ The capitalist partners cannot engage profits in accordance with what the
for their own account in any operation assigning partner would have received.
which is of the kind of business in which ▪ IN CASE OF FRAUD, assignee may ask for
the partnership is engaged, unless there the dissolution of the partnership
is a stipulation to the contrary. through a court decree.
ASSOCIATION AND ASSIGNMENT OF III. ASSIGNMENT OF INTEREST BY COURT
PARTNER’S INTEREST DECREE:
I. ASSOCIATION OF OTHERS TO PARTNER’S ▪ Must be made by a JUDGMENT creditor
INTEREST: upon due application to a competent
court.
▪ Can be done without the consent of
other partners
 ▪ Court may charge the interest of the -A partner cannot possess the partnership
debtor partner with payment of property for any other purpose other than
unsatisfied amount of such judgment partnership purpose without the consent of
debt with interest thereon. ALL the partners

▪ Court may appoint a receiver of the -Not subject to attachment or execution except
debtor partner’s share in profit for the on a claim against the partnership.
benefit of the judgment creditor
II. Partner’s Interest in the Partnership.
III. ASSIGNMENT OF INTEREST BY COURT
- Share in Profits and surplus
DECREE (REMEDIES):
- Partnership Surplus is equivalent to
▪ Interest charged may be redeemed at
Partnership Assets – Partnership
any time before foreclosure, or in case
Liabilities.
of a sale being directed by the court:

- With separate property, by any one or more

of the partners; or
- Court may appoint a receiver of the debtor
partner’s share in profit for the benefit of the Obligations of the Partners with regard to
judgment creditor Third Persons

PROPERTY RIGHTS OF A PARTNER • All partners, including industrial ones,

are liable equally with all their property
What are the Property Rights of a Partner? and after all the partnership assets have
a. His rights in specific partnership property; been exhausted, for the contracts which
may be entered into in the name and for
b. His interest in the partnership; and the account of the partnership, under its
c. His right to participate in the management signature and by a person authorized to
act for the partnership.
I. Rights in a Specific Partnership.
• The partnership is liable for the acts of a
- Partner is considered as a co-owner with his partner who acts within the scope of his
partners of specific partnership property authority
- A partner cannot assign his interest over a All partners are liable solidarily with the
specific partnership property unless all the partnership for everything chargeable to
partners will assign theirs. the partnership as a result of the following:
  - A partner can possess the property for
partnership purpose.
 -Liability incurred due to any wrongful Until when does a partnership exist as a body
act or omission of any partner acting in the corporate?
ordinary course of the business of the
• Until termination, but only for purposes
partnership or with the authority of his co-
of winding up the affairs only (General
partners
Rule)
-Liability incurred where one partner
CAUSES OF DISSOLUTION
acting within the scope of his apparent
authority receives money or property of a I. WITHOUT NEED OF COURT DECREE
third person and misapplies it;
a. Dissolution Effected without violation of the
- Liability incurred where the Partnership Agreement:
partnership in the course of its business
receives money or property of a third • By the termination of the definite term
person and the money or property so or particular undertaking specified in the
received is misapplied by any partner while agreement;
it is in the custody of the partnership. • By the express will of any partner, who
must act in good faith, when no definite
term or particular is specified;

• By the express will of all the partners

who have not assigned their interests or
suffered them to be charged for their
MODES OF RETIREMENT AND
separate debts, either before or after
REQUIREMENTS
the termination of any specified term or
DISSOLUTION particular undertaking;

• is the change in the relation of the • By the expulsion of any partner from the
partners caused by any partner ceasing business bona fide in accordance with
to be associated in the carrying on of such a power conferred by the
business as distinguished from the agreement between the partners;
winding up of the business. b. Dissolution Effected in Contravention of
WINDING UP – Partnership Agreement:

• On the other hand, is the process of • By the express will of any partner at any
settling business affairs after dissolution. time

• By any event which makes it unlawful

TERMINATION
for the business of the partnership to be
• is the point where all the partnership carried on or for the members to carry it
affairs have been wound up. on in partnership.
 •  Loss of the specific thing promised to be EFFECTS OF DISSOLUTION:
contributed provided that the
Terminates the authority of partners to
Partnership is not yet the owner of the
contract in behalf of the partnership except:
thing at the time of loss.
a. For winding-up; and
• Death, Insolvency, and Civil interdiction
of the any partner b. Contracts already entered into.
(Civil interdiction is a legal restraint upon a WHEN DISSOLUTION IS CAUSED BY THE
person incapable of managing his estate, ACT, DEATH OR INSOLVENCY OF A
because of mental incapacity or conviction of a
PARTNER
crime, from signing any deed or doing any act
to his own prejudice, without the consent of his Each partner is liable for any liability created by
curator or interdictor.) a partner acting for the partnership as if the
partnership had not been dissolved UNLESS:
II. Dissolution effected through a Court
Decree whenever: a. The partner acting for the partnership
had knowledge of the dissolution
a. A partner has been declared insane in
any judicial proceeding or is shown to be b. The partner acting for the partnership
of unsound mind; had knowledge or notice of the death or
insolvency.
b. A partner becomes in any other way
incapable of performing his part of the After dissolution, a partner can bind the
partnership contract; partnership:

c. A partner has been guilty of such a. By any act appropriate for winding up
conduct as tends to affect prejudicially partnership affairs or completing
the carrying on of the business; transactions unfinished at dissolution

d. A partner willfully or persistently b. By any transaction which would bind the

commits a breach of the partnership partnership if dissolution had not taken
agreement, or otherwise so conducts place, provided the other party to the
himself in matters relating to the transaction had no knowledge or notice
partnership business that it is not of the dissolution of the partnership
reasonably practicable to carry on the
The partnership is in no case bound by any act
business in partnership with him;
of a partner after dissolution:
e. The business of the partnership can only
a. Where the partnership is dissolved
be carried on at a loss;
because it is unlawful to carry on the
f. Other circumstances rendering a business, unless the act is appropriate
dissolution equitable. for winding up partnership affairs; or
 b. Where the partner has become b. The contributions of the partners
insolvent; or necessary for the payment of all the
liabilities specified in No. 2.
c. Where the partner has no authority to
wind up partnership affairs 2. Order of Liability:

When dissolution is caused in contravention (a) Those owing to creditors other than
of the partnership agreement the rights of the partners,
partners shall be as follows: (b) Those owing to partners other than for
capital and profits,
a. Partners who have not caused the
(c) Those owing to partners in respect of
dissolution wrongfully shall have (Innocent
capital,
Partners):
(d) Those owing to partners in respect of
i. The right to the surplus of the profits.
partnership assets after paying all the
Where a partner has become insolvent or his
partnership liabilities
estate is insolvent, the claims against his
ii. The right to damages against the partner separate property shall rank in the following
who wrongfully dissolved that order:
partnership
(a) Those owing to separate creditors;
iii. The right to continue the partnership if
(b) Those owing to partnership creditors;
all the other partners decide to do so
provided the partnership indemnify the (c) Those owing to partners by way of
guilty partner of his share of the contribution.
partnership assets less damages.
LIMITED PARTNERSHIP
b. Partner who caused the wrongful
A limited partnership is one formed by two or
dissolution shall have (GUILTY PARTNER):
more persons under the provisions of the
1. The right to the surplus of the following article, having as members one or
partnership assets after paying all the more general partners and one or more limited
partnership liabilities subject to liability partners.
for damages.
2. If the business is continued, is entitled to CONTRIBUTIONS OF A LIMITED PARTNER
indemnity from the continuing partners. Maybe cash or property but NOT services.
Rules in settling accounts between the (Article 1845)

partners after dissolution: Can a Limited partner be a general partner at

the same time?
1. The assets of the partnership are:

a. The partnership property,

Yes (1) If he so desires provided that this fact limited partner would otherwise be entitled to
shall be stated in the certificate of partnership the return of his contribution.
(Article 1853) (2) He takes part in the control of
Liability of a Limited Partner
the business (Article 1848)
(1) Liable for the difference between his
Without the written consent or ratification of
contribution as actually made and that stated
the specific act by all the limited partners, a
in the certificate as having been made, and
general partner or all of the general partners
(2) Liable for any unpaid contribution which he
have no authority to:
agreed in the certificate to make in the future
(1) Do any act in contravention of the at the time and on the conditions stated in the
certificate; certificate.
(2) Do any act which would make it impossible (3) Liable to partnership creditors up to the
to carry on the ordinary business of the extent of his contribution
partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign Who is a Substituted Limited Partner?
their rights in specific partnership property, for
other than a partnership purpose; • Is a person admitted to all the rights of a
(5) Admit a person as a general partner;   limited partner who has died or has
(6) Admit a person as a limited partner, unless assigned his interest in a partnership.
the right so to do is given in the certificate; • An assignee is not always a substituted
(7) Continue the business with partnership limited partner but a substituted limited
property on the death, retirement, insanity, partner is always an assignee
civil interdiction or insolvency of a general • Assignee becomes a substituted limited
partner, unless the right so to do is given in the partner if all the members consent
certificate. thereto or if the assignor, being
thereunto empowered by the
What are the rights of a limited partner? certificate, gives the assignee that right
All the rights of a general partner except, the When is a Limited partnership dissolved?
right to manage the partnership business.
• Upon retirement, death, insolvency,
When can a limited partner ask for the insanity or civil interdiction of a general
dissolution of the partnership? partner dissolves the partnership, unless
the business is continued by the
(1) When he rightfully but unsuccessfully
remaining general partners
demands the return of his contribution, or 
(2) When the other liabilities of the partnership Rules in settling accounts after dissolution
have not been paid, or the partnership (Order of liability)
property is insufficient for their payment as
required by the first paragraph, No. 1, and the
(1) Those to creditors, in the order of priority as
provided by law, except those to limited
partners on account of their contributions, and
to general partners;
(2) Those to limited partners in respect to their
share of the profits and other compensation by
way of income on their contributions;
(3) Those to limited partners in respect to the
capital of their contributions;
(4) Those to general partners other than for
capital and profits;
(5) Those to general partners in respect to
profits;
(6) Those to general partners in respect to
capital.