CHAPTER 1 PARTNERSHIP FORMATION
Partnership
– An unincorporated association of two or more individuals to carry on, as co-owners, a business, with
the intention of dividing the profits among themselves
The following distinguish a partnership from other types of entities
a. A partnership is owned by two or more individuals
b. A partnership created by agreement between partners
c. A partnership formed for a business undertaking that is normally for continuing nature
Characteristic of a partnership
1. Ease of formation – formation requires less formality
2. Separate legal entity – has a juridical personality separate and distinct from the partners
3. Mutual agency – Partners are agents of the partnership
4. Co-ownership of property – each partner is a co-owner of the properties invested in the
partnership and each has an equal right with his partners to possess specific partnership
5. Co-ownership of profits – each partner is entitled to his share in the partnership profit
6. Limited life – A partnership is easily dissolved
a. Express will of partner
b. Termination of a definite term stipulated in the contract
c. Event which make it unlawful to carry out the partnership
d. When a specific thing which a partner promised to contribute perished before the delivery
e. Expulsion, death, insolvency or civil interdiction of partner
7. Transfer of ownership – transfer of ownership requires the approval of the remaining partners
8. Unlimited liability – Each partner, including industrial ones, may be held personally liable for
partnership debt after all partnership assets have been exhausted.
- General partnership – all partners are individually liable
- Limited partnership – partnership which at least one partner is personally liable
FORMATION
- ORAL OR WRITTEN
Articles 1771 and 1772 of the Philippine civil code requires that a partnership agreement must be made
in a PUBLIC INSTRUMENT and record with the securities and exchange commission when:
a. Immovable property or real rights are contributed to the partnership
b. tha partnership has a capital of 3000 and more
The term “appraisal” as used in the civil code suggests valuation of capital contributions at FAIR VALUE
PFRS2 Share based payments that equity instruments issued for non-cash items should be valued at
FAIRVALUE
ALL ASSETS contributed to (and related liabilities assumed by) the partnership are initially measured at
FAIR VALUE
- Equity instrument – any contract that evidences residual interest in the assets of any entity after
deducting all of its liabilities
- Fair value – Price that would be received to sell an asset+
CHAPTER 2 PARTNERSHIP OPERATIONS
Division of profits
- In accordance with their partnership agreement
Article 1797 if the Philippine civil code provides the following additional rules in the profit or loss sharing
of partners:
- If only the share of each partner in the profits has been agreed upon, the share of each in the
lossess shall be in the same proportion
- In the absence of stipulation, the share of each partner in the profits and lossess 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 circustances. If besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital
INDUSTRIAL PARTNER – One who contributes services rather than cash or other non-cash assets.
Capitalist partner – Is one who contributes cash or other non-cash asset to the partnership
Both industrial and capitalist partner
- The designation of losses and profits cannot be entrusted to one of the partners. A stipulation
which excludes one or more partners from any share in the profits or losses is void
