DISSLUTION AND WINDING-UP

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 of the business.

On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.

Winding up on the other hand, is the process of settling business affairs after dissolution.

Termination: is the point where all the partnership affairs have been wound up

CAUSES OF DISSOLUTION:

Extrajudicial causes: without intervention of the court.

1. Without violation of the agreement between the partners.
a. By the termination of the definite term or particular undertaking specified in the
agreement;
b. By the express will of any partner, who must act in good faith, when no definite term
or particular is specified;
c. By the express will of all the partners who have not assigned their interests or suffered
them to be charged for their separate debts, either before or after the termination of any
specified term or particular undertaking;
d. By the expulsion of any partner from the business bona fide in accordance with such a
power conferred by the agreement between the partners.

2. In contravention of the agreement between the partners, where the circumstances do not
permit a dissolution under any other provision of this article, by the express will of any
partner at any time;

Note: that the partnership may be dissolved with or without contravention to the
agreement of the parties, but if it is dissolved in contravention to the agreement, the partner
who causes the dissolution will be liable for damages. In Ortega vs. CA, it was held by the SC
that "neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will
of a partner. Among partners, mutual agency arises and the doctrine of delectus personae
allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action for
damages (GR No. 109248 July 3, 1995).

3. By operation of law:
a. By any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership;
 b. When a specific thing which a partner had promised to contribute to the partnership,
perishes before the delivery; in any case by the loss of the thing, when the partner
who contributed it having reserved the ownership thereof has only transferred to the
partnership the use or enjoyment of the same, but the partnership shall not be dissolved
by the loss of the thing when it occurs after the partnership has acquired the ownership
thereof;
c. By the death of any partner;
d. By the insolvency of any partner or of the partnership;
e. By the civil interdiction of any partner

Judicial causes: where the dissolution of the partnership is decreed by the court:
1. A partner has been declared insane in any judicial proceeding or is shown to be of unsound
mind;
2. A partner becomes in any other way incapable of performing his part of the partnership
contract;
3. A partner has been guilty of such conduct as tends to affect prejudicially the carrying
on of the business;
4. A partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him;
5. The business of the partnership can only be carried on at a loss;
6. Other circumstances render a dissolution equitable

Note that in all the above judicial causes, a trial will be necessary to prove the facts necessary
to dissolve the partnership.

EFFECTS OF DISSOLUTION:
1. The mutual agency is terminated. As a rule, the partners can no longer act to bind the
partnership, subject to the following rules:
a. If the cause of the dissolution is Acts, Insolvency or Death (AID) - NOTICE should
be given by the partners to terminate the mutual agency
b. If the cause is NOT AID-the mutual agency is terminated and the dissolution is
binding even without notice
2. The following acts are still binding even after dissolution:
a. Acts to for winding-up of the affairs of the partnership
b. Contracts with creditors who had no notice of the dissolution

3. The partners may continue the partnership after dissolution of the old partnership Such
continuation still dissolves the old partnership and a new partnership is created. The
creditors of the old partnership are also creditors of the person or partnership continuing
the business.
WINDING UP OR LIQUIDATION

This is the process of liquidating the partnership assets and the distributing the proceeds to
satisfy the claims against the partnership.

Liquidator: the liquidator shall be:

1. A party who has not wrongfully caused the dissolution;
2. The legal representative of the last surviving partner (if all are dead), if not insolvent;
3. The court, upon cause shown by a partner his legal representative or assignee.

Distribution of Assets: will be done in the following order:

1. Those owing to creditors other than partners;
2. Those owing to partners other than for capital and profits;
3. Those owing to partners in respect of capital;
4. Those owing to partners in respect of profits.

Note: that in the distribution of a Limited Partnership's assets priority is given to the share of
partners as to the profits over their share as to capital.

Partner's Liability: in case the assets of the partnership are not sufficient to cover the liabilities
the remaining claims may be satisfied against the separate assets of the partners.

However, where a partner has become insolvent, the claims against his separate property shall
be satisfied in the following order:
1. Those owing to separate creditors;
2. Those owing to partnership creditors;
3. Those owing to partners by way of contribution.

LIMITED PARTNERSHIP

Limited Partnership: is one formed by two or more persons having as members one or more
general partners and one or more limited partners.

Limited liability: a limited partners liability is limited only to his capital contribution Such that,
after exhaustion of partnership assets he cannot be made to contribute to answer the remaining
liabilities to third parties.

FORMATION: Two or more persons desiring to form a limited partnership shall:

Sign and swear to a certificate, which shall state -

a. The name of the partnership, adding thereto the word "Limited", - absence of the word
Limited or "LTD" in the firm name, the partnership will be treated as a general partnership.
b. The character of the business;
c. The location of the principal place of business;
 d. The name and place of residence of each member, general and limited partners being
respectively designated;
e. The term for which the partnership is to exist;
f. The amount of cash and a description of and the agreed value of the other property
contributed by each limited partner;
g. The additional contributions, if any to be made by each limited partner and the times at
which or events on the happening of which they shall be made;

(f) and (g) are important because as to any difference (in amount stated in the
certificate and actual contributions, or failure to provide additional contributions), the
limited partner will be liable as a debtor to the partnership.
h. The time, if agreed upon, when the contribution of each limited partner is to be
returned;

Note, however, that the limited partner may nevertheless demand the return of
his contribution:
i. After he has six months notice in writing to all other members, if no time is
specified in the certificate, either for the return of the contribution or for the
dissolution of the partnership; or
ii. On the dissolution of a partnership;

The above, however, is still subject to availability of funds after partnership

debts are paid.
i. The share of the profits or the other compensation by way of income which each
limited partner shall receive by reason of his contribution;
j. The right, if given, of a limited partner to substitute an assignee as contributor in his
place, and the terms and conditions of the substitution;

However, the assignee does not necessarily become a substitute limited partner.
i. Substitute Limited Partner: A Substituted Limited Partner is a person admitted to
all the rights of a limited partner who has died or has assigned his interest in a
partnership: Provided:
1) All the partners consent;
2) The assignor (Limited Partner), being thereunto empowered by the certificate,
gives the assignee that right.

ii. The substitute has all the rights and powers and is subject to all the restrictions and
liabilities of his assignor except those liabilities of which he was ignorant at the
time he became a limited partner and which could not be ascertained from the
certificate
1) The substitution does not release the original limited partner from liability to
the partnership.
2) If the assignee does not become an substitute, he has no right to require any
information or account of the partnership books, he is only entitled to receive
 the share of the profits or other compensation by way of income or the return
of his contribution to which his assignor would otherwise be entitled: The
assignee is still an OUTSIDER to the Partnership.

Limited Partners’ Interest: or his share in the profits and surplus may likewise be the subject
of assignment or attachment/execution. However, unlike the interest of a general partner, a
limited partners interest may only be redeemed with the general partners property and not with
partnership property. (see Rights of a Partner)
a. The right, if given, of the partners to admit additional limited partners;
b. The right if given, of one or more of the limited partners to priority over other limited
partners, as to contributions or as to compensation by way of income, and the nature of
such priority;
c. The right, if given, of the remaining general partner or partners to continue the business
on the death, retirement, civil interdiction, insanity or insolvency of a general partner; and
d. The right, if given, of a limited partner to demand and receive property other than cash in
return for his contribution.

The said certificate will be filed with the SEC and a limited partnership is formed if there has
been substantial compliance in good faith with the foregoing requirements. If such certificate
is not filed, the partnership may be liable in the same manner as a general partnership.

LIMITATIONS ON A LIMITED PARTNER:

1. A limited partner cannot be an industrial partner. His contribution must always be money
or property;
2. The surname of a limited partner shall not appear in the partnership name unless:
a. It is also the surname of a general partner, or
b. Prior to the time when the limited partner became such, the business has been carried
on under a name in which his surname appeared.
3. The limited partner cannot take part in the management of the partnership.

If a limited partner contributed industry, or his name appears in the partnership name (except
for the above exceptions) and/or took part in the management of the partnership, he shall be
liable as if he is a general partner.

RIGHTS OF A LIMITED PARTNER:

1. Have the partnership books kept at the principal place of business of the partnership, and
at a reasonable hour to Inspect and copy any of them;
2. Have on demand true and full information of all things affecting the partnership, and a
formal account of partnership affairs whenever circumstances render it just and reasonable;
and
3. Have dissolution and winding up by decree of court.
4. Receive a share of the profits or other compensation by way of income, and to the return
of his contribution. However, a limited partner shall not receive any part of his contribution
until:
 a. All liabilities of the partnership except liabilities to general partners and to limited
partners on account of their contributions, have been paid or there remains property of the
partnership sufficient to pay them;
b. The consent of all members is had, unless the return of the contribution may be
rightfully demanded as provided in number 5; and
c. The certificate is canceled or so amended as to set forth the withdrawal or reduction.
5. Rightfully demand for his contribution:
a. On the dissolution of a partnership; or
b. When the date specified in the certificate for its return has arrived; or
c. After he has six months notice in writing to all other members, if no time is specified
in the certificate, either for the return of the contribution or for the dissolution of the
partnership.
6. Have his written consent or ratification be sought by the general partners in order to:
a. Do any act in contravention of the certificate;
b. Do any act which would make it impossible to carry on the ordinary business of the
partnership;
c. Confess a judgment against the partnership;
d. Possess partnership property, or assign their rights in specific partnership property, for
other than a partnership purpose;
e. Admit a person as a general partner;
f. Admit a person as a limited partner unless the right so to do is given in the certificate;
g. Continue the business with partnership property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner, unless the right so to do is given in the
certificate.
7. A limited partner may loan money and to transact other business with the partnership,
subject to the following restrictions:
a. He cannot receive or hold as collateral security any partnership property;
b. He cannot receive any payment, conveyance or release from liability if at the time the
assets of the partnership are not sufficient to discharge partnership liabilities to persons
not claiming as general or limited partners.

Any violation of the above restrictions would be in fraud of creditors and may thus be treated
as a rescissible contract.

GENERAL-LIMITED PARTNER: A person may be a general partner and a limited partner

in the same partnership, provided that this fact is stated in the certificate.

He shall have the nights and powers and be subject to all the restrictions of a general partner.
Except that, in respect of his contribution, he shall have the rights against the other partners
which he would have had if he were not also a general partner.

DISSOLUTION AND WINDING-UP

Grounds: The retirement, death insolvency insanity or civil interdiction of a GENERAL
PARTNER dissolves the partnership. Except: If the partnership business is continued by the
remaining general partners under a right to do so as stated in the Certificate of Limited
Partnership OR with the consent of all the partners.

A limited partner may have the partnership dissolved and its affairs wound up when he
rightfully but unsuccessfully demands the return of his contribution.

Distribution of Assets of a Limited Partnership: will be done in the following order:

1. Those owing to creditors other than partners;
2. Those owing to the limited partners, other than capital and profits;
3. Those owing to the limited partners in respect of profits;
4. Those owing to the limited partners in respect of capital;
5. Those owing to general partners other than for capital and profits;
6. Those owing to general partners in respect of profits;
7. Those owing to general partners in respect of capital.

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