PARTNERSHIPS

o Partnership is a contract whereby 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, or in order to exercise a
profession.

CHARACTERISTICS
✔ Consensual – it is perfected by mere consent or the meeting of minds between parties.
✔ Bilateral or multilateral – it is entered into between two or more persons.

✔ Nominate – it is designated by a specific name.

✔ Principal – its existence does not depend on the life of another contract.

✔ Onerous – certain contributions have to be made.

✔ Preparatory – in the sense that after it has been entered into, other contracts essential in the carrying out of its
purposes can be entered into.

PRINCIPLES APPLICABLE:
1. There must be Affectio Societatis - the desire to formulate an ACTIVE union with people among whom
there exists mutual confidence and trust.
2. Delectus Personae ( Personal Choices) - which means that a partner has a right to choose those whom
he wants to be associated with the partnership because it is based on trust and confidence. Admission of
a third person as a partner requires unanimous consent of all the partners because being a partner is
purely personal. Thus a purchaser or consignee of an interest of a n existing partner does not
automatically become a partner in an existing partnership without the unanimous consent of all partners.
As a consequence, partnership as a form of business organization has no right of succession.

PURPOSE:
Can either be for the intention of dividing the profits among themselves, or in order to exercise a profession. Nevertheless, it is
required that a partnership must have a LAWFUL OBJECT OR PURPOSE, otherwise it may be declared dissolved by
juridical decree, and the profits shall be confiscated in favor of the state. (Art. 1770)
Characteristics of a Partnership
A. Ease of formation - as compared to corporations, the formation of a partnership requires less formality.
B. Separate legal personality – the partnership has a juridical personality separate and distinct from the partners.
The partnership can transact and acquire properties in its name.
C. Mutual agency - the partners are agents of the partnership for the purpose of its business. As such, a partner
may legally bind the partnership to a contract or agreement that is in line with the partnership’s operations.
D. 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 property for partnership purposes. However,
a partner has no right to possess a partnership property for any other purpose without the consent of his
partners.
E. Co-ownership of profits – a partnership is created as a business (a profit-oriented entity), as such, each partner
is entitled to his share in the partnership profit. A stipulation which excludes one or more partners from any
share in the profits or losses is void. (Art. 1799 of the Civil Code of the Philippines)
F.Limited life – a partnership is easily dissolved;
i. By the express will of any partner;
ii. By the termination of a definite term stipulated in the contract;
iii. By any event which makes it unlawful to carry out the partnership;
iv. When a specific thing which a partner had promised to contribute to the partnership perishes before the
delivery [Art. 1830 (4)]
 v. Expulsion, death, insolvency or civil interdiction of a partner.
G. Transfer of ownership – in case of dissolution, the transfer of ownership, whether to a new or existing partner,
requires the approval of the remaining partners.
H. Unlimited liability – each partner, including industrial ones, may be held personally liable for partnership debt
after all partnership assets have been exhausted. If a partner is personally insolvent, his share in the partnership
shall be assumed by the other solvent partners.
⮚ A partnership in which all partners are individually liable is called a general partnership.

⮚ A partnership in which at least one partner is personally liable is called a limited partnership. A limited
partnership includes at least one general partner who maintains unlimited liability. The others, called
limited partners, may limit their liability up to the extent of their contributions to the partnership. A limited
liability partnership usually has “LLP” in its name.

PARTNERSHIP VS. CORPORATION

PARTNERSHIP CORPORATION
Created by the state in the form of a special character or by
Creation: Voluntary agreement of parties. a general enabling law (The Corporation Code).
Existence: No time limit except agreement of parties. Not more than 50 years.
Liability: may extend to private property. Liable only for payment of their subscribed capital stock.
Transferability of Interest: All partners need to Does not need the consent of the other stockholders.
consent to the transfer of interest to another.
Ability to bind the firm: Generally, partners acting on Generally, stockholders cannot bind corporations since its
behalf of the partnership are agents thereof. official acts are through a board of directors.
Mismanagement: A partner can sue another partner A stockholder cannot sue a director who mismanages, it
who mismanages. must be in the name of the corporation.
Nationality: A partnership is a national of the country Generally, under whose laws it was created.
where it was created.
Legal Personality: from the time the contract begins. From registration with the Securities and Exchange
Commission.
Dissolution: Death, retirement, insolvency, civil Such causes do not dissolve a corporation.
interdiction, or insanity of a partner dissolves the
partnership.

❖ Separate juridical personality: The partnership has a judicial personality separate and distinct from that of each of the
partners.
The partnership can, in general:
1. Acquire and possess property of all kinds.
2. Incur obligations.
3. Bring civil or criminal actions.
4. Adjudged insolvent even if the individual members be each financially solvent.
❖ Rules to apply in determining existence of partnership
o Except for partnerships by estoppel, persons who are not partners as to each other are not partners as to third persons.
o Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or
do not share any profits made by the use of the property.
o The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns are derived.
o The receipt by a person of a share of the profits of a business’s prima facie evidence that he is a partner in the business, but
no such inference shall be drawn if such profits were received in payment:
 As a debt by installments or otherwise.
 As wages of an employee or rent to a landlord.
 As an annuity to a widow or representative of a deceased partner.
 As interest on a loan, though the amount of payment varies with the profits of the business.
 As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

Formal requirements:
General Rule: A partnership may be constituted in any form:
A partnership may be constituted in any form, except:
• Where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.
 A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
• Capital is more than P3,000 – the contract of partnership must appear in a public instrument, which must be recorded in
the SEC.

KINDS OF PARTNERSHIP

❖ According to OBJECT

❖ Universal partnership of all profit vs. Universal partnership of all present property

Universal partnership of all profit Universal partnership of all present property

Only the usufruct of the properties of the All the property actually belonging to the partners are contributed both
partners become common property; naked ownership and naked ownership.
ownership is retained by each of the partners.
All profits acquired by industry or work of the As a rule, aside from the contributed properties, only the profits of the
partners become common property contributed property.
(regardless of whether or not said profits were Profits from other sources may become common, but only if there is a
obtained through the usufruct contributed). stipulation to such effect.

Properties subsequently acquired by inheritance, legacy, or donation,

cannot be included in the stipulation, but the fruits thereof can be in
included in the stipulation.
 ❖ Persons not allowed to form a universal partnership: those who cannot donate to each other, namely:
A. Husband and wife (Art. 133).
B. Those guilty of adultery and concubinage (Art. 739).
C. Those guilty of the same criminal offense, if the partnership was entered into in consideration of the same (Art.
739).
• A universal partnership is virtually a donation to each other of the partner’s properties (or at least their usufruct).
Therefore, if persons are prohibited by law to donate to each other, they should not be allowed to do indirectly what the
law forbids directly.

o Particular where the object are:

A. Determinate things, their use or fruits;
B. A specific undertaking, or
C. The exercise of a profession or occupation.

❖ According to LIABILITY
1. General Partnership where all the partners are general partners whose liability extends to their individual
properties, after the assets of the partnership have been exhausted.
2. Limited Partnership where at least one of the partners are liable only up to the extent of his contribution.

❖ According to TERM
1. Partnership with a fixed term or particular undertaking - upon arrival of the fixed term or fulfilment of a particular
undertaking, partnership is dissolved, and if continued, it will constitute a partnership at will and the rights and
duties of the partners remain the same, so far as is consistent with a partnership at will.
2. Partnership at will – when there is no fixed term or particular undertaking.

❖ According to TERM
1. Ordinary partnership is a partnership which actually exists among the partners as well as to third persons.
2. Partnership by estoppel or nominal partnership is a partnership which in reality is not a partnership but is
considered as one with respect to those who, by reason of their conduct or admission, are precluded from denying
its existence.
3. Partnership by prescription is a partnership which is established by the lapsing of time.
4. De jure Partnership is a partnership that exists both in fact and in law.
5. De facto partnership is a partnership that exists in fact but not in law.
6. Commercial partnership or business partnership is a partnership formed by two or more persons who bind
themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves. It is a taxable corporation in so far as income tax is concerned.
7. General professional partnership is a partnership formed for the exercise of a common profession. It is a tax-
exempt entity in so far as Income Tax is concerned because it will be the practitioner partners who will be liable to
pay income tax in their separate income tax returns for their share in net income of general professional
partnership.
KINDS OF A PARTNERS
❖ According to CONTRIBUTION
1. Capitalist Partners - contributes capital; and
2. Industrial Partners - furnishes industry or labor.
3. Capitalist-industrial partners - furnishes both.

❖ As to the LIABILITY
1. General partners - liable up to his personal assets.
2. Limited partners - Liable up to his capital contributions only.
3. General-limited partner - one who has all the rights and powers and is subject to all the restrictions of a general
partner, except that, in respect to his contribution, he shall have the rights against the other members which he
would have had if he were not also a general partner.

❖ Other kinds of partners

1. Silent partner - one who does not participate in the management of the partnership.
2. Secret partner - one who is not known to third persons as a partner.
3. Dormant partner - one who is both a silent and secret partner.
4. Ostensible partner - direct opposite of a dormant partner or one who participates in the management and is known
to third parties as a partner.
5. Managing partner - one who undertakes the management of the partnership
6. Liquidating partner - one who undertakes the winding-up of partnership affairs after its dissolution.
7. Incoming partner - one who is admitted to the partnership after it has already been constituted.
8. Nominal partner or partner by estoppel - not actually a partner but who may become liable as such to third persons.
9. Quasi-partner - one who is no longer a partner of business but has left his capita; in the business as loan. he
receives interest on such as long as the loan is not paid off.
10. Retiring partner- one who decided to leave the partnership after reaching the age of retirement.
11. Substituted limited partner - a person admitted to all the rights of a limited partner who has died or has assigned his
interest in a partnership.

OBLIGATIONS AND RIGHTS OF THE PARTNERS

❖ OBLIGATIONS OF A PARTNER:

a. To give his contribution

 No demand is necessary to incur delay because the obligation is one where time is of the essence (Art. 1169) and shall
be liable for damages (Art. 1170).
 A partner must exercise due diligence in preserving the thing promised to be contributed; otherwise, he shall be liable
for loss and deterioration.

b. Deliver the fruits of what has been delivered:

 Fruits referred herein are of the thing/s contributed at the time that the latter should have been delivered.
 If partner is in bad faith, he is liable for (1) the fruits actually produced and (2) the fruits that could have been produced.
 If what has been promised is money, the partner is liable for the interest and damages from the time that he should
have contributed the money (Art. 1788).
 Before delivery of such promised things, ownership remains with the partner since actual or constructive delivery
transfers ownership.
c. RISK OF LOSS
Loss borne by the partner:
A. Thing contributed is specific and determinate which is not fungible and only their use and fruits may be for the
common benefit; and
B. There is stipulation that he shall bear the loss of the thing brought and appraised in the inventory.

Loss borne by the partnership:

A. Thing contributed are:
• Fungible;
• Cannot be kept without deteriorating; or
• They were contributed to be sold; and
B. There was appraisal in the inventory and no stipulation that partner will bear the loss.

d. Not to convert partnership funds/ property for his own use (Art. 1788).
e. Not to engage in unfair competition (applicable to capitalist partner); not to engage in any other industry at all without
the consent of the partnership (applicable to industrial partner) (Art. 1808).
f. To account for and hold as trustee, unauthorized personal profits (Art. 1807).
g. Pay for damages caused by his fault (Art. 1794).
h. Credit to the firm the payment made by a debtor who owes both the partnership and the partner (Art. 1792).
i. Share with other partners the share of the partnership credit which he has received from an insolvent firm debtor (Art.
1743).

SOME RIGHTS OF A PARTNER

 Property rights (Art. 1810).
 To associate with another person in his share (Art. 1804).
 To inspect and copy partnership books (Art. 1805).
 To demand a formal account (Art. 1809).
 To ask for a dissolution of the firm at the proper time (Art. 1830-31).

Prohibition to engage in other businesses

 Industrial partners - cannot engage in business for himself except when the capitalist partners permit him to do so.
Effect of non-compliance:
The capitalist partners may either
 1. Exclude him from the firm, or
2. Avail themselves of the benefits which he may have obtained in violation of this provision.
3. Capitalist partners – the prohibition is limited to businesses in the same industry as that of the partnership which
may result in competition.
o Exceptions:
 When it is expressly stipulated that the capitalist partner can engage himself.
 When the other partners expressly allow him to do so.
 When the other partners impliedly allow him to do so, as when all are violation the article.
 During the period of liquidation and winding up, when the partnership is already non-existent.
 When the general-capitalist partner becomes a limited partner in a competitive enterprise.

o Effect of non-compliance:
 He shall bring to the partnership all the profits illegally obtained.
 He is liable, personally, for all the losses.
 He may be ousted for loss of trust and confidence.
 Forced sale of partner’s interest: In case of an imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital to save the venture, shall he obliged to sell his interest to the
other partners.

o Except:
 Industrial partners except if there is stipulation that he will likewise contribute.
 If there is stipulation to the contrary.
 Managing partner collecting from a common debtor: To prevent the managing partner from furthering his personal
interest to the detriment of the firm, if such managing partner collects a sum from a common debtor who owes money
both to said partner and to the partnership:
 If the managing partner issued a receipt in the name of the partnership: the payment shall be applied to the partnership
credit.
 If the managing partner issued a receipt in his name: the payment shall be applied proportionate to the amounts of the
two debts, except when the debt owed by the debtor to the managing partner is more onerous, the debtor may choose
to apply the payment exclusively to such.

DISTRIBUTION OF PROFITS AND LOSSES

Distribution of profits:
1. In accordance with the agreement.
2. In proportion to contribution and the industrial partner shall receive such share as may be just and equitable.
Distribution of losses:
1. In accordance with agreement. If there was agreement as to profits but not losses, same proportion.
2. In proportion to contribution but the industrial partner shall not be liable for losses.
o An industrial may be made liable for losses only if there was stipulation to that effect.
Void Stipulation: A stipulation which excludes one or more partners from any share in the profits or losses.

Rules on management
o Managing partner in the articles of partnership: May execute all acts of administration, in good faith, even with
opposition from the other partners.
• The power to execute all acts of administration can only be revoked if (a) with just or lawful cause; and (2) by a vote of
the partners representing the controlling interest.
o Managing partner after partnership has been constituted: the power as manager may be revoked by a vote of the
partners representing the controlling interest even without just or lawful cause.
o Multiple managing partners: If two or more partners have been entrusted with the management of the partnership
without specification of their respective duties, or without a stipulation that one of them shall not act without the consent
of all the others:
1. Each partner may separately execute all acts of administration.
2. Should one of the managing partners oppose the act of another, the matter shall be decided by a majority of the
managing partners per head count.
3. Should there be a tie in the votes of the managing partners, the controlling interest of ALL the partners shall prevail.

o Stipulation that no partner cannot act without the support of partners: the concurrence of all shall be necessary for the
validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger
of grave or irreparable injury to the partnership.
o No agreement as to management of partnership:
 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 (on Multiple Managing Partners).
 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.
Associate: Every partner may associate another person with him in his share, but the associate shall not be admitted into
the partnership without the consent of all the other partners, even if the partner having an associate should be a
manager.

PROPERTY RIGHTS OF A PARTNER

o His rights in specific partnership property – a partner is a co-owner with his partners of specific partnership property.
The incidents of such co-ownership are:
 A partner, subject to any agreement between the partners, has an equal right with his partners to possess specific
partnership property for partnership purposes; but he has no right to possess such property for any other purpose
without the consent of his partners.
 A partner's right in specific partnership property is not assignable except in connection with the assignment of rights of
all the partners in the same property.
 A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the
partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right under the homestead or exemption laws.
 A partner's right in specific partnership property is not subject to legal support.
o His interest in the partnership - A partner's interest in the partnership is his share of the profits and surplus.

Effect of conveyance of a partner’s whole interest:

o Does not, in itself, dissolve the partnership. The partnership is deemed dissolved only if there is stipulation to that effect.
o The conveyee does not necessarily become a partner and such has no right to:
 Demand accounting and settlement;
 Interfere in the management or administration of the partnership business; or
 Demand information, accounting and inspection of the partnership books.

o Rights of the assignee/conveyee:

 To get profits the assignor-partner would have obtained.
 To avail of the usual remedies in case of fraud in the management.
 Receive assignor’s interest in the event of a dissolution.

Partner’s Interest may be subject to a charge or attachment by the court:

o Only the interest, that is profits and surplus of the partner and not his share in the specific properties of the partnership.
o Priority is still given to creditors of the partnership.
o Such interest may be redeemed prior to foreclosure with:
 The separate property of any one or more of the partners; or
 Partnership property with the consent of all the other partners.
o His right to participate in the management.

Obligations of partners with regard to third parties:

Firm name: Every partnership shall operate under a firm name, which may or may not include the name of one or more of
the partners.
o Strangers who include their name in the firm are liable as partners because of estoppel but do not have the rights of
partners
– this is to protect customers from being misled.
Under Art. 1846, if a limited partner included his name in the firm name, he shall be liable as a general partner.
 Liability after exhaustion of partnership assets: All partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to perform a partnership contract.
o Any stipulation to the contrary shall be void, except as to the partners.
 Authority to act for and in behalf of the partnership: Every partner is an agent of the partnership for the purpose of its
business.
o The authority of the partner to act in behalf of the partnership may be (a) express; or (b) implied when he apparently
carries on the usual business of the partnership. In the latter, the act of the partner would bind the partnership, unless (i)
he has in fact no authority to act in behalf of the partnership; and (ii) the person to whom he is dealing has knowledge of
the fact that he has no such authority.
o If the partner is not carrying on the usual business of the partnership, the act will not bind the partnership unless it is
authorized by the other partners.
o 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:
 Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership.
 Dispose of the goodwill of the business.
 Do any other act which would make it impossible to carry on the ordinary business of a partnership.
 Confess a judgment.
 Enter into a compromise concerning a partnership claim or liability.
 Submit a partnership claim or liability to arbitration.
 Renounce a claim of the partnership.

 Effects of conveyance of real property:

o Partner conveys partnership’s property in a conveyance executed in the partnership’s name:
• General Rule: Partnership may recover.

• Except:
 When the act binds the partnership under the above.
 When ownership has been transferred in transferee who had no knowledge that the partner has exceeded his authority.

o Partner conveys partnership’s property in a conveyance executed in his own name:

• General Rule: passes only the equitable interest in the partnership.
• Exception: if the partner acted outside the scope of his authority.

o One or more partners, but not all, and the property is in their name, and they convey such property:
• General Rule: Partnership may recover if partners’ act does not bind the partnership.
• Except: if the purchaser or his assignee is an innocent holder for value.

o When the property is in the name of one or more partners, but not all, or in the name of third person in trust for the
partnership, a conveyance executed by a partner in the partnership name, or in his own name:
• General Rule: passes the equitable interest of the partnership.
• Except: The act is not within the apparent business of the partnership.

● Where the title to real property is in the name of all the partners a conveyance executed by all the partners:

• Passes all their rights in such property.

 Solidary liability of the partnership with the partner: Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any
person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.

 Misappropriation: the partnership is bound to make good the loss, in two situations:
o Pertains to partner as receiver: Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it.
o Pertains to partnership as receiver: Where the partnership in the course of its business receives money or property of a
third person and the money or property so received is misapplied by any partner while it is in the custody of the
partnership.

 Partner by estoppel:
o One who represents himself as a partner of an existing partnership with or without consent of the partnership:
 When the partnership consented – a partnership by estoppel is created between the original members and the deceiver.
A partnership liability results.
 When the partnership did NOT consent – deceiver becomes a partner by estoppel where he is liable as a partner but
does not acquire the rights thereof. No partnership liability exists.
o One who represents himself as a partner of a non-existent partnership. Liability of parties is pro rata, since there is no
partnership liability.
 This applies whenever the third person is misled by the representation.
 Liability of new partner to previous obligations:
 He is liable for the obligations already contracted before his admission but only to the extent of his contribution.
 He is liable to the extent of his personal property for subsequent obligations like an original partner.

o It is not considered harsh since he is to partake of the benefits of the partnership property and an established business.
o He has every means of protecting himself by asking for a liquidation or settlement of the existing debts while the
creditors have no such means.

Dissolution and winding-up

o 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.
o Winding up: on the other hand, is the process of settling business affairs after dissolution.
o Termination: is the point where all the partnership affairs have been wound up.

Causes of dissolution:
 Extrajudicial causes: without intervention of the court:
o Without violation of the agreement between the partners:
 By the termination of the definite term or particular undertaking specified in the agreement.
 By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is
specified.
 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.
 By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the
agreement between the partners.

o 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.
o By operation of law:
 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.
 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.
 By the death of any partner.
 By the insolvency of any partner or of the partnership.
 By the civil interdiction of any partner.
 Judicial causes: where the dissolution of the partnership is decreed by the court:
 A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind.
 A partner becomes in any other way incapable of performing his part of the partnership contract.
 A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business.
 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.
 The business of the partnership can only be carried on at a loss.
 Other circumstances render a dissolution equitable.

Effects of dissolution:
 Act, Insolvency or Death:
o If the cause of the dissolution is AID – notice should be given by the partners to terminate the mutual agency.
o If the cause is not AID – the mutual agency is terminated, and the dissolution is binding even without notice.
 The following acts are still binding even after dissolution:
o Acts to for winding-up of the affairs of the partnership.
o Contracts with creditors who had no notice of the dissolution.
 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
o This is the process of liquidating the partnership assets and the distributing the proceeds to satisfy the claims against
the partnership.
o Distribution of Assets: will be done in the following order:
 Those owing to creditors other than partners.
 Those owing to partners other than for capital and profits.
 Those owing to partners in respect of capital.
 Those owing to partners in respect of profits.

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

Limited partnership
o Limited Partnership: is one formed by two or more persons under the provisions of the following article, having as
members one or more general partners and one or more limited partners.
o 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.
o Formation: two or more persons desiring to form a limited partnership shall:
o Sign and swear to a certificate, which shall state:
 The name of the partnership, adding thereto the word "Limited".
 The character of the business.
 The location of the principal place of business.
 The name and place of residence of each member, general and limited partners being respectively designated.
 The term for which the partnership is to exist.
 The amount of cash and a description of and the agreed value of the other property contributed by each limited partner.
 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.
 The time, if agreed upon, when the contribution of each limited partner is to be returned.
 The share of the profits or the other compensation by way of income which each limited partner shall receive by reason
of his contribution.
 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.
 The right, if given, of the partners to admit additional limited partners.
 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.
 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.
 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

Limitations on a limited partner

o A limited partner cannot be an industrial partner. His contribution must always be money or property.
o The surname of a limited partner shall not appear in the partnership name unless:
 It is also the surname of a general partner, or
 Prior to the time when the limited partner became such, the business has been carried on under a name in which his
surname appeared.
• Otherwise, a limited partner whose name appears in the partnership name, not covered by the above exemptions, is
liable as a general partner.
o The limited partner cannot take part in the management of the partnership. Otherwise, he shall be liable as a general
partner.

Rights of a limited partner

o 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;
o 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
o Have dissolution and winding up by decree of court.
o 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:
 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;
 The consent of all members is had, unless the return of the contribution may be rightfully demanded as provided in the
previous item; and
 The certificate is cancelled or so amended as to set forth the withdrawal or reduction.
o Rightfully demand for his contribution:
 On the dissolution of a partnership; or
 When the date specified in the certificate for its return has arrived, or
 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.

o Have his written consent or ratification be sought by the general partner/s in order to:
 Do any act in contravention of the certificate.
 Do any act which would make it impossible to carry on the ordinary business of the partnership.
 Confess a judgment against the partnership.
 Possess partnership property, or assign their rights in specific partnership property, for other than a partnership
purpose.
 Admit a person as a general partner.
 Admit a person as a limited partner, unless the right so to do is given in the certificate.
 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.
o A limited partner may loan money and to transact other business with the partnership, subject to the following
restrictions:
 He cannot receive or hold as collateral security any partnership property.
 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.
❖ Assign his rights. However, the assignee does not necessarily become a substitute limited partner.
 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:
 All the partners consent.
 The assignor (Limited Partner), being thereunto empowered by the certificate, gives the assignee that right.
 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.
 The substitution does not release the original limited partner from liability to the partnership.
 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.

Dissolution and winding-up

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