PARTNERSHIP & CORPORATION

Business Law and Taxation

Atty. Genevieve R. Geronimo

 PARTNERSHIP
Nature and as Distinguished from
Corporation
 Partnership is covered by Article 1767-1867 of the Civil
Code of the Philippines;
 “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.” Art. 1767 Civil Code of
the Philippines
 “Two or more persons may also form a partnership for
the exercise of a profession.” Ibid.
 Nature and as Distinguished from
Corporation
Essential Elements Partnership Corporation
Governing Law Civil Code of the Philippines Corporation Code
Creation By agreement of the parties By operation of law
No. of incorporators At least 2 partners At least 5 incorporators
Commencement of juridical From the moment of execution of From the date of issuance of the
personality the contract of partnership certificate of incorporation by the
SEC
Powers Only those powers granted by law Any power authorized by the
or implied from those granted or partners (provided it is not contrary
incident to its existence to law, morals, good customs, public
order and public policy).
Management When not agreed upon, every The power to do the business and
partner is an agent of the manage its affairs is vested in the
partnership. BD and trustees.
 Nature and as Distinguished from
Corporation
Essential Elements Partnership Corporation
Effect of Mismanagement A partner can sue a co-partner who The suit must be in the name of
mismanages the corporation
Right of succession Has no right of succession Has right of succession
Extent of liability to 3rd Partners are liable personally and Stockholders are liable only to the
persons subsidiary (sometimes solidarily) for extent of the shares subscribed by
partnership debts to 3rd persons them.
Transferability of interests Needs unanimous consent of all A stockholder can transfer his
existing partners shares without prior consent of
other stockholders.
Terms of existence Any period stipulated by the 50 years extendible for another 50
partners. years
Firm name Limited partnership requires to put May adopt any name not similar to
“Ltd” to its name any registered name
Dissolution Any time by or all of the partners Only with the consent of the State.
 Essential requisites of partnership
 There must be a valid contract;
 There must be a mutual contribution of money, property
or industry to a common fund;
 It must have a lawful object or purpose;
 The partnership must be established for the common
benefit or interest of the partners which is to obtain
profits and to divide the profits among the partners.
 Form of a partnership contract –
WRITTEN OR ORAL, except
 Where immovable property or real rights are contributed
to the partnership (regardless of the amount thereof);
 Where the capital of the partnership is P3,000 or more,
in money or property;
 If the partnership is a limited partnership, a certificate
signed under oath by the partners and recorded with the
SEC.
 Kinds of Partnership
AS TO OBJECT
 Universal Partnership (a) of all present property or (b) of profits.
 Particular Partnership – has for its objects determinate things, their use
or fruits, or a specific undertaking, or the exercise of a profession.

AS TO LIABILITY
 General Partnership – liability to the extent of their separate property
after the partnership assets have been exhausted. All are general
partners.
 Limited Partnership – General Partners are liable up to the extent of their
separate property; Limited property are liable up to the extent of their
investment; 1 General Partner and at least 1 Limited Partner.
 Kinds of Partnership
AS TO DURATION
 Fixed Partnership – duration is fixed by the partners.
 For a particular undertaking – one which is organized for a certain
undertaking and its attainment will cause the termination of the
partnership.
 Partnership at will – one where no period is fixed by the parties for its
duration; hence may be terminated at will by the partners.

AS TO REPRESENTATION TO OTHERS
 Ordinary Partnership – one which actually exists among the partners as
well as to third persons.
 Partnership by estoppel – one 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.
 Rules of Management
Managing Partners Scope of Authority Revocation of
Appointment
Appointment as Managing .1 May perform all acts of administration despite With just or lawful cause =
Partner in the Articles of the opposition of his partners unless he acts in vote of the partners
Partnership .bad faith owning the controlling
.interest

Without just or lawful cause

= consent of all the
partners + managing
partner
Appointment as Managing .2 May perform all acts of administration but in May be removed with or
Partner after the partnership case of opposition the partners owning the without lawful cause by the
has been executed controlling interest may resort to voting for his vote of the partners owning
.removal .the controlling interest

or more partners as 2 .3 a) With specification of their respective duties b)

managers No specification of their respective duties c)
when there is a stipulation that none of the
managing partners shall act w/out the consent
.of the others
 Rules of Management
Managing Partners Scope of Authority Revocation of
Appointment
When the manner of .4 They are all managers; whatever any one of In case of opposition of the
management has not been ;them may do alone shall bind the partnership other partners: a) the
agreed upon decision of the majority
prevails; and b) in cse
of a tie, the decision of
the partners owning
the controlling interest
.shall prevail
 Distribution of profits and losses
Kinds of Partners Rules of Division
All are capitalist .1 .a. Profits and losses are divided according to their agreement
partners b. If only sharing of profits has been agreed upon, the sharing of losses is proportionate
.to the share of each in the profits
c. In the absence of agreement, the profits and losses are proportional to their capital
.contribution
In case of industrial .2 .a. Profits are divided according to agreement
partners b. In the absence of agreement, the industrial partner shall receive a just and equitable
share of the profits then the capitalist partners will divide the remaining in
.proportion to their contribution
.c. In case of losses the industrial partner does not share in the losses
d. In case of capitalist partners (i) losses shall be divided in accordance with their
agreement (ii) in the absence of agreement in proportion to their profits; (iii) in
.proportion to their capital contribution
In case of capitalist- .3 .a. Profits are divided according to agreement
industrial partners b. In the absence of agreement, the capital-industrial partner shall receive a just and
equitable share of the profits then the capitalist partners including the capital-
industrial partner in his capacity as capitalist partner will divide the
.remaining in proportion to their contribution
;c. In case of losses, it shall be divided according to their agreement
d. In the absence of agreement (i) in proportion to their contribution including the
capitalist-industrial partner or (ii) in accordance with the above the capitalist-
.industrial partner shall not share in the losses in his capacity as industrial partner
 Rule on Sharing of Liabilities
NATURE OF LIABILITY
 Pro rata – equally divided among the partners.
 Subsidiary – partners are liable with their separate property after all the
assets of the partnership are exhausted.
PARTNERS LIABLE – ALL GENERAL PARTNERS whether
capitalist or industrial.
STIPULATION EXEMPTING A PARTNER FROM LIABILITY
(after exhaustion of partnership assets).
 Void – as to third persons
 Valid – among the partners.
 Dissolution and Winding-Up
DISSOLUTION
 Change in the relationship of the partners caused by any partner ceasing
to be associated in the carrying on of the business.
 For any reason, provided that such dissolution does not amount to a
breach of contract or is prejudicial to 3rd parties.
 Remaining partners may form a new partnership with less or more
partners.
Modes of Dissolution
Without violation of the agreement of the In contravention of the agreement
partners
a. Termination of the definite term or particular a. By express will of any partner any time.
undertaking specified in the agreement.
b. Express will of the partners b. In the event which makes it unlawful for the
business of the partnership to be carried on.
c. By expulsion of any partner c. In case of loss
 Dissolution and Winding-up

WINDING-UP
 Is the process of settling the business or affairs of the partnership after
the dissolution. Termination refers to a point when all the business or
affairs of the partnership are completely wound up.
 Limited Partnership
Concept
 A partnership which has one or more general partners and one or more
limited partners. The limited partners as such shall not be bound by the
obligations of the partnership except up to the extent of their contribution.
 Use of the word “Limited” in the firm name.
 A limited partner may contribute money or property but not services.
 CORPORATION
Nature and Classes
 The law governing private corporations is the Corporation
Code of the Philippines (Batas Pambansa 68) which took
effect on May 1, 1980.

 “A corporation is an artificial being created by operation of

law, having the right of succession and the powers,
attributes and properties expressly authorized by law or
incident to its existence.” Section 2, BP 68
 CORPORATION
Nature and Classes
 As to whether shares of stock are issued or not: (a) stock
corporation and (b) non-stock corporation.
 As to state or country under whose laws it was created: (a)

domestic and (b) foreign corporation.

TESTS TO DETERMINE NATIONALITY OF A CORPORATION
 Incorporation test – nationality of the corporation follows the

country under whose laws it was incorporated.

 Control test – nationality of the corporation follows that of the

stockholders owning the controlling interest.

 Grandfather Rule – 60%-40% Filipino to foreign ratio.
 CORPORATION
Nature and Classes
 As to number of persons composing them: (a) corporation
aggregate and (b) corporation sole
 As to purpose: (a) public and (b) private.
 As to whether religious or not: (a) ecclesiastical or religious
corporation and (b) lay corporation.
 As to whether its purpose is charitable or not: (a)
eleemosynary and (b) civil corporation.
 As to legal right to corporate existence: (a) de jure corporation
and (b) de facto
 CORPORATION
Nature and Classes
 As to their relation to another corporation: (a) parent or
holding corporation and (b) subsidiary.
 As to whether the shares may be held by the public or not: (a)
close and (b) open.
 Corporation by prescription
 Corporation by estoppel – one which is in reality not a
corporation but is considered as one with respect to those
who are precluded by their admission or conduct from
denying its existence.
 CORPORATION
Nature and Classes
 As to their relation to another corporation: (a) parent or
holding corporation and (b) subsidiary.
 As to whether the shares may be held by the public or not: (a)
close and (b) open.
 Corporation by prescription
 Corporation by estoppel – one which is in reality not a
corporation but is considered as one with respect to those
who are precluded by their admission or conduct from
denying its existence.
 CORPORATION
Corporation, how organized:
 Philippine corporate entities are organized as follows:
[a] Number of incorporators - Incorporators are
required to be not less than five [5] but not more than
fifteen [15].
[b]  Residency requirement: Majority of the
incorporators are required to be residents of the
Philippines.
[c]  Qualifications: All incorporators: [1]  must be
natural persons; [2]  must be of legal age
 A corporation or a partnership cannot be incorporators of
a Philippine corporate entity.  The only way a corporation
or a partnership may become stockholder of a Philippine
corporation is by acquiring a stock thereof but only after it
shall have been duly incorporated.
 [d]  Subscription requirement: All incorporators must
subscribe to at least one (1) share of stock of the
corporation being organized.
 CORPORATION
Corporation, minimum subscription:
 The law requires that the total capital stock to be

subscribed at the time of incorporation should at

least be twenty five percent [25%] of the
authorized capital stock of the corporation being
organized.
Corporation, minimum paid-up capital:
 The paid-up capital of a Philippine corporation

must not be less than PhP5,000.00.  Thus, it is

required that at least twenty five percent [25%] of
the subscribed capital stock should be fully paid
up but the amount of which should not be less
than said PhP5,000.00.
 CORPORATION
The following incorporation documents are required:
 [a]  Articles of Incorporation;

 [b]  By-laws;

 [c]  Treasurer's Affidavit which should state compliance with

the authorized subscribed and paid-up capital stock

requirements.
 [d]  Bank Certificate that the paid-up capital portion of the

authorized capital stock has been deposited with the issuing

bank.
 CORPORATION
Powers of Corporations
[a] Express – powers expressly granted to a corporation by its
charter (e.g. to sue and be sued; succession; to amend its
articles).
[b]  Implied – powers which are necessary to carry into effect
powers which are expressly granted, and which must
therefore be presumed to have been the intention in the
grant of the franchise (e.g. to protect debts due to the
corporation, acts to protect or aid employees).
[c]  Incidental or inherent – powers that a corporation may
exercise by reason of its very existence as a corporation.
(e.g. power of succession, to have a corporate name, to
adopt a corporate seal)
 CORPORATION
Board of Directors, Trustees and Officers
 BD or BT is the governing body of a corporation;

 They shall perform the duties enjoined on them by law and

the by-laws of the corporation.

 Principal functions include (a) to exercise corporate powers;

(b) to conduct all corporate business and (3) to control and

hold corporate property.
Qualifications of a director or trustee
 Owner of at least 1 share of stock which shall stand in his

name on the books of the corporation. For non-stock, the

trustee must be a member of the corporation.
 CORPORATION
Qualifications of a director or trustee
 Majority of the directors or trustees must be

residents of the Philippines.

 The number must not be less than 5 nor more than

15.
Election of directors and trustees
 They are elected at a meeting called for the purpose.

 There must be present in person or by representative

authorized by written proxy (a) owners of the majority of the

outstanding capital stock or (b) majority of the members in
case of non-stock corporation.
 CORPORATION
Election of directors and trustees
 Voting must be through ballot

 No delinquent stock shall be voted

Methods of voting
 Stock corporations – number of votes to which a stockholder

is entitled.
 Non-stock corporations – A member may casts as many

votes as there are trustees but may not cast more than one
vote for one candidate.
 CORPORATION
Corporate officers
 President – who must be a director
 Treasurer – who may be a director or not
 Secretary – must be resident and citizen of the Philippines
 Other officers as may be provided in by the by-laws.
 Any 2 or more positions may be held concurrently by the same person. However,
no one can be the president and secretary or president and treasurer at the same
time.

* Directors of a corporation have a fiduciary duty to the company and its

shareholders. To third parties, the directors act as agents. Directors are liable for
losses and damages resulting from gross negligence, assenting to patently
unlawful acts, bad faith in directing the affairs of the corporation and acquiring
personal or pecuniary interest in conflict with their duties as directors.
 CORPORATION
Share of Stock
 A share of stock is one of the units into which the capital stock of the

corporation divided. It represents the intangible interest or right which

an owner has in the management, profits and assets of the corporation.
It is property subject to conversion.

Share of stock Stock Certificate

Represents the rights and interest of Is the written evidence of such right.
a stock holder in the corporation.
Intangible personal property Tangible personal property
Maybe issued even if not fully paid Is issued only after subscription is
(except shares without par value fully paid.
which are deemed fully paid)
 CORPORATION
Classes of shares of stock
 Common stock – ordinary stock of the corporation
 Preferred stock – entitles the holder to certain preferences
 Par value stock – one the nominal value of which appears on the stock certificate
 No par value stock – one without any nominal or par value appearing on the
stock certificate.
 Redeemable shares – those which grant the issued corporation the power to
redeem or purchase them after a certain period.
 Founder’s shares
 Treasury stock – fully paid stocks but subsequently reacquired by the issuing
corporation.
 Watered stock – those issued without consideration or with no adequate
consideration
 Voting Shares – those entitled to vote in the meetings of the corporations.
 Non-voting shares – those without voting rights, except in certain cases.
 CORPORATION
Rights of stockholders
 Right to vote
 Right to dividends
 Right to inspect corporate books and records
 Right to elect and remove directors
 Right to a stock certificate
 Right to pre-emption
 Right to enter into voting trust agreement
 Right to ask for the dissolution of the corporation in proper cases
 Right to bring derivative suit

 Rights of unpaid shares – same as paid except non-entitlement to a

stock certificate.
 CORPORATION
Stocks, concepts
 Being a contract must have all the requisites of a contract including cause
or consideration.
 Amount of consideration: (a) par value shares – should not be less than
the par value as stated in the stock certificate (b) should not be less than
the issued price as stated in the AOI, or as fixed by the BOD pursuant to
its authority or in the absence of both, by the SH holding the majority of
the outstanding capital stock in a special meeting called for the purpose.
 The consideration for stocks are: (a) actual cash; (b) property – tangible
or intangible which must be actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation
equal to the par or issued value of the stock issued; (c) Labour performed
or services actually rendered to the corporation; (d) previously incurred
indebtedness by the corporation; (e) amounts transferred from the
unrestricted retained earnings to stated capital. (f) outstanding shares
exchanged fro stocks in case of reclassification or conversion.
 CORPORATION
Stocks, concepts
 Being a contract must have all the requisites of a contract including cause
or consideration.
 Amount of consideration: (a) par value shares – should not be less than
the par value as stated in the stock certificate (b) should not be less than
the issued price as stated in the AOI, or as fixed by the BOD pursuant to
its authority or in the absence of both, by the SH holding the majority of
the outstanding capital stock in a special meeting called for the purpose.
 The consideration for stocks are: (a) actual cash; (b) property – tangible
or intangible which must be actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation
equal to the par or issued value of the stock issued; (c) Labour performed
or services actually rendered to the corporation; (d) previously incurred
indebtedness by the corporation; (e) amounts transferred from the
unrestricted retained earnings to stated capital. (f) outstanding shares
exchanged fro stocks in case of reclassification or conversion.
 CORPORATION
MERGER AND CONSOLIDATION
 Merger – union of 2 or more corporations whereby one or more but not all of the constituent
corporations are absorbed by once which continues in existence and retains its name and
corporate identity.
 Consolidation – union of 2 or more corporations whereby the existence of constituent
corporations are terminated and a new one called the consolidated corporation is created.
 The board of directors or trustees of each corporation, party to the merger or consolidation,
shall approve a plan of merger or consolidation setting forth the following:
1. The names of the corporations proposing to merge or consolidate, hereinafter referred to
as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the same into effect;
3. A statement of the changes, if any, in the articles of incorporation of the surviving
corporation in case of merger; and, with respect to the consolidated corporation in case of
consolidation, all the statements required to be set forth in the articles of incorporation for
corporations organized under this Code; and
4. Such other provisions with respect to the proposed merger or consolidation as are
deemed necessary or desirable.
 CORPORATION
MERGER AND CONSOLIDATION
 Stockholder's or member's approval.
(1) Majority vote of each of the board of directors of trustees of the constituent corporations of
the plan of merger or consolidation
(2) 2/3 of the outstanding capital stock or 2/3 of the members; in this case any stockholder
may exercise his appraisal right but not after the plan has been approved.
(3) amendment is allowed upon approval of the majority vote of the BD or BT and ratified by
2/3 of the OCS.
 Articles of merger or consolidation. - After the approval by the stockholders or members as
required by the preceding section, articles of merger or articles of consolidation shall be
executed by each of the constituent corporations, to be signed by the president or vice-
president and certified by the secretary or assistant secretary of each corporation setting forth:
(1) The plan of the merger or the plan of consolidation;
(2) As to stock corporations, the number of shares outstanding, or in the case of non-stock
corporations, the number of members; and
(3) As to each corporation, the number of shares or members voting for and against such
plan, respectively.
 CORPORATION
MERGER AND CONSOLIDATION
 Effectivity of Merger and Consolidation – upon issuance by the SEC of the certificate of
merger or consolidation.

 Effects or merger or consolidation. - The merger or consolidation shall have the

following effects:

1. The constituent corporations shall become a single corporation which, in case of

merger, shall be the surviving corporation designated in the plan of merger; and, in
case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;
2. The separate existence of the constituent corporations shall cease, except that of
the surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
 CORPORATION
MERGER AND CONSOLIDATION
4. The surviving or the consolidated corporation shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action, and all and every
other interest of, or belonging to, or due to each constituent corporation, shall be
deemed transferred to and vested in such surviving or consolidated corporation without
further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner as
if such surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action or proceeding brought by or against any of
such constituent corporations may be prosecuted by or against the surviving or
consolidated corporation. The rights of creditors or liens upon the property of any of
such constituent corporations shall not be impaired by such merger or consolidation.
 CORPORATION
DISSOLUTION AND LIQUIDATION
 Dissolution is the termination of the existence of a corporation.
VOLUNTARY – (a) no creditors are affected (b) creditors are affected (c) to shorten the
corporate term (d) in case of a corporation sole by submitting to SEC a declaration of
dissolution
INVOLUNTARY – (a) expiry of the term stated in the AOI (b) failure to formally
organize and commence transaction of its business and construction of its works within
2 years from incorporation (c) by order of the SEC and (4) by legislative dissolution.
 Liquidation – existence of a dissolved corporation for 3 more years to (a) prosecute and
defence suits by or against it; (b) to enable it to settle and close its affairs (3) to dispose
of and convey its property and (4) to distribute its assets.
 Who may effect liquidation (a) the BD or BT (b) receiver and (c) trustee
 FOREIGN CORPORATION
Concept
 It is a corporation formed, organized or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and corporations to do business in its
own country or state.
 License to do business – requires a business license and authority from the
appropriate government agency
 Purpose of the license – to subject them to the jurisdiction of the Philippine courts.
 Consequence of the absence of a license – shall not be permitted to maintain or
intervene in any action, but may be sued
 “Doing business” – (a) soliciting orders (b) service contracts (3) opening offices (4)
appointing representatives – staying 180 days or more in the Phils. (5) participation in
the management, supervision and control of any domestic business (6) any other acts
for commercial gain or of the purpose of the business organization.
 “Not doing business” – (a) mere investment (b) having a nominee director and (c)
appointment of a representative
 FOREIGN CORPORATION
Concept
 Suit by or against a foreign corporation: (a) doing business with a license –it may sue
and be sued; (b) doing business without license – it may not sue but may be sued; (c)
Not doing business – may sue and be sued in the Philippines.

 Grounds for revocation of license – license may be revoked or suspended by the SEC
based on certain grounds

 Withdrawal of foreign corporation – upon filing of a petition for withdrawal and issuance
by the SEC of a certificate of withdrawal upon satisfaction of certain requirements
 CORPORATE BOOKS & RECORDS
Concept
 Required to be kept (a) records of all business transactions (b) Minutes of meetings of
BD or BT (c) Minutes of meetings of SH or members and (d) stock and transfer books.
 Where kept (a) principal office or (b) office of the stock and transfer agent.
 Rights of SH or Members to corporate books and records: (a) to inspect (b) to demand
the notation of certain information in the minutes.
 Time of inspection – reasonable hours on business days.
 Inspection not allowed or may be refused – (a) improper use of information obtained
through prior examination (b) absence of good faith or legitimate purpose.