LAW ON PARTNERSHIPS

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:
1. Consensual – it is perfected by mere consent or the meeting of minds between parties (Art. 1305).
2. Bilateral or Multilateral – it is entered into between two or more persons;
3. Nominate – it is designate by a specific name and there are specific rules applicable only to it;
4. Principal – its existence does not depend on the life of another contract;
5. Onerous – certain contributions have to be made;
6. 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.

There must be Affectio Societatis – the desire to formulate an ACTIVE union with people among whom there exist mutual
confidence and trust.

In connection thereto, the principle of Delectus Personae (Personal Choices), which pertains to the right to choose who
to associate with, is also applicable.

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, oherwise it may be declared
dissolved by judicial decree, and the profits shall be confiscated in favor of the state. (Art. 1770)

PARTNERSHIP VS. CORPORATION

PARTNERSHIP CORPORATION
Creation: Voluntary agreement of parties. Created by the state in the form of a special character
or by a general enabling law (The Corporation Code)
Existence: No time limit except agreement of parties. Not more than 50 years (now with perpetual existence
under the Revised Corporation Code)
Liability: may extend to private property. Liable only upto their capital contributions
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
behalf of the partnership are agents thereof; its official acts are through a board of directors
Mismanagement: A partner can sue another partner who A stockholder cannot sue a director who mismanages, it
mismanages must be in the name of the corporation, through a
derivative suit.
Nationality: A partnership is a national of the country Generally, under whose laws it was created as to whether
where it was created, and dependent on percentage of domestic or foreign, and as to nationality, on the
ownership. ownership of the outstanding capital stock.
Legal Personality: from the time the contract begins Generally from issuance of COR.
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:
(a) acquire and possess property of all kinds;
(b) incur obligations;
(c) bring civil or criminal actions;
(d) adjudged insolvent even if the individual members be each financially solvent.

RULES TO APPLY IN DETERMINING EXISTENCE OF PARTNERSHIP:

1. Except for partnerships by estoppel, persons who are not partners as to each other are not partners as to third
persons;
2. 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;
3. 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;
4. The receipt by a person of a share of the profits of a business is 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:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) 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,

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. This does not in any way affect validity of the partnership as it is intended only to affect third
persons.
KINDS OF PARTNERSHIPS:

According to OBJECT:
1. Universal:

• ALL PROFITS VS. ALL PRESENT PROPERTY

ALL PROFITS ALL PRESENT PROPERTY

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

Properties subsequently acquired by inheritance,

legacy, or donation, cannot be included in the
stipulation, BUT the fruits thereof can be included
in the stipulation.

• Persons not allowed to form a universal partnership: those who cannot donate to each other, namely:
1. Husband and Wife (Art. 133)
2. Those guilty of adultery and concubinage (Art. 739);
3. 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.

2. 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 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 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.

KINDS OF PARTNERS ACCORDING TO CONTRIBUTION:

1. Capitalist Partners – contributes capital; and
2. Industrial Partners – furnishes industry or labor.
3. Capitalist-Industrial Partners – furnishes both.

KINDS OF PARTNERS AS TO LIABILITY:

1. General Partners - liable upto his personal assets.
2. Limited Partners – liable upto his capital contributions only.

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.

OBLIGATIONS OF A PARTNER:

OBLIGATIONS OF A PARTNER TO THE PARTNERSHIP AND OTHER PARTNERS:

1. To give his contribution
a. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the
partnership.
b. As a rule, the contribution must be provided upon perfection of the contract, except if the partners stipulate
otherwise.
c. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest
and damages from the time he should have complied with his obligation. Thus, no demand shall be necessary since
the law specifically provides for the liability in case of delay.
d. A partner is likewise liable similar to a vendor:
i. He is bound to deliver the fruits thereof from the time they should have been delivered, without need of
demand (Art. 1786).
ii. A partner must exercise due diligence in preserving the thing promised to be contributed; otherwise, he
shall be liable for loss and deterioration.
 iii. Warrant the thing delivered against eviction

Risk of Loss:
LOSS BORNE BY THE PARTNER:
(1) Thing contributed is specific and determinate which is NOT fungible and only their use and fruits may be for the
common benefit; and
(2) There is stipulation that he shall bear the loss of the thing brought and appraised in the inventory.

LOSS BORNE BY THE PARTNERSHIP:

(1) Thing contributed are
(a) fungible;
(b) cannot be kept without deteriorating; or
(c) they were contributed to be sold; and
(2) there was appraisal in the inventory and no stipulation that partner will bear the loss.

2. To give additional contribution in case of imminent losses: 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. Except:
a. Industrial partners except if there is stipulation that he will likewise contribute
b. If there is stipulation to the contrary

3. Prohibition to engage in other businesses:

a. 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

i. Exclude him from the firm or
ii. Avail themselves of the benefits which he may have obtained in violation of this provision.

b. Capitalist partners – the prohibition is limited to businesses in the same industry as that of the partnership
which may result in competition. Exceptions:
i. When it is expressly stipulated that the capitalist partner can so engage himself;
ii. When the other partners expressly allow him to do so;
iii. When the other partners impliedly allow him to do so, as when all are violation the article.
iv. During the period of liquidation and winding up, when the partnership is already non-existent.
v. When the general-capitalist partner becomes a limited partner in a competitive enterprise.

Effect of non-compliance:
i. He shall bring to the partnership all the profits illegally obtained;
ii. He is liable, personally, for all the losses;
iii. He may be ousted for loss of trust and confidence.

4. Credit to the firm the payment made by a debtor who owes both the partnership and the managing partner (Art. 1792)

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:
1. If the managing partner issued a receipt in the name of the partnership: the payment shall be applied to the
partnership credit;
2. 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

ILLUSTRATION: D owed ABC partnership and A, the managing partner, P7,000 and P3,000, respectively. A was able to
collect P5,000 from D.
• If A issued a receipt in the name of the partnership, the whole amount of P5,000 will be applied to the
partnership credit.
• If A issued a receipt in his own name, the P5,000 shall be applied as follows:
a. P3,500 (P5,000 * P7,000/P10,000) to the partnership credit;
b. P1,500 (P5,000 * P3,000/P10,000) to A’s credit.

5. Not to convert partnership funds/ property for his own use (Art. 1788)
6. To account for and hold as trustee, unauthorized (or secret) personal profits (Art. 1807)
7. Pay for damages caused by his fault (Art. 1794)
8. Share with other partners the share of the partnership credit which he has received from an insolvent firm debtor
(Art. 1743)
9. Keep the partnership books in the principal office and allow other partners to have access, inspect and copy the
same.

OBLIGATIONS OF PARTNERS WITH REGARD TO THIRD PARTIES:

1. 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.

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.

2. 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.
 Any stipulation to the contrary shall be void, except as to the partners.

A, B, C and D partners of ABCD Partnership agreed on equal distribution of profits. As regards third parties,
however, they exempted C, an industrial partner. Total Assets of the partnership amounted to P200,000 while the
liabilities are now at P800,000. In this case:

• The liabilities can be settled first through the remaining partnership assets of P200,000
• The P600,000 shall be borne by all partners: A, B, C and D, because as to third persons, the stipulation
exempting C from liability from such third parties do not apply.
• C, however, if made to pay P150,000 can seek reimbursement from A, B and D, since the agreement exempting him
is valid as to the partners.

3. AUTHORITY TO ACT FOR AND IN BEHALF OF THE PARTNERSHIP: Every partner is an agent of the partnership for the purpose
of its business.

The authority of the partner to act in behalf of the partnership may be:
a. Express; or
b. Implied; or
c. Apparent – when he apparently carries on the usual business of the partnership and the person to whom he is
dealing has no knowledge of the fact that he has no such authority.

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.

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:
a. Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the
partnership;
b. Dispose of the good-will of the business;
c. Do any other act which would make it impossible to carry on the ordinary business of a partnership;
d. Confess a judgment;
e. Enter into a compromise concerning a partnership claim or liability;
f. Submit a partnership claim or liability to arbitration;
g. Renounce a claim of the partnership.

4. EFFECTS OF CONVEYANCE OF REAL PROPERTY:

Property is in the Conveyance is in the Who conveyed the Effect

name of name of property
Partnership Partnership Partner Valid conveyance but partnership may
recover, except:
One or more partners One or more partners One or more partners a. When the transfer binds the partnership
b. Transferee had no knowledge of lack or
excess of authority
Partnership Partner Partner Passes only equitable interest of the
partnership if within the authority (if
One or more Partner/Partnership Partner not, apparently nothing transfers)
partners/Third
persons (in trust)
All partners All partners All partners Valid transfer

5. SOLIDARY LIABILITY FOR TORTS: 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.

6. SOLIDARY LIABILITY FOR MISAPPROPRIATION: The partnership is bound to make good the loss, in two situations:
a. 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.
b. 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.

In both 5 and 6 above, all partners are solidarily liable with the partnership.

7. PARTNER BY ESTOPPEL:
a. One who represents himself as a partner of an existing partnership with or without consent of the partnership:
(1) When the partnership consented – a partnership by estoppel is created between the original members and the
deceiver. A partnership liability results.
(2) 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.
b. 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.

8. LIABILITY OF NEW (or INCOMING) PARTNER:

a. Debts incurred prior to admission: liable upto his contribution (Except if there is stipulation)
b. Debts incurred after admission: liable upto his personal assets.
RIGHTS OF A PARTNER:
1. Right to share in the profits

DISTRIBUTION OF PROFITS:
a. In accordance with the agreement;
b. 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.

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.

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

PROPERTY RIGHTS OF A PARTNER:

1. 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. 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;
b. 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;
c. 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;
d. A partner's right in specific partnership property is not subject to legal support.

2. 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:

a. Does not, in itself, dissolve the partnership. The partnership is deemed dissolved only if there is stipulation
to that effect.
b. The conveyee does not necessarily become a partner and such has no right to
(1) demand accounting and settlement;
(2) interfere in the management or administration of the partnership business; or
(3) demand information, accounting and inspection of the partnership books.

Rights of the assignee/conveyee:

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

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

• Only the interest, that is profits and surplus of the partner and not his share in the specific properties
of the partnership
• Priority is still given to creditors of the partnership
• Such interest may be redeemed prior to foreclosure with:
(1) The separate property of any one or more of the partners; or
(2) partnership property with the consent of ALL the other partners

3. His right to participate in the management.

RULES ON MANAGEMENT
a. ONE MANAGING PARTNER

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.

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.

b. MULTIPLE MANAGING PARTNERS:

i. With stipulation that no Managing Partner may act without the consent of the others – no one can perform
an act of administration without the others’ consent.
ii. With Specification of Duties – each Managing Partner can perform an act of administration within their
respective duties.
iii. Without specification of their respective duties, or without a stipulation that one of them shall not act
without the consent of all the others:
 (a) Each partner may separately execute all acts of administration;
(b) 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;
(c) Should there be a tie in the votes of the managing partners, the controlling interest of ALL the
partners shall prevail.

c. NO MANAGING PARTNER; WITH 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.

d. NO AGREEMENT AS TO MANAGEMENT OF PARTNERSHIP:

i. 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)
ii. 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.

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;
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 wilfully 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.

EFFECTS OF DISSOLUTION:
1. Act, Insolvency or Death:
a. If the cause of the dissolution is 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.

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.

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 under the provisions of the following article, 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";
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;
h. The time, if agreed upon, when the contribution of each limited partner is to be returned;
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;
k. The right, if given, of the partners to admit additional limited partners;
l. 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;
m. 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
n. 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:

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.

Otherwise, a limited partner whose name appears in the partnership name, not covered by the above exemptions, is
liable as a general partner.

3. 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:

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 cancelled 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 partner/s 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.

8. Assign his rights. However, the assignee does not necessarily become a substitute limited partner.
a. 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:
i. All the partners consent;
ii. The assignor (Limited Partner), being thereunto empowered by the certificate, gives the assignee that
right.
b. 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.
i. The substitution does not release the original limited partner from liability to the partnership.
ii. 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

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 unsuccessfuly
demands the return of his contribution.