Partnership and Corporation

Basic Types of Business Organizations:

1. Sole Proprietorship – a form of business organization with only one proprietary owner; a single individual
conducts business under his own name (Aquino, Philippine Corporate Law Compendium (2014), p.3)
2. 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 (Civil Code)
3. Joint Accounts – it is a partnership constituted exclusively under the name of the ostensible manager or
conductor of business and the existence of which is only known to those who had an interest in the same ther
being no mutual agreements between the partners and without a corporate name indicating to the public in
some way that there are other people concerned with the partnership (Bourns v. Carman)
4. Business Trust – a legal relation whereby one person, called the trustor, conveys a property in confidence to
another, called the trustee, for the benefit of a person called the beneficiary (Civil Code)
5. Joint Venture – an association of persons or companies jointly undertaking some commercial enterprise;
generally, all contribute assets and share risks. It requires a community interest in the performance of the
subject, a right to direct and govern the policy connected therewith, and duty, which may be altered by
agreement to share both in profits and losses (Kilosbayan v Guingona)
6. Cooperative – duly registered association of persons, with common bond of interest, who have voluntarily
joined together to achieve lawful common social or economic end, making equitable contributions to the
capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with the
universally accepted cooperative principles (RA 6938)
7. Unincorporated Association – a group of persons that do not claim to be a part of a corporation. Even if
unregistered, the members of such, by agreement, may perform acts not contrary to law, morals, good
customs, public order, or public policy (Aquino)
8. Condominium Corporation – specially formed for the purpose of holding title to the common areas,
including the land, or the appurtenant interests in such areas in which the holders of separate interest shall
automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant
interest of their respective units in the common areas (RA 4726)
9. Corporation – 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 (Corporation Code)

Partnership and Corporation Distinguished

Partnership Corporation
As to Creation
Created by mere agreement of the parties Created by law or by operation of law
As to Number or Organizers
May be organized by at least 2 person Requires at least 5 incorporators (except a
corporation sole)
As to Commencement of Judicial Personality
Acquire juridical personality from the moment of Acquires juridical personality from the date of
execution of the contract of partnership. issuance of the certificate of incorporation by the
Securities and Exchange Commission (SEC)
As to Powers
Partnership may exercise any power authorized by Corporation can exercise only the powers expressly
the partners (provided it is not contrary to law, granted by law or implied from those granted or
morals, good customs, public order, public policy). incident to its existence.
As to Management
Unless agreed upon, every partner is an agent of the The power to do business and manage its affairs is
partnership. vested in the board of directors or trustees.
As to Effect of Mismanagement
A partner as such can sue a co-partner who The suit against a member of the board of directors or
mismanages. trustees who mismanages must be in the name of the
corporation.
As to Right of Succession
Partnership has no right of succession. Corporation has right of succession.
As to Extent of Liability to Third Persons
Partners are liable personally and subsidiarily Stockholders are liable only to the extent of the
(sometimes solidarily) for partnership debts to third shares subscribed by them (limited liability feature).
persons.
As to Transfer of Interest
Partner cannot transfer his interest in the partnership Stockholder has generally the right to transfer his
so as to make the transferee a partner without the shares without prior consent of the other
unanimous consent of all the existing partners stockholders because corporation is not based on this
because the partnership is based on the principle of principle.
delectus personarum.
As to Term of Existence
Partnership may be established for any period of time Corporation may not be formed for a term in excess
stipulated by the partners. of 50 years extendible to not more than 50 years in
any one instance.
As to Firm Name
Limited partnership is required by law to add the Corporation may adopt any name provide it is not the
word “Ltd.” to its name. same as or confusingly similar to any registered firm
name.
As to Dissolution
May be dissolved at any time by any or all of the Can only be dissolved with the consent of the State.
partners.
As to Governing Law
Governed by the Civil Code Governed by the Corporation Code

Partnership
Art. 1767. 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.
Two or more persons may also form a partnership for the exercise of a profession.

Characteristic of a Contract of Partnership

a. Consensual – because it is perfected by mere consent.
b. Nominate – because it has a designated name.
c. Preparatory – because its organization or formation is followed by other contracts to carry out its
purpose.
 d. Onerous – because it involves consideration in the form of contributions by the parties to a common
fund.
e. Bilateral or multilateral – because it is entered into or stipulated upon by two or more persons.
f. Principal – because it can stand alone, its existence not being dependent upon another contract.

Essential Features of Partnership:

a. There must be a valid contract.
A partnership can exist only if there is a valid contract entered into by two or more persons
creating the same. The three essential elements of a contract, namely, consent, object, and cause must
be present. Also, there must be a voluntary agreement of the parties to carry on the business. There
must be an association of persons with mutual trust and confidence under the principle of “delectus
personae.”

b. There must be two or more persons who must have legal capacity to enter into the contract.
The following cannot give their consent to a contract of partnership:
1. Unemancipated minors
2. Insane or demented persons
3. Deaf-mutes who do not know how to write
4. Persons who are suffering from civil interdiction
5. Incompetents who are under guardianship

c. There must be a mutual contribution of money, property or industry to a common fund.

The partners must have a proprietary interest in the business, that is, they must contribute
either:
1. Money or capital – the term is to be understood as referring to currency which is legal tender
in the Philippines. It must be pointed out that checks, drafts, promissory notes payable
to order, and other mercantile documents are not money but only
representatives of money. Consequently, there is no contribution of money until
they have been cashed.
2. Property, real or personal, tangible or intangible – credit such as promissory note or other
evidence of obligation or even a mere goodwill may be contributed as it is
considered property.
3. Industry, physical or intellectual – in the absence of money or property, or in concurrence
with these two, the law permits the contribution of industry. The word
“industry” means the work or services of the party associated, which may be either
personal manual efforts or intellectual, and for which he receives a share in the
profits (not merely salary) of the business.
A limited partner in a limited partnership, however, cannot contribute mere industry or
services.

d. There must be an intent to engage in lawful business, trade or profession. The object must be
lawful.
 The objective of the partnership must be lawful, and must be established for the common
benefit or interest of the partners. If such purpose is contrary to law, morals, good customs, public order or
public policy, the contract is void.

e. The purpose is to obtain profits and to divide the same among the partners.
The idea of obtaining pecuniary profit or gain directly as a result of the business to be carried
on is the very reason for the existence of a partnership. This element is what distinguishes the contract of
partnership from voluntary religious or social organizations.