JOSE MARIA COLLEGE

PARTNERSHIP AND CORPORATION NOTES

Introduction to Partnership Accounting ● In order for a partnership to

exist, there must be a
According to Article 1767 of the Civil Code voluntary agreement among
of the Philippines, a partnership is a the parties to carry on the
contract wherein two or more persons bind business as partners. Its
themselves to contribute money, property, or formation cannot be imposed
industry to a common fund, with the upon a person because a
intention of dividing the profits among partnership is a fiduciary
themselves. relationship.

From its definition, we can say that a 2. There must be mutual contribution of
partnership is both a contract and a money, property or industry to a
business organization. common fund.
● The property that may be
A contract is a meeting of minds between contributed may either be
two persons whereby one binds himself with
respect to the other, to give something or to a) Real or personal
render some service. Thus in a partnership, property
partners are obliged to contribute money, b) Tangible or intangible
property or industry to a common fund. c) Industry which can be
physical manual efforts or
Also, a partnership is a juridical entity intellectual industry.
which has a personality separate and
distinct from that of each partners. Thus, the 3. It must have a lawful object or
partnership in its name, can acquire and purpose.
possess property of all kinds, incur ● If a partnership has an
obligations and bring civil or criminal unlawful object, it is void. If
actions. such illegality constitutes to a
crime, the partners will be
criminally prosecuted and the
Elements of Partnership profits and effects of the
instruments of the crime will
There shall be a partnership whenever: be confiscated in favor of the
government.
1. There is a meeting of the minds;
2. To form a common fund; 4. The partnership must be established
3. With intention that profits (and for the common benefit or interest of
losses) will be divided among the the partners which is to obtain
contracting parties. profits and to divide the profits
among the partners.
Essential Requisites of Partnership The very purpose of a partnership
business is to obtain profits. Thus it
1. There must be a valid contract. is an element that distinguishes it
from religious, civic and social
organizations.
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PARTNERSHIP AND CORPORATION NOTES

Reason for Registering with SEC

Form of a Partnership Contract
Recording with the SEC is a condition for
A partnership may be constituted in any the issuance to the partnership of a business
form, oral or written, except: license to engage in business.

1. Where immovable property or real This will enable both the local government
rights are contributed to the and the BIR to assess its tax liabilities.
partnership (regardless of the
amount).
● The partnership contract Characteristics of Partnership
must be in a public
instrument. 1. Mutual Agency – every partner has
● An inventory of the said the authority to act for the
property must be made, partnership and become binding if
signed by the parties and such act is within his authority.
attached to the public
instrument. 2. Limited Life – partnership exists on
contract drawn by the partners and
What if the requirement is not complied? can be terminated anytime the
partners so desire causing the
a. The partnership contract is void. partnership to be dissolved.
b. The partnership will not have any Retirement, withdrawal, death,
juridical personality. bankruptcy, incapacity of a
partner and admission of a new
2. Where the capital of the partnership partner dissolve the partnership.
is ₱3,000 or more, in money or
property. 3. Unlimited Liability – a partnership is
● The partnership contract must said to have unlimited liability
be in a public instrument. because the partnership creditors
● Registered with the Securities can run after the personal assets of
and Exchange Commission. the partners (except limited partner)
after all partnership assets have been
3. If the partnership is a limited exhausted in payment of its
partnership, a certificate signed obligation.
under oath by the partners are
recorded with the Securities and 4. Co-ownership – when a property is
Exchange Commission is required. invested by a partner in the
partnership, such property is no
What if the requirement is not complied? longer owned by him but by the
partnership and because partners are
a. The partnership will be considered as co-owners, each and every one of
a general partnership and not a them acquires equity over such
limited partnership.
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PARTNERSHIP AND CORPORATION NOTES

investment equivalent to their profit
or loss sharing agreement.
Kinds of Partnership

5. Plurality of Capital and Drawing As to Object

Accounts – this is one of the unique
characteristics of a partnership 1. Universal Partnership
wherein each partner is provided
with a capital and drawing accounts. A universal partnership may either be a
universal partnership of all present
6. Profit or Loss Distribution – as property or a universal partnership or
stipulates in their agreement, a profits.
partner has to share for every amount
of profit that the business makes or Universal partnership of all present
loss that the business incurs. property

Advantages of a Partnership ● This is a partnership in which all

the partners contribute all the
1. Better management can be attained property which actually belonged
considering the combined expertise to them to the common fund,
of the partners. with the intention of dividing the
same among themselves, as well
2. A bigger amount of capital can be as the profits which they acquire
raised as compared to a sole- therewith.
proprietorship.
Universal partnership of profits
3. The interest of one partner cannot be
transferred to a new partner without ● This comprises all that the
the consent of other partners. partners may acquire by their
work or industry during the
Disadvantages of a Partnership existence of the partnership.

1. A partner’s personal assets can be 2. Particular Partnership- a particular

run after by the partnership creditor partnership has for its object specific
in case the partnership could not pay things or a specific undertaking, or
all its obligations (except for a exercise of a profession.
limited partner).
As to Liability
2. Misunderstanding and disputes may
arise among partners. 1. General Partnership – a partnership
where all the partners are general
3. Limited source of capital as compare partners who are liable to the extent
to corporation. of their separate property after the
partnership assets have been
4. Limited Life. exhausted.
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PARTNERSHIP AND CORPORATION NOTES

2. Limited Partnership – a partnership

where there is at least one general precluded from denying its existence.
partner and at least one limited
partner. General partners are liable A partnership by estoppel may arise through
up to the extent of their separate any of the following means:
property, while the limited partners
are liable only to the extent of their 1. When a person represents himself as
investment in the partnership. a partner in an existing partnership.

As to Duration ● If all the partners consent to such

misrepresentation, a “partnership by
1. Partnership for a Fixed Term – one estoppel” is created between the actual
for which a period for its duration is partners and the person who made the
fixed by the partners. misrepresentation. Here, a
partnership liability results. Thus, the
2. Partnership for a Particular assets of the partnership shall be used
Undertaking – one which is to pay the liability and after the
organized for a certain undertaking exhaustion, both the actual partners
which, when attained, will cause the and the person who made the
termination of the partnership. misrepresentation shall be liable with
their separate properties.
3. Partnership at Will – one where no
period is fixed by the parties for its ● If not all the partner’s consents to the
duration; hence may be terminated at misrepresentation, no partnership
will by partners. liability results. A “partnership by
estoppel” is created among the actual
Note: If a partnership for a fixed partners who consented to the
term or a particular undertaking is misrepresentation and the person who
continued after the expiration of the made the misrepresentation, each one
said term or the attainment of the of whom shall be liable jointly or pro-
said undertaking without any express rata with their separate properties.
agreement, the partnership becomes
a partnership at will. 2. When a person represents himself as
a partner in a non-existing
As to Representation to Others partnership.

1. Ordinary Partnership – one which ● No partnership liability arises but the

actually exists among the partners as person who made the
well as to third persons. misrepresentation and all persons
who consented to it are liable jointly
2. Partnership by Estoppel – one or pro-rata.
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
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PARTNERSHIP AND CORPORATION NOTES

Kinds of Partners
Example 1: Adam, Ben and Carlos are
partners in ABC Enterprises. They want to As to Liability
purchase material on credit from Harry but
Harry does not know anyone of them. So ● General Partner – one who is liable
they ask Danny, who is known to Harry, to for partnership debts to the extent
represent himself as a partner of ABC of his separate property after all the
Enterprises. Harry thus grants a charge sale assets of the partnership have been
to ABC Enterprises amounting to ₱80,000. exhausted.

In this example, a partnership by estoppel is ● Limited Partner - one who is liable

created among Adam, Ben, Carlos and for partnership debts to the extent of
Danny. Also, a partnership liability results his capital contribution only.
because all the partners (Adam, Ben and
Carlos) consented to the misrepresentation. ● General-Limited Partner – one
Thus Danny becomes a partner by estoppel who has all the rights and powers
in ABC Enterprises. and is subject to all the restrictions of
a general partner, except that in
Assume further that ABC Enterprises has respect to his contribution, he shall
assets of ₱60,000 only, Harry may go after have the rights against the other
these partnership assets and the separate members which he would have had if
assets of Adam, Ben, Carlos and Danny for he were not also a general partner.
the balance of ₱20,000. He shall be liable pro-rata to
partnership creditors to the extent
Using the same example, if only Adam and of his separate assets after the
Ben permitted Danny to represent himself as partnership assets have been
a partner, no partnership liability is created. exhausted, but he can demand
A partnership by estoppel is created among reimbursement of the amount he
Adam, Ben and Danny only. Harry can only paid from his co-partners.
go after the separate assets of Adam, Ben
and Danny and not of the partnership assets. Example: Manny, Abby and Connie are
partners of MAC Company, Ltd. With
Example 2. Adel and Beatrice are not Manny as a limited partner, Abby as general
partners but they represent themselves to partner and Connie as general-limited
Sonny as partners. Adel and Beatrice are partner. The partnership has assets of
partners by estoppel. They shall be ₱60,000 and liabilities of ₱90,000.
responsible jointly or pro-rata to Sonny for
any liability incurred on account of the In the settlement of liabilities, the
misrepresentation. partnership assets will first be exhausted.
Thereafter, the creditors can collect the
balance of ₱30,000 from the separate assets
of Abby and Connie who will be liable pro-
rata in the amount of ₱15,000 each.
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PARTNERSHIP AND CORPORATION NOTES

After paying the balance of ₱30,000, Connie partner, such as by allowing his
may demand the reimbursement of ₱15,000 name to be included in the firm
from Abby. name.

As to Contribution ● Secret partner – one whose

connection with the partnership is
● Capitalist partner – one who kept from the public.
contributes money or property to the
common fund. ● Silent partner – one who has no
voice in the management of the
● Industrial partner – one who business (though he shares in the
contributes his services or industry to profits and losses).
the partnership. Such industry may
be physical or intellectual industry. ● Dormant partner – a partner who
does not participate in the
● Capitalist-Industrial Partner – one management of the business and not
who contributes not only money but known to the public as a partner.
also his services to the partnership.

Note: An industrial partner cannot engage in Partnership Contract

business for himself, unless the partnership
expressly permits him to do so; and if he Partnership is based on contract. Persons
should do so, the capitalist partners may who are capable of entering into a contract
wether exclude him from the firm or avail and desire to form a partnership business
themselves of the benefits, which he may should draw up an agreement which may
have obtained in violation of this provision, either be oral or written. Said contract will
with a right to damages in either case. govern formation, operation, division of
profits and losses and dissolution of
partnership.
Other Classifications

● Managing partner – one who Who may become partners?

manages the business or affairs of
the partnership. 1. Any natural person who is
capacitated may become a partner.
● Liquidating partner – one who takes
charge of the winding up of the 2. A partnership may enter into another
affairs of the partnership after it is partnership with individuals or other
dissolved. partnerships as there is no
prohibition thereto.
● Nominal partner – one who is not
actually a partner but may become
liable as such to third persons.

● Ostensible partner – one who is Articles of Co-Partnership

active and known to the public as
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PARTNERSHIP AND CORPORATION NOTES

Although a partnership may be formed by an
oral agreement, it is always advantageous if
the agreement is made into writing so that
misunderstanding between partners can be
minimized.

This written contract by the partners which

requires registration with the Securities and
Exchange Commission is referred to as
Articles of Co-Partnership.

The articles of co-partnership must contain

among others the following:

1. Name of partnership, nature and

place of business.
2. Names of partners, indicating
whether they are general or limited
partners, their corresponding
addresses and contributions.
3. Effectivity date and durations of the
partnership.
4. Accounting period to be adopted.
5. Profit and Loss sharing.
6. Rights, powers and duties of
partners.
7. Treatment of partner’s additional
investment and withdrawals.
8. Provision pertinent to dissolution and
liquidation

In case of failure to provide for the division

of profits, the provision of law shall apply,
and that is “profit” is divided based on
capital contributions.
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PARTNERSHIP AND CORPORATION NOTES

ARTICLES OF PARTNERSHIP

of
________________________

KNOW ALL MEN BY THESE PRESENTS:

These Articles of Partnership, made and executed by and among:

________________________, (citizenship), residing at _________________________;

________________________, (citizenship), residing at _________________________;
________________________, (citizenship), residing at _________________________;

All of legal age, witnessed:

1. That they have forms a partnership among themselves under the name and style of
__________________________________________;

2. That the purpose for which said partnership is forms are:

__________________________________________;

3. That the principal office of the partnership shall be located at

__________________________________________;

4. That it is hereby stipulated that ____________________ shall be partner to whom the

management of the firm and the use of its signature shall be entrusted, and he shall
exercise such powers necessary to attain the purposes of this partnership, including the
power to draw drafts, bills of exchange and other negotiable instruments and accept the
same in the name of the firm; to appoint and dismiss employees to fix their tenure and
compensation; to deposit money in the banks and with countersignature of the Treasurer,
withdraw the same for purposes of the partnership;
_________________________________________;

5. That the term of existence of this partnership shall be ________ years from an after the
execution of these articles;

6. That the capital of the partnership shall be contributed by the partners, as follow, to wit:
___________________________ ₱ ___________________;
___________________________ ₱ ___________________;
___________________________ ₱ ___________________; thereby making a total
capital of ____________________________________ (₱ ____________);
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PARTNERSHIP AND CORPORATION NOTES

7. That the profits and losses shall be divided and shared alike among the partners of the
partnership.

8. That the managing partner is given a salary of ___________________________ PESOS

(₱__________) per month;

9. That, if during the term of the partnership, any of the partners shall die, the partnership
shall continue among the surviving partner, unless one of the latter request for
dissolution.

IN WITNESS WHEREOF, the parties hereto set their hands, this __________ day of
_________, 20___, in ___________________________, Philippines.

___________________________
___________________________
___________________________
Signature of Partners

_____________________________
Witness

_____________________________
Witness
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PARTNERSHIP AND CORPORATION NOTES

Name: Score:
Block: Date:

Multiple Choice. Write the letter of your choice before the number that identifies the concept
described in each item.

1. Which concept in accounting depicts that the personality of the owner is different from
the personality of the business?
a. Accounting Period c. Conservatism
b. Accounting Entity d. Materiality

2. A partnership may be constituted in any form. When immovable are contributed, these
should be embodied in
a. Private document c. Oral agreement
b. Public document d. Memorandum agreement

3. It is a kind of partnership that comprises all that the partners may acquire by their
industry or work, during the existence of partnership
a. Universal partnership of all present property
b. Universal partnership of profit
c. Particular partnership
d. General partnership

4. A partner who cannot engage in business for himself unless the partnership expressly
permits him to do so
a. General partner c. Secret partner
b. Industrial partner d. Limited partner

5. A partner who is liable to third person with his personal property after the partnership
assets are exhausted
a. Industrial partner c. Limited partner
b. General partner d. Nominal partner

6. A partnership that has at least one general partner and at least one limited partner
a. General partnership c. Universal partnership
b. Limited partnership d. Particular partnership

7. A contract executed by the partners to contain their agreements and the formation about
the partnership.
a. Articles of Incorporation c. Articles of Co-Partnership
b. By-laws d. Memorandum Agreement
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PARTNERSHIP AND CORPORATION NOTES

8. Partnerships should be registered with

a. BIR c. TESDA
b. DTI d. SEC
c.
9. A partner may invest in the partnership business in any of the following, except
a. Cash c. Personal Services
b. Non-cash Asset d. Personal Liability
c.
10. All of the following are major characteristics of a partnership business, except
a. Limited life c. Mutual Agency
b. Tax Exempt d. Co-ownership of Property