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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 designated by a specific name and there are specific rules applicable only to it; 4. Principal – its existence does not depend on the existence of another contract; 5. Onerous – certain contributions have to be made to become a partner; 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. Principles applicable: 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, otherwise 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 charter or by a general enabling law (The Corporation Code) Number of Organizers Two or more Not more than 15 Existence No time limit except agreement of parties With perpetual existence Liability of owners may extend to private property. Liable only upto their capital contributions Transferability of interest All partners need to consent to the transfer of interest to another. Does not need the consent of the other stockholders. Ability of owners to bind the firm Generally, partners acting on behalf of the partnership are agents thereof; Generally, stockholders cannot bind corporations since its official acts are through a board of directors Remedies in case of mismanagement A partner can sue another partner who mismanages A stockholder cannot sue a director who mismanages, it must be in the name of the corporation, through a derivative suit. Nationality A partnership is a national of the country where it was created, and dependent on percentage of ownership. Generally, under whose laws it was created as to whether domestic or foreign, and as to nationality, on the ownership of the outstanding capital stock. Legal Personality from the time the contract begins Generally from issuance of COR. Right of Succession None. Death, retirement, insolvency, civil interdiction, or insanity of a partner dissolves the partnership. Yes. Such causes do not dissolve a corporation. SEPARATE JURIDICAL PERSONALITY: The partnership has a judicial personality separate and distinct from that of each of the partners. The partnership can, in general: 1. Acquire and possess property of all kinds; 2. Incur obligations; 3. Bring civil or criminal actions; 4. Adjudged insolvent even if the individual members be each financially solvent. RULES TO APPLY IN DETERMINING EXISTENCE OF PARTNERSHIP: 1. There is no partnership: a. Between persons who are not partners as to each other are not partners as to third persons; except a partnership by estoppel. b. Co-ownership or co-possession of itself, whether such-co-owners or co-possessors do or do not share any profits made by the use of the property; c. The sharing of gross returns, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; 2. Presumption: 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.
