Partnership

General Provisions
Partnership
◉ 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)
◉ Two or more persons may also form a partnership for the exercise
of a profession. (1665a)
Partnership
◉ A partnership is an association of two (2) or more persons to carry on
as co-owners a business for profit.
◉ A partnership is a legal relation based upon the expressed or implied
agreement of two (2) or more competent persons whereby they unite
their property, labor or skill on carrying on some lawful business as
principals for their joint profit.
◉ A partnership is a joint undertaking to share in the profit and loss.
◉ A partnership is the status arising out of a contract entered into by two
(2) or more persons whereby they agree to share as common owners
the profits of a business carried on by all or any of them on behalf of
all of them.
Partnership
◉ A partnership is an organization for production of income to which
each partner contributes one (1) or both of the ingredients of
income, which are capital or service.
◉ A partnership is an entity, distinct and apart from the members
composing it, and, for the purpose of which it was created; it is a
person having its own assets and liabilities and any benefit or
liability attaching to a member of the partnership, results from the
partnership relation.
Characteristics of a contract of partnership
1. Consensual – It is perfected by mere consent.
2. Nominate – It has a special name or designation in our law.
3. Bilateral or Multilateral – It is entered into by two or more persons
whose rights and obligations are reciprocal.
4. Onerous – Each of the parties aspires to procure for himself a benefit
through the giving of something.
Characteristics of a contract of partnership
5. Commutative – Undertaking of each of the partner is considered as
the equivalent of that of the others.
6. Principal – It does not depend for its existence or validity upon some
other contract.
7. Preparatory – It is a means by which other contracts will be entered
into as the partnership pursues its business.
Essential requisites of Partnership
1. There must be a valid contact.
2. The parties must have legal capacity to enter into the contract.
3. There must be a mutual contribution of money, property, or
industry to a common fund.
4. The object must be lawful.
5. The purpose or primary purpose must be to obtain profits and to
divide the same among the parties.
Form of Partnership Contract
General Rule:
A partnership contract may be constituted in any form. (oral or written)
Exceptions:
1. Where immovable property or real rights are contributed to the
partnership, the partnership contract must be void unless:
a. It is reduced to writing in a public instrument (Art. 1771)
b. An inventory of the property contributed is made, signed by the
parties and attached to the public instrument. (Art. 1773)
Form of Partnership Contract
2. Where the contract is by its terms not to be performed within the
year from the making thereof, such partnership contract is covered
by the statute of frauds and thus requires a written agreement to be
enforceable.
3. Where the capital of the partnership is ₱3,000 or more, in money or
property, it shall appear in a public instrument and must be
registered in the Office of the Securities and Exchange
Commission. However, a partnership has a juridical personality
even in case of failure to comply with this requirement.
Who may become partners
1. Any natural person who is capacitated may become a partner.
2. Artificial persons like partnership and corporation may likewise
form a partnership with individuals or other partnerships or
corporations. (ex. Joint Venture)
Rules to determine existence of Partnership
1. General Rule: Persons who are not partners as to each other are not
partners as to third persons.
Exception: Partnership by Estoppel
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 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.
Rules to determine existence of Partnership
4. The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business.
Exception: 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 annuity to a widow or representative of a deceased partner.
d. As interest on loan through the amount of payment vary with the
profits of the business.
e. As the consideration for the sale of goodwill of a business or other
property by installment or otherwise. (Art. 1769)
Kinds of Partnership
1. As to object
a. Universal Partnership
i. Universal partnership of all present property
ii. Universal partnership of profits
b. Particular Partnership
2. As to liability
a. General Partnership
b. Limited Partnership
Kinds of Partnership
3. As to duration
a. Partnership at will
b. Partnership with a fixed period
4. As to legality of existence
a. De jure partnership
b. De facto partneship
5. As to representation to others
a. Ordinary or real partnership
b. Ostensible or Partnership by Estoppel
Kinds of Partnership
6. As to publicity
a. Secret partnership
b. Notorious or open partnership
7. As to purpose
a. Commercial or Trading Partnership
b. Professional or Non-trading Partnership
Kinds of Partners
1. As to liability
a. General Partner
b. Limited Partner
c. General-limited Partner
2. As to contribution
a. Capitalist Partner
b. Industrial Partner
c. Capitalist-Industrial Partner
Kinds of Partners
3. As to management
a. Managing Partner
b. Silent Partner
c. Liquidating Partner
4. Miscellaneous
a. Ostensible Partner
b. Secret Partner
c. Dormant Partner
Partnership distinguished from co-
ownership
Partnership Co-ownership
Creation Always created by a Generally created by law,
contract, either expressed but may exist even without
or implied. a contract.
Juridical Has a juridical personality Has no juridical personality.
Personality separate and distinct from
that of each partner.
Purpose Realization of profits. Common enjoyment of a
thing or right; does not
necessarily involve sharing
of profits.
Partnership distinguished from co-
ownership
Partnership Co-ownership
Duration No limitation upon the An agreement to keep the
duration is set by law. thing undivided for more
than 10 years is not
allowed.
Transfer of A partner may not dispose A co-owner can dispose of
Interests of his individual interest in his share without the
the partnership so as to consent of the others.
make the assignee a
partner without unanimous
consent.
Partnership distinguished from co-
ownership
Partnership Co-ownership
Power to act In the absence of A co-owner cannot
with third stipulation to the contrary, represent the co-ownership.
persons a partner may bind the
partnership.
Dissolution Death or incapacity of a Death or incapacity of a co-
partner results in the owner does not necessarily
dissolution of partnership. dissolve the co-ownership.
Agency or As a rule, there is mutual As a rule, there is no
representation agency. mutual representation.
Partnership distinguished from co-
ownership
Partnership Co-ownership
Profits May be stipulated upon. Must always depend upon
proportionate shares and
any stipulation to the
contrary is VOID. (Art. 485)
Form May be in any form except No public instrument is
when real property is needed even if real
contributed. property is the object of the
co-ownership.
Partnership distinguished from
corporation
Partnership Corporation
Creation Created by mere Created by law or by
agreement of the parties. operation of law.
Number of May be organized by at Requires at least five
Incorporators least two persons. incorporators.
Commencement Acquires judicial Acquires juridical
of Juridical personality from the personality from the date of
Personality moment of execution of the issuance of the certificate
contract of partnership. of incorporation by the
Securities and Exchange
commission.
Partnership distinguished from
corporation
Partnership Corporation
Powers Partnership may exercise Corporation can exercise
any power authorized by only the powers expressly
the partners. granted by law or implied
from those granted or
incident to its existence.
Management When management is not The power to do business
agreed upon, every partner and manage its affairs is
is an agent of the vested in the board of
partnership. directors or trustees.
Partnership distinguished from
corporation
Partnership Corporation
Effect of A partner as such can sue The suit against a member
mismanagement a co-partner who of the board of directors or
mismanages. trustees who mismanages
must be in the name of the
corporation.
Right of Partnership has no right of Corporation has right of
succession succession. succession.
Extent of Partners are liable Stockholders are liable only
liability to third personally and subsidiary to the extent of the shares
persons for partnership debts to the subscribed by them.
third persons.
Partnership distinguished from
corporation
Partnership Corporation
Transferability Partner cannot transfer his Stockholder has generally
of interest interest in the partnership the right to transfer his
so as to make the shares without prior
transferee a partner consent of the other
without the unanimous stockholders because
consent of all the existing corporation is not based on
partners because the this principle.
partnership is based on the
principle of delectus
personarum.
Partnership distinguished from
corporation
Partnership Corporation
Term of Partnership may be Corporation may not be
existence established for any period of formed for a term in excess
time stipulated by the of 50 years extendible to
partners. not more than 50 years in
any one instance.
Firm name Limited partnership is Corporation may adopt any
required by law to add the name provided it is not the
word “Ltd.” to its name. same as or similar to any
registered firm name.
Dissolution May be dissolved at any time Can only be dissolved with
by any or all of the partners. the consent of the State.
Partnership distinguished from
corporation
Partnership Corporation
Governing law Governed by the contract Governed by the
and the Civil Code. Corporation Code.
Thank You!
God Bless!
Stay Safe!

Mara Dominique Anne M. Domingo