September 5, 2015 | WWW

Sir: How do we distinguish a limited partnership and a general partnership?

Student: The basic distinction between a limited partnership and a general partnership are the
following:
General Partnership
Is consist of general partners

The general partners are liable up to the extent

of their separate personal properties
There are no formalities required it being a
consensual contract. The exceptions set forth by
law depends upon the contribution in the
common fund (registration in SEC, real property,
3000 or more)

Limited Partnership
Is consist of one or more persons, one or more
of which are general partners and one or more
are limited partners.
The limited partners are liable only up to the
extent of their contribution in the common fund.
They have limited liability
There is a need to follow the statutory
requirements set forth by law for its validity. The
limited partners and the general partners should
be indicated in the certificate of the partnership
to be registered with SEC.

Sir: Would you rather be a limited partner in a partnership or a stockholder in corporation? How do we
distinguish between a corporation and a partnership?
Student:
Partnership

Corporation

A consensual contract.

Constituted by virtue of law

There should be an existing trust relations

among the partners.

No need for trust between stockholders.

A general partner in a partnership is liable up to

the extent of his separate personal property

The stockholders in a corporation are liable only

up to the extent of their share in the corporation

Sir: So in a general partnership, the general partners are liable even beyond the extent of their
contribution while stockholders in a corporation are never liable. Their liability is only up to the extent
of their share in the corporation. In the same way it is the same as a limited partner in a limited
partnership. So what is then the purpose of a limited partnership? What is the intention in allowing a
limited partnership?
Student: A limited partnership is allowed so that partners with limited capital can ask for contributions
from limited partners. The contributions are in a form of investments from these limited partners. This
is also an option to open other people to invest their money with the possibility of profits.
Sir: So in the viewpoint of a general partner, why would you allow somebody to become a limited
partner?
Student: Having a limited partner is an advantage since it would mean an increase in the capital and
the general partners could then enhance the performance of their business through the limited
partners financial contribution.

Sir: So that when there is someone who has a lot of money but whose character is not so good, he
can be a limited partner. Since kwarta ra ato gi apas ana. So why should you not worry about the
presence of a limited partner?
Student: A limited partner does not exercise rights of administration and management in the
partnership.
Sir: He will never be part of the management in the partnership. In other words from the viewpoint of
the general partners, they are only after the financial assistance or the contribution. Di na nato apilon
sa meetingThe limited partner on the other hand..
Student: The limited partner joins the partnership because there is a possibility of profit and his
limited liability which is only up to the extent of his contributions in the partnership. But there us also
a corresponding risk of losing the contributions.
Sir: so if I have idle funds, should I invest? If you have idle money and here comes the partnership
asking you to join them. Apil namu kay as long as naay mamatay kusog ato business (Funeral
Business). There is an inducement, will you join knowing that there is a risk of loss?
Student: I would rather be a limited partner.
Sir: When you join a business, there is always a risk of loss. You may earn profit or you may lose. But
if what you want is profit alone without the risk, what would you do?
Student: You may extend a loan to the partnership.
Sir: Mura kag bombay. I can extend a 5 million pesos loan and everyday I can collect it from the
partnership. What is then the advantage of a loan.
Student: There is an assurance that the money you lent will be returned to you.
Sir: So the distinction between a lender and a partner is?
Student: The distinction is that a limited partner extends. His contribution to the partnership with the
expectation of profits while a lender would be giving his money with the expectation of receiving the
same amount with interest. The distinction is in the assumption of risk of loss. The partner assumes
the risk while a lender does not. When you are a lender you have the assurance that Your money will
be returned to you. Whether business will be good or bad there is no loss to the lender.
Sir: So if you are a limited partner, if business is good you will receive profits. But if business is bad,
you will suffer such loss. So now you are confronted with a choice, if you are a limited partner, your
liability is limited. A stockholder in a corporation is not liable beyond his stockholdings in a corporation.
I could never be liable beyond my stockholdings or subscriptions.
Q: Corporation as a Stockholder or Limited Partnership (which would you choose)?
A: If you choose limited partner, you can:
Monitor and check on the affairs of the partnership
Option to attend meetings
In a Corporation, because it is composed of more people than a partnership, its affairs are
complicated and governed by another law
-

Sir: In a big business or industry, you might prefer being a stockholder in a corporation.

Sir: In Limited Partnership, business and capitalization is limited. It is good and ideal for
small-scale business. Because in limited partnership there is still trust and limited partners
have a big possibility that they would know who their partners are.

Q: Why would limited partners know who their partners are?

A: Before entering into a limited partnership, there are requirements as to the form. Unlike in
general partnership where a partnership can be formed by the conduct of the parties.
Q: Are we saying a limited partnership is a consensual contract?
A: No. Limited Partnership is a formal contract because it needs formalities for it to be valid.
Namely:
1.

Requires the execution of the Certificate of Partnership or the Articles of Partnership

contains:
a. Name of the Partnership, where Limited should be stated.
b. Character of the Business or the Nature of the Business
c. Location of the Partnership Office
d. Names and residence of the partners, indicate if general or limited partners

Sir: In limited partnership, we know who are there with us because the names are there when
we sign the Certificate. There is a list of general partners and a list of limited partners.
2.

Certificate of Partnership must be registered.

IN A CORPORATION, we might not know all the stockholders, there could be thousands of them.
At the start, we only know the incorporators (those who initiate the formation of the corporation;
those who execute the Articles of Corporation; cannot be more than 15). Once incorporators have
formed the corporation, they can issue subscriptions and we can never know all the subscribers.
So, in a Corporation, there is ABSENCE OF PERSONAL RELATIONSHIP.
While in a partnership, general or limited, there is still a PERSONAL RELATIONSHIP. At least, you
still know each other. If you are just after investment, without assuming any further risk other
than contribution, it could be better.
A Limited Partnership is the Compromise between a Partnership and Corporation
For someone who is confronted with the issue: Do I want to be a limited partner or a
stockholder?
o Because there are those who want a partnership, but shy away because of the
unlimited liability.
o There are also those who want to be stockholders in a corporation.
o LIMITED PARTNERSHIP IS THE MIDDLE GROUND.

If you dont want personal liability, you dont have to go to a corporation. You
can be a limited partner, which offers the same.
Limited partnership allows and drums up further investment. Because many would just shy
away from investing.
o Smaller ones dont want to be partners because they could be liable even beyond the
contribution.
o They dont also want to be stockholders because I would not know what would
happen. I have no access, although there is an Annual Stockholders Meeting which
might not be enough.
Limited partnership is the middle ground: just be an investor in a limited partnership.
Q: What is a Limited Partnership?
A partnership is composed of 1 or more general partners and also one ore more limited partners. In
Limited Partnership, the limited partners are only liable up to the extent of their contribution. The
name of the partnership should contain the word Limited or Ltd.

Q: What is being indicated in the partnership name?

Other than word Limited, the partnership name should indicate the names of the general partners.
Ex. Tacuyan, Tiannok, Tangpuz, Ltd. all are general partners.
Q: What if the name of one who is not a general partner is included?
A: That person will be considered as a general partner and will be liable like a general partner up to
the extent of his personal properties, insofar as to third parties who did not know he was a limited
partner.
Sir: But if a third party indeed knew he was a limited partner even though his name is
included in the partnership name, then the limited partner is not liable to that third party.
But if someone was lead to believe that he was a general partner because of his name in the
partnership name, then he could be liable only to those who believed him to be a general
partner.

Situation:
T-T-T is the firm name. Here we said that there is still a personal relationship because they know each
other and the names are there. So that T, T & T are general partners, their names shall appear in the
firm name. If they had an industrial partner
Q: What is an industrial partner?
A: An industrial partner is a partner who contributes his industry and service.
Q: Is he considered a general partner or a limited partner?
A: An industrial partner must be considered a general partner because a limited partner must only
contribute money or property and NOT services. Since an industrial partner only contributes his
services then it follows that he can never be a limited partner.

Q: Can T also be a limited partner?

A: YES. If each of them contributed 5M as general partners, they can also be industrial partners.
GENERAL PARTNER
Tiannok
Tangpuz
Tacuyan
Industrial partner

5 million
5 million
5 million
Industry and Services

Can TTT also be limited partners such that they give 500,000 each?
A: Yes. AS provided for by law, General partners can also be limited partners.
Tiannok
Tangpuz
Tacuyan

500,000
500,000
500,000

Industrial partner

Q: Is it logical? Why dont they just include the 500,000 in their 5M contribution? Whats the reason?
A: The liabilities as limited partners and as general partners are different. Hence, to protect their
investment, they will prefer not to put the other 500,000 as general partners and instead invest it as
limited partner.
Article 1853. A person may be a general partner and a limited partner in the same
partnership at the same time, provided that this fact shall be stated in the certificate
provided for in article 1844.
A person who is a general, and also at the same time a limited partner, shall have all
the rights and powers and be subject to all the restrictions of a general partner;
except that, in respect to his contribution, he shall have the rights against the other
members which he would have had if he were not also a general partner.
Q: But, whatever happens they are liable beyond their contribution. Is it not? Why LIMIT? Whats the
effect?
A: If you are a general and also a limited partner, 1) you have the rights and powers of a general
partner. So, this means that they have property rights.
2) With regards to their contribution in satisfaction of liabilities and obligations, that general partner
who is also a limited partner has THE RIGHT TO RECOVER the amount he paid to 3 rd persons FROM the
other general partners.
3) Limited partners also have the right of priority as opposed to general partners when it comes to
profit distribution and return of capital. This is the case because they are MERE INVESTORS. Such
priority encourages more investment.

Instances of Preference:
o Distribution of profits
o Return of capital
o Extra privileges

Instead of one year waiting period for profit may be made monthly

T,T,T as general partners, must wait until December for their share depending on their agreement.
Because if the limited partners just enjoy just about the same rights as limited partners, then there
should be no need to distinguish. Because of these privileges, some opt to be limited partners. The
priorities that might be enjoyed. Even the general partners could be encouraged and induced to put
additional investments. However, this doesnt mean that this will be limited to existing general
partners. Other parties (like 3rd parties) can be limited partners. But the law allows that general
partners can be, at the same time, limited partners.
Q: A limited partner can only contribute money or property. While an industrial contributes only his
industry or work. Can that industrial partner also become a limited partner?
A: An industrial partner can be a limited partner if he also contributed capital (money or
property) in addition to his industry or work.

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