After dissolution, a partnership is considered as maintaining a limited existence for the purpose of making good all outstanding engagements,

of taking
and settling all accounts, and collecting all the property, means and assets of the partnership existing at the time of its dissolution for the benefit of all
interested.

After dissolution, the partnership as a business enterprise remains viable only for the purpose of winding up its affairs. The principal significance of
dissolution is that thereafter, no new partnership business should be undertaken, but affairs should be liquidated and distribution made to those entitled
to the partners’ interest

Authority of partners inter se to act for the partnership.

The authority of a partner as it affects his co-partners (not third persons) is not deemed terminated except in two instances, namely:

(1) The cause of the dissolution is the act of a partner and the acting partner had knowledge of such dissolution; and

(2) The cause of the dissolution is the death or insolvency of a partner and the acting partner had knowledge or notice of the death or insolvency.

The rule in No. 1 is designed to protect the remaining partner or partners who might continue to act for the partnership as a going concern, not having
actual knowledge of the dissolution. The rule in No. 2 discards the fiction that everybody is presumed to have knowledge of death or insolvency.

When a partner has knowledge or notice of a fact.

The Uniform Partnership Act defines the two terms as follows:

(1) “A person has knowledge of a fact within the meaning of this Act not only when he has actual knowledge thereof, but also when he has knowledge
of such other facts as in the circumstances show bad faith.”

(2) “A person has notice of a fact9 within the meaning of this Act when the person who claims the benefit of the notice:

(a) States the fact to such person, or

(b) Delivers through the mail or by other means of communication, a written statement of the fact to such person or to a proper person at his place of
business or residence.”

Manner of winding up.

The winding up of the dissolved partnership may be done either:

(1) judicially, under the control and direction of the proper court upon cause shown by any partner, his legal representative, or his assignee; or

(2) extrajudicially, by the partners themselves without inter- vention of the court.

Persons authorized to wind up.

(1) The following are authorized to wind up the affairs of the partnership:

(a) The partners designated by the agreement;

(b) In the absence of such agreement, all the partners who have not wrongfully dissolved the partnership; or

(c) The legal representative (executor or administrator) of the last surviving partner (when all the partners are already dead), not insolvent. (Art.
1830[6].)

(2) The court may, in its discretion, after considering all the facts and circumstances of the particular case, appoint a receiver to wind up the
partnership affairs where such step is shown to be to the best interests of all persons concerned. An insolvent partner does not have the right to wind
up partnership affairs. (see Arts. 1830[6]; 1833.)

(1) Rights of partner who has not caused the dissolution wrongfully: (a) To have partnership property applied for the payment

of its liabilities and to receive in cash his share of the surplus;

(b) To be indemnified for damages caused by the partner guilty of wrongful dissolution;

(c) To continue the business in the same name during the agreed term of the partnership, by themselves or jointly with others; and

(d) To possess partnership property should they decide to continue the business.

(2) Rights of partner who has wrongfully caused the dissolution:

(a) If the business is not continued by the other partners, to have the partnership property applied to discharge its liabilities and to receive in cash his
share of the surplus less damages caused by his wrongful dissolution.

(b) If the business is continued:

1) To have the value of his interest in the partnership at the time of the dissolution, less any damage caused by the dissolution to his co-partners,
ascertained and paid in cash or secured by bond approved by the court; and

2) To be released from all existing and future liabili- ties of the partnership.

The goodwill of a business may be defined to be the advantage which it has from its establishment or from the patronage of its customers, over and
above the mere value of its property and capital.

Right of partner to rescind contract of partnership.

If one is induced by fraud or misrepresentation to become a partner, the contract is voidable or annullable. (Art. 1390[2].)

If the contract is annulled, the injured partner is entitled to restitution. (Art. 1398.) Here, the fraud or misrepresentation vitiates consent. (Art. 1330.)
However, until the partnership contract is annulled by a proper action in court, the partnership relations exist (Art. 1390.) and the defrauded partner is
liable for all obligations to third persons

Rights of injured partner where partnership contract rescinded.

This article speaks of the rights of the injured partner where the partnership contract is rescinded (should be “annulled”) on the ground of fraud or
misrepresentation. They are as follows:

(1) Right of a lien on, or retention of, the surplus of partner- ship property after satisfying partnership liabilities for any sum of money paid or
contributed by him;

(2) Right to subrogation in place of partnership creditors after payment of partnership liabilities; and

(3) Right of indemnification by the guilty partner against all debts and liabilities of the partnership.
It is to be noted that the rights of the partner entitled to rescind (to annul) are without prejudice to any other rights under other provisions of law.

Distribution of property of insolvent partner. — If a partner is insolvent, his individual property shall be distributed as follows:

. (a) First, to those owing to separate creditors; 


. (b) Then, to those owing to partnership creditors; and 


. (c) Lastly, to those owing to partners by way of contribu- 


tion.

When the dissolution is caused by the retirement or death of a partner and the business is continued without settlement of accounts, the retiring partner
or the legal representative of the deceased partner shall have the right:

(1) To have the value of the interest of the retiring partner or deceased partner in the partnership ascertained as of the date of dissolution (i.e., date of
retirement or death); and

(2) To receive thereafter, as an ordinary creditor, an amount equal to the value of his share in the dissolved partnership with interest, or, at his option,
in lieu of interest, the profits attributable to the use of his right.

Prescription begins to run only upon the dissolution of the partnership when the final accounting is done.

Person liable to render an account.

This right of a partner or the one who represents him as owner of his interest to an account, i.e., to a statement of the partnership affairs, and, in due
course of liquidation, to a payment of the amount of his interest, may be exercised as against:

(1) The winding up partner;
(2) The surviving partner; or
(3) The person or partnership continuing the business.

Characteristics of limited partnership.

As a general rule, the characteristics of a limited partnership are as follows:

(1) A limited partnership is formed by compliance with the statutory requirements (Art. 1844.);

(2) One or more general partners control the business and are personally liable to creditors (Arts. 1848, 1850.);

(3) One or more limited partners contribute to the capital and share in the profits but do not participate in the management of the business and are not
personally liable for partnership obligations beyond the amount of their capital contributions (Arts. 1845, 1848, 1856.);

(4) The limited partners may ask for the return of their capital contributions under the conditions prescribed by law (Arts. 1844[h], 1857.); and

(5) The partnership debts are paid out of common fund and the individual properties of the general partners.

The general partners are treated by the law much like a partner in an ordinary partnership. They are typically those who know how to manage the
business. The limited partners are usually those who put money for the business. They are only investors. Their limited liability is an exception to the
general rule that all partners, including industrial partners, are liable pro rata with all their property for partnership debts. (Art. 1816.) Thus, a limited
partner has the same type of liability as stockholder in a corporation.
Differences between a general partner/partnership and a limited partner/partnership.

They are the following:

(1) A general partner is personally liable for partnership obligations (Art. 1816.), while a limited partner’s liability extends only to his capital
contribution (Arts. 1845, 1848, 1856.);

(2) When the manner of management has not been agreed upon, all of the general partners have an equal right in the management of the business
(Arts. 1803, 1810[3].), whether or not the general partner has made any capital contribution, while a limited partner has no share in the management of
a limited partnership, his rights being limited to those enumerated in Article 1851, such that he renders himself liable to creditors as a general partner
if he takes part in the control of the business (Art. 1848.);

(3) A general partner may contribute money, property, or industry to the partnership (Art. 1767.), while a limited partner must contribute cash or
property to the partnership but not services (Art. 1845.);

(4) Unlike a general partner, a limited partner is not a proper party to proceedings by or against a partnership unless he is also a general partner (Art.
1853.), or where the object of the proceeding is to enforce a limited partner’s right against, or liability to, the partnership (Art. 1866.);

(5) A general partner’s interest in the partnership (Art. 1812.) may not be assigned as to make the assignee a new partner without the consent of the
other partners (Art. 1813.) although he may associate a third person with him in his share (Art. 1804.), while a limited partner’s interest is freely
assignable, with the assignee acquiring all the rights of the limited partner subject to certain qualifications1 (Art. 1859.);

(6) The name of a general partner may appear in the firm name (Art. 1815.), while, as a general rule, that of a limited partner must not (Art. 1846.);

(7) A general partner is prohibited from engaging in a business which is of the kind of business in which the partnership is engaged, if he is a capitalist
partner (Art. 1808.), or in any business for himself if he is an industrial partner (Art. 1789.), while there is no such prohibition in the case of a limited
partner who is considered as a mere contributor to the partnership (see Art. 1866.); and

(8) The retirement, death, insanity, or insolvency of a general partner dissolves the partnership (Arts. 1860, 1830, 1831.), while the retirement, etc. of a
limited partner does not have the same effect, for his executor or administrator shall have the rights of a limited partner for the purpose of selling his
estate. (Art. 1861.)

a general partnership may, as a general rule, be constituted in any form by contract or conduct of the parties, while a limited partnership is created by
the members after compliance with the requirements set forth by law; it is composed only of general partners; it must operate under a firm name which
in the case of a limited partnership must be followed by the word “Limited” (Art. 1844[1, a].); and its dissolution and winding up are governed by
different rules.

Requirements for formation of a limited partnership.

Under Article 1844, there are two essential requirements for the formation of a limited partnership:

(1) The certificate or articles of the limited partnership which states the matters enumerated in the article, must be signed and sworn to; and

(2) Such certificate must be filed for record in the Office of the Securities and Exchange Commission.

The purpose of requiring the filing of the certificate is to give actual or constructive notice to potential creditors or persons dealing with the
partnership to acquaint them with its essential features, foremost among which is the limited liability of the limited partners so that they may not be
defrauded or misled. As no time is fixed by the law for the filing of the certificate for a limited partnership, a reasonable time is allowed depending on
the circumstances of the particular case. To show failure to comply with certificate requirements and resulting general liability, the burden is on the
one seeking to fix general liability. (Ibid.)

Article 1844 does not specify the time within which the cer- tificate must be filed with the Securities and Exchange Commis- sion.