Law on Partnership and Corporation

Discussion Material A

PARTNERSHIP

Is a contract of two or more persons who bind themselves to contribute:

- Money,
- Property,
- Industry

To a common fund with the intention of dividing the profits among themselves (a. universal partnership). If a
partnership is formed with a practice of profession, its primary purpose is not to obtain profit but to render service to
the public (b. general professional partnership)

Characteristics of a contract of partnership

a. Bilateral or Multilateral – reciprocal obligations by two or more persons

b. Consensual – it is perfected by mere consent
c. Principal – does not depend upon any other contract
d. Preparatory – means by which other contracts will be entered into
e. Onerous – partners contribute money, property or industry to a common fund
f. Nominate – special name given by law

Essential requisites of partnership

 There must be a valid contract – there must be voluntary agreement among the parties to carry on business as
partners. Delectus personae, where a person is free to choose those whom he wants to be associated with in a
partnership.

 There must be a mutual contribution of money, property or industry to a common fund – real, personal, tangible,
intangible, physical or intellectual. However, a limited partner cannot contribute services

 Must have a lawful object or purpose –

 The partnership must be established for the common benefit – each partner must receive proportionate interest
based on a just and reasonable ratio agreed by all partners

Form of a partnership contract – a partnership can be created in any form, e.g. oral or written except:

1. Immovable property or real property is contributed (regardless of the amount)

a. The contract must be in public instrument;
b. The inventory of the property must be signed by the parties and attached to the public instrument
Otherwise
a. Partnership is void
b. Partnership will not have juridical personality

2. Capital of the partnership is P 3,000 or more in money or property

a. The partnership must be in public instrument; and
b. Registered with the Securities and Exchange Commission (SEC)
Otherwise
a. Partnership is still valid and acquires juridical personality
b. Liability of the partnership to the 3rd person is not affected.

3. If the partnership is a limited partnership, a certificate signed under oath by the partners and recorded by the SEC is
required otherwise the partnership will be considered General Partnership.

Who may become partners

1. Natural person capacitated to become partner.

2. Partnership can be a partner but a corporation is prohibited from doing such.

Rules to determine whether a partnership exist

1. Persons who are not partners as to each other but represent to be as one with the consent of the other partners
(Partnership by estoppel).
 2. Co-ownership or co-possession does not itself establish a partnership whether they do or don’t share any profits
made by the use of the property.
3. The sharing of gross returns does itself establish a partnership
4. The receipt by a person of a share of the profits of a business is a prima facie evidence

Kinds of Partnership

As to object:

1. Universal partnership
a. Universal partnership of all present property
i. Property belonging to the partners at the time of the constitution of the partnership (present
property)
ii. Profits that may be acquired from the present property
iii. Property acquired after the formation of the partnership except inheritance, legacy or donation
iv. And, all the fruits of the properties of iii including the exempted properties
b. Universal partnership of profits
i. Profits obtained by the partners by their work or industry during the existence of the
partnership except those acquired by chance or lucrative title
ii. The usufruct of the property belonging to each partner at the time of the constitution of the
partnership
iii. The profits and fruits from properties aforementioned (I and ii)
iv. Profits and fruits if stipulated of property acquired by each partner after the constitution of the
partnership
Articles of universal partnership entered into without specification of its nature only constitute a universal partnership of
profit.

2. Particular partnership
- A particular partnership has for its object determinate things, their use of fruits or a specific undertaking or
the exercise of profession.

As to liability

a. General partnership – all partners are general partners who are liable to the extent of their separate
property after the partnership assets have been exhausted.
b. Limited partnership – partnership where there is a least one general partner and at least one limited
partner. The general partners are liable to the extent on their separate property while the limited
partners are liable only to the extent of their investment in the partnership
As to duration

a. Partnership for a fixed term – one for which a period for its duration is fixed
b. Partnership for a particular undertaking – one which is organized for a certain undertaking which, when attained
will cause the termination of the partnership
c. Partnership at will – no period is fixed by the parties for its duration

Kinds of partners

As to liability
a. General partner – one who is liable for partnership debts to the extent of his separate property
b. Limited partner – one who is liable for partnership debts the extent of his capital contribution only
c. General-limited partner – all the rights 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 was a limited partner

As to Contribution
a. Capitalist Partner – One who contributes money or property to a common fund.
b. Industrial Partner – whether intellectual or physical; one who contributes his services to the partnership.
c. Capitalist- Industrial – one who contributes both money/property but also services.

Other Classifications
a. Managing Partner – One who manages the business or the affairs of the partnership.
b. Liquidating partnership – one who takes charge of the winding up of the partnership.
c. Nominal Partner – One who is not a partner but who may become liable as to the third person (partner by
estoppel)
d. Ostensible Partner – Active and known to be partner by allowing his name to be included in the firm name.
e. Secret partner – One whose connection with the partnership is kept from the public.
f. Silent Partner – One who has no voice in the management of the business
g. Dormant partner – a partner who does not participate in the partnership and is not known in the partnership.