Mary Louise B.

Reyes San Beda College School of Law 2D

Can a corporation enter into a partnership?

No, a corporation may not be a partner in a partnership. Technically, however, corporations may enter into a partnership agreement or joint venture with other corporations, which is essentially a partnership created for a limited purpose. No doubt, there could be such partnership in the loose sense of the term between two incorporated companies. While a joint venture is not a formal partnership in the legal and technical sense, both are governed, subject to certain qualifications, practically by the same rules or principles of partnership. This is logical since in a joint venture, like in a partnership, there is a community of interest in the business and a mutual right of control and an agreement to share jointly in profits and losses resulting from the enterprise. There is no general principle of law which prevents a corporation from being a partner with another corporation or with ordinary individuals, except the principle that a corporation cannot lawfully employ its funds for purposes not authorized by its constitution. Having regard, however, to this principle, it may be considered as prima facie ultra vires for an incorporated company to enter into partnership with other persons. PARTNERSHIP vs CORPORATION Partnership is defined under the first paragraph of Article 1767 of The New Civil Code 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. Within the context of Philippine law, partnership is treated as an artificial being created by operation of law with a legal personality separate and distinct from the partners thereof, contemplated under Article 1768 of the said Code.

Philippine partnerships operate under the concept of unlimited liability and unless otherwise agreed upon by the partners, each one of them acts as manager and agent of the partnership and consequently, their acts bind the partnership. Under section 2 of the Corporation Code of the Philippines (Batas Pambansa Bilang 68), a corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Unlike corporations whose governing is a special law - the Corporation Code of the Philippines, partnerships in the Philippines are governed by and covered under Articles 1767 to 1867 of the Civil Code of the Philippines. These are the provisions of which govern all aspects of partnerships - from their creation, formation, existence, operation and management to their dissolution and liquidation, including the obligations of the partners to one another, to the public or third persons and to the government. A corporation is created by operation of law while a partnership is created by agreement of the parties. A corporation acquires juridical personality from the date of issuance of the certificate of incorporation by the Securities and Exchange Commission while a partnership acquires juridical personality form the moment of execution of the contract of partnership. In a corporation, stockholders are liable only to the extent of the shares subscribed by them while in a partnership, partners are liable personally and subsidiarily (sometimes solidarily) for partnership debts to third persons. Corporations are governed by the Corporation Code while partnerships are governed by the New Civil Code. Partnerships like corporations are subject to absolute jurisdiction, supervision and control of the Securities and Exchange Commission. PARTNERSHIP vs JOINT VENTURE It is quite normal to think of joint venture and partnership business as one. However, they are two entities, which have very clear-cut differences. Kilosbayan vs Guingona (232 SCRA 110 [1994]) defines a joint venture as an association of persons or companies jointly undertaking some commercial enterprise; generally, all contribute assets and share risks. It requires a community of interest in the performance of the

subject matter, a right to direct and govern the policy in connection therewith, and a duty which may be altered by agreement to share both in profits and losses. Joint venture involves two or more companies joining together in business. In partnership, it is individuals who join together for a combined venture. Two or more companies, which are listed in the stock market often, engage in a joint venture to overcome business competition. While engaging in partnership, the individuals involved become partners in an organization for the sake of profit. A Joint Venture can be termed as a contractual arrangement between two companies, which aims to undertake a specific task. Where as partnership involves an agreement between two parties wherein they agree to share the profits as well as take the burden of loss incurred. In partnership, the persons involved are co-owners of a business venture, aimed at making profit. But in joint venture, it is not just profit that binds the parties together. Joint ventures can be formed for specific purposes. For example, companies may join together and fund for the development of a particular thing that could be of use to their respective business. Normally the companies engage in joint ventures, as sometimes it could be quite expensive for undertaking certain ventures like research and development individually. While partnership can last for many years till the parties involved have no differences, companies involve in a joint venture for only a limited period till their goal has been achieved. In a joint venture, the members have come together for some specific purpose, while in a partnership the members have joined together for only business. JOINT VENTURE, A FORM OF PARTNERSHIP The legal concept of a joint venture is of common law origin. It is no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and thus of a temporary nature.

A corporation though cannot enter into a partnership contract, may enter into a joint venture with others. EXAMPLE OF JOINT VENTURE - HYPOR PARTNERSHIP STRONG IN THE PHILIPPINES Just two and a half years ago, what began as a development project, is now a prime example of how business to business co-operation can lead to long-term sustainable development - withadditional benefits to environmental initiatives and animal welfare. Hypig was formed through the signing of a joint venture agreement in June 2005 between Hypor B.V. (aHendrix Genetics company, Holland) and Holly Farms Inc. (Bounty Fresh Food group, the Philippines). This joint venture was precipitated by a contract Hypor signed in late 2004 with the International Business and Cooperation Agency of the Dutch government (EVD) to set up a BioHypor breeding farm on Mindanao. The agreement was made through the agency's Programme for Cooperation with Emerging Markets (PSOM). A piece of land complying with the Hypor's bio-security requirements was found in barrio Lantapan, Malaybalay, Bukidnon province. The Kelsey farm lies amid banana and pineapple plantations, with no other animal farms in the vicinity. The barns were constructed by December 2005, and 270 nucleus sows and boars from Hypor Canadaarrived in February 2006. By this time Hypig felt the demand was greater than originally forecast andanother shipment of pure line Hypor pigs was delivered. TEST IN DETERMINING WHETHER A PARTNERSHIP EXISTS Under Article 1769 of the New Cicil Code, the following rules shall apply: (1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; (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 nade by the use of the property;

(3) The sharing of gross returns does not of 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; (4) 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. (n) ENTERING A JOINT VENTURE Foreign and domestic corporations may enter into a joint venture and form a new domestic corporation, which is to perform a single, specific undertaking or project with each of the partners contributing to its performance. Unlike in some other countries, a joint venture in the Philippines does not have a legally separate, recognizable identity. In 2006, SN Power entered into a 50-50 partnership with Aboitiz Power, a local power entity with extensive experience in the power sector. The joint venture company, SN Aboitiz Power (SNAP), bid for and subsequently won three (3) sizable hydropower plants in North Luzon. SN Aboitiz is now the largest private renewable energy company in the country. In 1960, Nestl and San Miguel Corporation entered into a partnership named Nutritional Products, Inc. (Nutripro). A few years later, its first factory started operations in Alabang, Muntinlupa, which manufactured Nescaf.

CORPORATION AS A PARTNER While under the New Civil Code, a joint venture is a form of partnership with a legal personality separate and distinct from the parties composing it, and should thus be governed by the law of partnership, the Supreme Court has, however, recognized a distinction between these two business forms, and has held that although a corporation cannot enter into partnership contract, it may, however, engage in a joint venture with others (Tuazon vs Bolanos, 95 PHIL. 906 [1954]) through a contract or agreement if the nature of the venture is authorized by its charter. (SEC Opinion, April 29, 1985.) A corporation has no power to enter into a partnership in the absence of statutory authorization. In a partnership, each member has power to bind the firm and every other member through the firm. It is a fundamental rule in corporations that a corporation must act through its directors and authorized agents. If a corporation were a member of a partnership, it would be bound by the acts of another member of the partnership, and this would result in authorizing someone outside of the corporation to act for it. Such a situation, also, would involve the corporation in new responsibilities, through agents over whom it had no control. Therefore, it is incongruous and inconsistent for a corporation to enter a partnership relation. It is apparent, also, that, if this power were allowed, corporations, trusts and monopolies would be fostered.