Acctg 2 PARCOR

Chapter 2
Partnership an organization where two or
more persons bind themselves to contribute
money, property or industry into a common
fund with the intention of dividing profits
among themselves
Features of partnership
Voluntary Association each of them agree
to join together and form a partnership
Legal entity it has juridical personality

All present property all the partners

contribute all their properties into a common
fund
Profits contribute all what they will receive
as the result of their work or service
rendered during the lifetime of the
partnership
As to liability of the partners
General partnership liable to partnership
even up to the extent of their personal
properties especially when partnership
becomes insolvent

Co-ownership of property partnership

assets are jointly owned by the partners

Limited partnership composed of one

general partner and liable only to the extent
of their investment

Taxable entity the income of the

partnership is taxable like a corporation at a
rate of 30%

As to duration

General professional partnership (exempted

from tax) one which is formed for the sole
purpose of exercising their common
profession
Mutual agency each partner is a fully
authorized agent of the partnership

Partnership at will one for which no term is

specified and which may be terminated any
time by mutual agreement of the partners
Partnership with a fixed term one for which
ther term or period for which the partnership
is to exist is agreed upon
As to representation to others

Limited life it can easily be dissolved or

terminated

Ordinary partnership one which actually

exist among the partners

Unlimited liability each partner is

personally and individually liable for all
partnership liabilities
Kinds of partnership

Partnership by estoppel one which in reality

is not a partnership but is considered as one
only in relation to those who precluded to
deny or disproved the partnerships existence

As to activity

As to legality of existence

Trading partnership activity is the

manufacture and sale or the purchase and
sell of goods

De Jure partnership complied all the

requirements

Non- trading partnership organized for the

purpose of rendering services
As to object
Universal partnership

De facto partnership failed to comply all

the requirements
As to publicity
Secret partnership the existence of a
certain persons as partners is not made
know to the public

Open partnership the existence of certain

persons as partners is made know to the
public

Dormant partner does not take active part

in the management and also not known to
the public
Proprietary theory emphasizes the view of
the individual partners as owners of the net
assets of the business when the partnership
creditors extend to their personal properties
and others

Classes of partners
As to contribution
Capitalist partner contributes money or
property
Industrial partner contributed industry,
labor, skill or other service
Capitalist- industrial partner contributes
cash propert and industry
As to liability
General partner liability to third person
extends to his personal property
Limited partner liability to third person
extends only to his capital contribution
As to management

Partners equity the right of the partners

over the net assets of the business
Goodwill is an intangible asset representing
ability to generate earnings more than what
is normal expected
Chapter 2
Fixed capital they agree that any credit
balance can be withdrawn anytime then the
balance of the drawing account may be left
open just like the capital account
Fluctuating capital they agree that any
balance in the drawing account be made part
of their capital accounts
Chapter 4

Managing partner manages actively the

business

Dissolution article of 1828 states that

dissolution as a change in the relation of the
partners ceasing to be associated in carrying
on the business

Silent partner not participate in the

management

Changes in ownership

Other classification
Liquidating partner takes charge of the
winding up of partnership affairs upon
dissolution
Nominal partner not really a partner but
liable as a partner for the protection of the
innocent third person
Ostensible partner takes active part in the
management and known to the public
Secret partner takes active part in the
management but not known to the public

1.) Admitting a new partner by purchased

2.) Admitting a new partner by investing
3.) Retires of partner
4.) A partner dies
5.) Partnership is incorporated
Asset revaluation requirement to update
capital accounts of partners before admitting
a new partner
An upward adjustment of the asset is
undervalued
A downward adjustment of the asset if the
fair market value is lesser than its book value

Total agreed capital = Total contributed

capital no asset revaluation
Capital credit of the new partner = actual
contribution of the new partner no bonus
Chapter 5
Liquidation the process of winding up the
affairs of the business towards its
termination
Payment to creditors and partners order:
Owing to outside creditors
Owing to the partners other than their capital
balances
Owing to partners for their capital
Owing to partners for their share in the
profits
If the partner is insolvent ranked in the claim
against his separate properties
Owing to personal creditors
Owing to the partnership creditors
Owing to other partners for contribution
made
Realization the process of selling or
converting the assets into cash
Capital deficiency when the share of a
partner in the partnership losses is higher
than his or her capital balance
If the partner is insolvent the remaining
partner shall bear the loss
Right of offset a legal right to apply a part
of all of the amount owing to a partner
against his or her capital deficiency
Partners interest the sum of the loans
payable and the capital balance of that
partner
Partners restricted interest represents
interest that cannot be paid to the partners

due to inadequacy of cash when there are

other unpaid partners deficiency or unsold
properties not available for distribution or the
cash is restricted for contingent expenses
Solvent partners- Partner is sufficient
remaining personal assets after deducting or
liquidating their personal liabilities
Theoretical loss represents the possible
loss of the partnership arising from the
unsold properties, deficiency of partners or
future liquidating expenses
Simple liquidation (Lump-sum) the process
where the non-cash assets are sold before
any cash is disbursed
Installment liquidation (piece-meal) the
process where the non-cash assets are sold
by instalment
Chapter 6
Shareholders owners of a corporation
Corporation 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
Following attributes:
Artificial being the firm is viewed as a
separate and distinct personality from the
people who own it
Legal personality A corporation is created
by the operation of law
Right of succession a corporation shall exist
for a period as provided in its articles and
shall continue until its term expires or
dissolves. It has a capacity to continuous
existence
Corporate ownership the interest and right
over the corporation is divided into shares of
stock
Limited liability The shareholders are not
liable for corporate acts and corporate debts

Transferability of interest The shares of

stock owned by a shareholder may be sold or
transferred without prior consent of other
stockholder
Incorporators the founders of the
corporation
Board of directors responsible for the
overall supervision of the firm
President responsible for implementing the
policies set up and the plans drawn by the
board of directors
Vice presidents who are given a specific
areas of responsibility
Kinds of the corporation
Private corporation one owned and
organized for a private purpose or objective
Stock corporation one which is
privately owned by individuals and organized
for profit
Non-stock corporation a religious
sect or a religious school is non-profit for
nature
Public corporation government corporation
organized for the accomplishment of its
public functions
Close corporation family corporation or one
which is held by a selected few and not open
to any person
Open corporation One where the stock is
listed in the stock market available for
purchase by any one person or entity. Also
called a publicly-held corporation
Corporation code of the Philippines general
law by and under whose authority private
corporations are created
Kinds of stock
As to value

Par-value stock one which a fixed value is

stated in the certificate of stock and in the
articles of incorporation
No par-value stock one without a designated
value stated in the stock certificate but it
cannot be sold at less than P5.00
As to right
Common stock (ordinary share) entitles the
owner to a pro rata dividend without any
priority or preference over any other
stockholders
Preferred stock (Preference share) class of
stock with preferential rights or claims over
the common stock
Legal capital minimum permanent
investment
Trust fund doctrine contributed capital of
the corporation constitute a trust fund to
which the corporate creditors have a right for
satisfaction of their claims
Pre-emptive right purchase additional
shares of stock whenever there is an
increase in the authorized capital stock of
the corporation
Authorized share capital maximum number
of shares or amounts the corporation is
allowed to issue as stated in the articles of
incorporation
Stock subscription subscription is an
agreement to purchase shares of stock and
states the number of shares, the price and
terms of payment
Share capital represents the amount paid in
by the shareholders whether in cash,
property, service and for which a certificate
of stock is issued
Certificate of stock written
acknowledgements by the corporation of the
shareholders interest in the corporation and
its net assets

Underwriter buys all the shares of stock

and then offers these to the prosprective
investors at a higher price
Shareholders equity the residual interest of
the owners in the net assets of the
corporation
Retained Earnings represents accumulated
profits earned or losses incurred in the
operation of business
Treasury shares the corporation may
reacquire the shares of stock which were
originally issued with the intention of either

reselling or retiring these shares in the near

future