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A partnership is a contract whereby two or more persons bind themselves to contribute money, property or
industry into a common fund with the intention of dividing the profit among themselves (Article 1767 of the Civil
Code of the Philippines) This joint effort may be supported by a partnership agreement known as the Articles of CoPartnership, which is an agreement in writing among the partners governing the nature and terms of the partnership
contract. A written agreement is required when partnership capital is P3,000 or more in money or in property The
Article of Co partnership helps in avoid misunderstanding among the partners. The written agreement among the
partners governs the formation, operation and dissolution of the partnership and is required to be registered with the
Article of Co partnership contains the following information:
1.
2.
5.
The unlimited liability of general partners makes it reliable from the point of view of
creditors
Disadvantages of a Partnership
1. There is lack of business continuity because it can be easily dissolved.
2. Limited amount of capital may be raised compared to a corporation.
3. The unlimited liability of a partnership deters many from joining in a partnership form of business.
4. A general partner may be subjected to a personal liability for erroneous management decisions made by his
associates.
5. There is likelihood of dissension and disagreement when each of the partners has the same authority in the
management of the firm.
6. There is difficulty in transferring ownership interest because ownership interest in the partnership cannot be
transferred without the consent of all the partners.
Kinds of Partnerships
1. According to activities
a. Service - main activity is the rendering of services
b. Merchandising or Trading - main activity is the purchase or sale of goods
c. Manufacturing - main activity is the production of goods
2. According to liability
a. General - one wherein all the partners are general partners who are liable
for the partnership debts to the extent of their personal property after all the partnership
assets have been exhausted.
b. Limited - one consisting of one or more general partners and one or more limited
partners.
3. According to object
a. Universal partnership of all pres ent property - one in which the partners
contribute all the property which actually belong to each of them, at the time of the
constitution of the partnership, to a common fund with the intention of dividing the same
among them as well as the profits which they may acquire there with all assets
contributed to the partnership and subsequent acquisitions become common partnership
assets
b. Universal partnership of profits - one which comprises all that the partners may acquire
by their industry or work during the existence of the partnership and the usufruct of
movable or immovable property which each of the partners may possess at the time of the
institution of the contract. The original movable or immovable property contributed do
not become common partnership assets
c. Particular partnership - one which has for its object determinate things,
their use or fruits or a specific undertaking or the exercise of a profession of vocation
4. According to duration of partnership existence
a. Partnership at will - one for which no term is specifi ed and is not formed
for a particular undertaking or venture and which may be terminated anytime by mutual
agreement of the partners or the will of one alone
b. Partnership with a fixed term - one in which the term or period for which the
partnership is to e:ist is agreed upon (Baysa and Lupisan, 2000)
Kinds of Partners
1.
2.
According to contribution
a. Capitalist - one who contributes capital in money or property
b. Industrial - one who contributes industry, labor, skill or service
c. Capitalist Industrial - one who contributes money, property and industry
According to Liability
a. General - one whose liability to third persons extends to his private property
b. Limited - one whose liability to third persons is limited only to the e:tent of his capital
contribution to the partnership
3.
According to management
a. Managing Partner - one who manages actively the business of the partnership
b. Silent - one who does not participate in the management of partnership affairs.
4. Others
a. Nominal - a partner in name only
b. Secret - one who takes active part in the business but whose connection with the
partnership is concealed on unknown to the public
c. Dormant partner - one who does not take active part in the business and is not known to
the public as a partner
Basic Features of Partnership Accounting
1. More than one capital and drawing accounts - there will be as many capital accounts and as many
drawing accounts as there are partners
2. Partners loans - partners may advance money to the partnership in the form of loans when the business
is in need of additional funds. The account title to be credited is Loans Payable to Partner or Partner,
Loan
3. Partners borrowings - the partnership may advance money to partners other than withdrawals in the form
of loans. The account title to be debited is Receivable from Partner.
4. Partners salaries -partners are paid salaries for services rendered in the conduct of partnership business.
5. Interest on investment - interest is allowed to earn on the asset investment of the partners
6. Division of profit and losses - net profit or net loss is to be divided among the partners based on their
agreement.