VISAYAS SCHOOL OF ACCOUNTANCY / IRS CPA REVIEW

Iloilo City

BUSINESS LAW LAW ON PARTNERSHIP

OUTLINE OF LECURE IN LAW ON PARTNERSHIP

( General Principles )

1. Definition of Partnership

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.

Two or more persons may also form a partnership for the exercise of a profession.

2. Partnership is a juridical person

A partnership in itself is a juridical person separate and distinct from the partners composing it. it has the capacity of acting as a legal unit.

3. Test in determining the existence of partnership

The existence of contract

The intention to create partnership

4. Presumption of existence of partnership

Share in profit or net profit

Presumption is controverted when the share in profits is given as payment of:

a. Debt
b. Wages of employee or rent of landlord
c. Annuity to a widow or representative of decreased partner
d. Interest on a loan

5. Common benefit

The partnership must be established for the common benefit of all the partners. Any stipulation which includes one or more partners from
any share in profits and losses is void.

6. Form of partnership contract

a. If the contribution is money or personal property

The contract may be oral or written, expressed or implied.

The law requires that if the capital of the partnership P3, 000.00 or more in money or property (other than immovable), the
contract of partnership must be in public instrument and registered with SEC. Such requirement is only directory, not mandatory.
Non-compliance thereof does not affect the validity of the contact of partnership.

b. If immovable property or real rights are contributed

The partnership contract must appear in public instrument, together with an inventory of the immovables or real rights
contributed, signed by the parties and attached to the public instrument, otherwise, the contract is void.

7. Classification of Universal partnership

a. As to object Universal partnership and Particular partnership

b. As to liability General partnership and Limited partnership
c. As to duration At will and with fixed term

8. Classification of Universal partnership

a. Universal partnership of all present property

b. Universal partnership of all profits

A universal partnership of all present property is one in which the partners contribute all the property which actually belong to them to
a common fund including all profits acquired from such property

Coverage of present property

a. All present property of each partner

b. All the profits that maybe derived from such properties
c. If stipulated the fruits of properties acquired by a partner by inheritance, legacy or donation

A universal partnership of profits is one which comprises all that the partners may acquired by their industry or work during the
existence of the partnership and the usufruct of movable or immovable which each of the partners may posses at the time of the
celebration of the contract.

Coverage of profits

a. All properties acquired by each partner from his work or industry

 b. Usufruct of movable or immovable property belonging to each partner at the time of perfection of the contract of
partnership (Profits earned or acquired by the partner by lucrative title like donations succession or hereditary title or the
findings of hidden treasure are not included.)

Persons prohibited entering into universal partnership

a. Between spouses
b. Between persons who are guilty of adultery or concubinage at the time of donation
c. Between persons found guilty on the same criminal offense in consideration thereof
d. Between a public officer or his wife of the formers office

9. Particular partnership

A particular partnership has for its object determinate things, their use of fruits, or a specific undertaking, or the exercise of profession or
vocation. It is neither a universal partnership of all present nor a universal partnership of profits

Coverage of a partnership:

a. Determinate thing and their use or fruits

b. Specific undertaking
c. Exercise of profession or vacation

10. Kinds of partners

a. As to liability general and limited

b. As to nature of contribution capitalist and industrial
c. As to knowledge by the public ostensible and secret
d. As to connection with the partnership real and nominal
e. As to power in partnership management silent and dormant

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VISAYAS SCHOOL OF ACCOUNTANCY / IRS CPA REVIEW

Iloilo City

BUSINESS LAW LAW ON PARTNERSHIP

OUTLINE OF LECTURE IN LAW ON PARTNERSHIP

( Rights and Obligation of a Partner )

1. Presumption of partners contribution --- Equal

2. Obligation to contribute additional sum

In case of immanent loss of business of the partnership, partners are obliged to contribute additional sum, except:

a. If a partner is insolvent
b. If a partner is exempted by stipulation
c. If he is an industrial partner

3. Partners right to engage in business for himself

i. An industrial partner cannot engage in business for himself, unless permitted by other partners.

Rights of capitalist partners in case of violation

a. If there is profit or benefit the same shall be given to the partnership plus damages; or
b. Expulsion from partnership plus damages

ii. A capitalist partner is prohibited from engaging for his own account in any operation which is of the kind of business in which
the partnership is engage.

In case of violation, the capitalist partner shall bring the partnership all the profits obtained, if there is loss, he must personally
bear it.

4. Property rights of a partner / Partners interest in the partnership

i. Property rights of a partner

a. Rights in specific partnership property
b. Interest and surplus in the partnership
c. Right to participate in the management

ii. Partners interest in the partnership

a. His share in the profits

b. His share in the surplus after the partnership is dissolved and the obligations to creditors are paid

While the right of a partner in a specific partnership cannot be assigned, attached, charged or levied upon, the interest of a partner in a
partnership may be assigned, attached, charged or levied upon.

5. Rules of management

The partner who has been appointed manager in the manager in the articles of partnership may execute all acts of administration despite
the opposition of his partners, unless he should act in bad act; and his power is irrecoverable without just or lawful cause. The vote of the
partners representing the controlling interest shall be necessary for such revocation of power.

A power granted after the partnership has been constituted may be revoked at any time.

If two or more partners have been entrusted with the management of the partnership without the specification of their respective duties, or
without a stipulation that one of them shall not act without the consent of all theothers, each one may separately execute all acts of
administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter
shall be decided by the partners owning controlling interest.

In case it should have been stipulated that non of the managing partners shall act without the consent of the others, the concurrence of all
shall be necessary for the validity of the acts, all the absence or dis ability of any of them connot be alleged, unless there is imminent
danger or grave or irreparable injury to the partnership.

When the manner of management has not been agreed upon, the following roles shall be observed:

a. All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership.
b. None of the partners may , without the consent of the others, make any important alteration in the immovable property of the
partnership, even if it may be useful to the partnership. But if the refusal of the consent by the other partner is manifestly
prejudicial to the interest of the partnership, the courts intervention may be sougth.

6. Appointment of managing partner

i. Appointed in the articles of partnership his power is irrevocable without just or low cost.
ii. Appointed in another instrument aside from Articles of Partnership his power is revocable with or
without just cost

7. Application of payments of made to a managing partner

If a partner - manager received money from a third person who owes the partnership and the managing
partner, the amount received as payment must be applied to both obligations in proportion to the credits, if
the receipt is the name of the managing partner.

However, if the receipt of the partnership, the payment must be applied to the partnership credit.

Exception to the rule that payment must be in proportion, if receipt is the name of the managing partner.

a. If the debt of the partnership is not yet due on the date of payment
b. If the debt to the managing partner is more onerous

8. Distribution of profits and losses

 i. Distribution of profits
a. According to stipulation
b. No stipulation, according to capital contribution

ii. Distribution of losses

a. According to stipulation
b. No stipulation, according to the profit sharing stipulation
c. Absence of a and b, according to capital contribution

Industrial partners the share of industrial partner in the profits

profit: if there is no agreement is that which is just
And equitable (net profit)

Industrial partners While he may be held liable by the third

losses: persons, still he can recover what he paid from
The capitalist partners because he is exempted
From losses

iii. The designation of profit and loss sharing may be entrusted to a third person. The designation made by the third person is binding
upon the partners unless such is manifestly inequitable. (Designation cannot be entrusted to one of the partners)

9. Liabilities of partners to third persons.

i. Joint (contractual)
ii. Solidary (non-contractual)

The partners, including industrial partners, are liable pro-rata after exhausting the partnership property (contractual)

Non contractual:

a. Where by any wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with
authority of his co-partner, loss or injury is caused to any person not being a partner.
b. Where one partner, acting within the scope of his authority, receives money or property from a third person and misapplies
them.
c. Where the partnership, in the course of business, receives money or property from a third person and it is misapplied by any of
the partners.

10. Stipulation eliminating liability

i. If the exempted partner is an industrial partner one, the agreements are valid as among themselves, but not insofar as creditors are
concerned.

ii. If the exempted partner is a capitalist partner the agreement is void as against creditors of the firm. As among themselves, it is valid,
regarding contributions in excess of capital, but void regarding the original contribution.

11. Liability of newly admitted partner for obligations of the partnership

i. Obligations incurred before admission a newly admitted partner is liable for obligations of partnership incurred before his
administration to the firm. Such liability is limited to his capital contribution, unless otherwise agreed.

ii. Obligations incurred after admission all partners, the original and the new partner shall be liable to the extent of their separate
property in satisfying such obligation of partnership.

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VISAYAS SCHOOL OF ACCOUNTANCY / IRS CPA REVIEW

Iloilo City
BUSINESS LAW LAW ON PARTNERSHIP

OUTLINE OF LECTURE IN LAW ON PARTNERSHIP

(Dissolution and Winding-up)

1. Dissolution, Winding up, Termination delined

i. Dissolution is the change in the relation of the partners caused by any partner
ceasing to be associated in carrying out the business.
ii. Winding-up is the process of selling business affairs after dissolution.
iii. Termination is the point in time after all the partnership affairs have been
wound up.

Effect of dissolution

On dissolution, the partnership is not terminated, but continues until the winding up of partner-
ship affairs is completed.

The partnership maintains a limi8ted existence for the purpose of collecting all the property and
assets and selling all accounts.

2. Causes of automatic dissolution

i. Without violation of the agreement

a. By terminating of the term of particular undertaking
b. By express will of any partner, selling in good faith, when no definite term of particular undertaking is specified
c. By express will of all the partners
d. By expulsion of any partner

ii. In violation of partnership agreement

iii. If the business becomes unlawful to be carried on or for the members to carry it on in partnership
iv. Loss of a specific thing contributed to the partnership
v. Death of any partner
vi. Insolvency
vii. Civil interdiction of any partner
viii. By decree of court under Article 1831

3. Causes for judicial dissolution

i. Insanity of a partner
ii. Incapacity of a partner
iii. Partner has been guilty of such conduct as tends to affect prejudicially the carrying on the business
iv. Willful violation of agreement
v. Business can be carried on only at loss

4. Rule relating to partnership liability is dissolution is caused by the act, insolvency or death (AID) of a partner

If the partnership is dissolved by the act, insolvency or death of partner, each partner is liable to his co partners for his share of any
liability created by any partner acting for the partnership as if the partnership had not been dissolved unless:

a. The acting partner had knowledge of the dissolution

b. If by death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency

5. Profits at the time of dissolution

Profits are supposed to active only during the existence of the partnership before dissolution. Profits that will actually enter the firm after
dissolution as a consequence of transactions already mode before dissolution are included because they are considered as profits existing
at the time of dissolution.

6. Rights of partners in case of violation of partnership contract

i. Rights of the innocent partners

a. To sell partnership property
b. To discharge all partnership obligation
c. If there is owing, divide among the partners
d. Remaining partners can continue the business
e. Innocent partners can ask for the damages

ii. Rights of the guilty partners

a. To sell partnership property
b. To discharge all partnership obligation
c. If there is owing, divide among the partners

Note: guilty partners are liable for damages and cannot continue the business

7. Order of preference in case of partnership liquidation

i. Payment to outside creditors

ii. Payment to inside creditors
iii. Return of capital contribution
 iv. Partners profit

8. Share of industrial partner out of surplus

A partner contributes no capital but only services, is not entitled any share in the firm capital on dissolution, but his limited to his share in
profits as compensation for his services.

9. Distribution of an individual property of an insolvent partner

Separate property of an insolvent partner shall be distributed in the following order:

a. The individual or separate creditors

b. The partners creditors
c. Owing to the partners by way of contribution

10. Partnership Assets

The following are considered assets of the partnership:

a. The partnership property
b. Contribution of the partners necessary for the payment of all the liabilities of the firm

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