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September 6, 2017
General partnership vs. Limited Partnership
Sir: How do we distinguish general partnership from limited
partnership?
Ibarra:
As to creation – general partnership is consensual and that
it doesn‟t need any particular form. However, Limited partnership
cannot be created by mere consent, the statutory requirements
must be complied with.
As to the firm name – Limited partnership must be named „Ltd‟.
In general partnership, there is no such indication needed.
As to composition – Limited partner must have at least one
general partner and at least one limited partner. General
partnership only involves general partners.
As to effects of death, withdrawal or insolvency – Limited
partnership doesn‟t necessarily dissolve the limited partnership.
General partnership dissolves the general partnership.
Lastly sir, In limited partnership, there is no fiduciary relationship
while in general partnership, there is fiduciary relationship.
Sir: So that, can an industrial partner be a general partner?
Ibarra: An industrial partner sir, is a general partner.
Sir: Can he be instead a limited partner?
Ibarra: No sir, an industrial partner cannot be a limited partner.
ONE PERSON AS A GENERAL PARTNER AND LIMITED
PARTNER (1853)
Sir: But one can be both? A general and limited partner?
Ibarra: yes sir.
Sir: If you are to choose, do you want to be both? Why?
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Ibarra: Yes sir. I would rather be both because there are more
advantages if I could be both such as you can avail of the rights of
a general partner and also avail of the rights of a limited partner.
Sir: Are there rights of a limited partner that a general partner
does not have?
Ibarra: No sir.
Sir: So why do you want to be both? Is there any benefit?
Ibarra: Because sir, there is a difference in the liability of a general
partner and a limited partner. Such that a limited partner is only
liable up to the extent of his contribution. So as to those
contributions, when here comes a third party creditor, he is only
liable up to the extent of what he contributed and he cannot claim
the separate properties of a limited partner.
Sir: But you are also a general partner.
Ibarra: Yes sir because there has to be distinctions as to what you
have contributed as a limited partner and what you have
contributed as a general partner.
Sir: So, if I am both a limited and a general partner and creditors
have notice that the partnership no longer has any assets, can the
creditor go against the personal property being both a general and
limited partner? Can you not say, I am a limited partner, you
cannot go against my personal property.
Ibarra: Yes sir. Such third party creditor can go after your personal
property.
Sir: See? So there is no advantage?
Student: The creditors can go after A as to his separate
assets up to the extent of his P50,000 contribution as a
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general partner. It means that the proportion that should be
allocated to A as his liability for the unsatisfied debt should be
based on his contribution as a general partner.
Atty: So how much?
Atty: So he is liable for 1/3 of the P20,000. Could I seek
reimbursement for that?
Student: No, sir. Because you are a general partner as to the P50k
and should be liable for that.
Atty: Is there any advantage now why I should be both a general
partner and a limited partner at the same time?
Atty: Although I invested more, I could have been liable for
more. But because I separated the P10k, I could only be
liable for 1/3.
Atty: Why should that be an advantage?
Student: Because your liability as to the extent of your
personal property is lowered down or is equal to that of
your co-general partners.
Atty: This is because we are talking about liabilities. If we were
talking about profits?
Student: There if it is profits, as to his being a limited
partner, he is prioritized as against the general partners up
to the P10k.
Atty: That's the advantage. I have to spread or limit my risk
being a general partner. If I want to gain more profit, then
I can invest more as a limited partner. That's why I want to
be both. I want to manage my risk, but I want to maximize
my profit by investing as a limited partner. That's the reason
why others, if you have additional funds, you could decide, 'do I
add this to my investment as a general partner? Then I might only
be increasing my risk.' Why should I put it there? I want to gain, I
want to earn, I want this money to earn, then you might not want
to put everything there (general), you may want to put some here
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(limited), where your risk is limited but the opportunity for profit is
still there just the same. As a matter of fact, as a limited partner,
you have priority.
Atty: In other words, what is the basic distinction between a
general partner and a limited partner?
Student: As a limited partner compared to general, you have
advantage as to profits. As to losses or liabilities, you have LESSER
RISK compared to that of the general partner.
Atty: Alright, in other words I have the advantage to be part
of the management and I have the advantage to earn more
without taking additional risk. Because when you invest,
although profit is the motive there is supposed to be a
corresponding risk that‟s why people stay away from being a
general partner because you will never know what will happen to
the business. It is very possible that you will be liable for more
than what you invest. That‟s why the other option from a
partnership is a CORPORATION because a corporation has it‟s own
advantage which is?
Student: The stockholders have limited liability. Their liability is
limited to their investment.
Atty: Whatever happens, regardless of the success or failure of
the business, my liability will only be limited to my investment. In
partnership, even if I am only a general partner but my liability
could be more than what I have invested. So, we came out with a
combination you need not be a general partner but you need not
go to a corporation. What has the law invented?
Student: The Law has invented Limited Partnership.
Atty: And therefore being a limited partner you enjoy the
limitation of your liability but at the same time you enjoy the
advantages of the partnership; easier to organize, less reportorial
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requirements, simpler form to follow. So here is the formula if you
want to limit your liability then be a limited partner. Anyway if you
want to form a limited partnership, what is the form required?
FORM REQUIRED (ART. 1844)
Student:
1.) A signed and sworn certificate shall be executed stating
therein the requirements set forth by law.
2.) File it in the Office of the Securities and Exchange
Commission.
Substantial compliance in good faith with the requirements is
enough.
Atty: And you only need, how many general partners?
Student: At least one general partner.
Atty: So we cannot from a partnership unless there is one general
partner. Because it is the general partnership who shall
control the business and assume personal liabilities.
CONTRIBUTIONS OF A LIMITED PARTNER (1845)
Atty: So that Jore, you entered into a partnership with Ms.
Orapa and so because of your skills in recruiting sales girls you
were made by Ms. Orapa a consultant or “walay dawaton nga sales
girl unless mag agi sa imo” So you agreed but you were a partner
only because of your skill, you were an excellent electrician. You
hold wires without being electrocuted and so you were in charge of
all electronic devices and electronic connections that‟s why you
work as a limited partner. Can you be a limited partner?
Student: No sir. Because under the law, a limited partner can only
contribute money or property or both to the partnership and not
services.
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Atty: Good. So you said; “you know „Rops, I have my expertise
but I cannot be a limited partner although I really want to be a
limited partner”. Then you contribute, so you were then a full
pledged limited partner.
However, for your skills as an expert electrician you were
paid a monthly consultancy fee of P50,000. So you were a
consultant and in addition you‟re job includes recruiting and
interviewing all applicants for sales girls to be approved by you.
Now, the problem is a creditor of the partnership demanded
payment however he could no longer find Orapa. So when the
creditor came to demand payment, he saw you inside the ceiling
fixing some electrical wire and so the creditor demanded payment
from you and you said “Maam, sorry I’m only a limited partner”.
Could you be liable?
Student: In that situation, at first I was a limited partner only but
since part of my job agreement was the recruitment and hiring of
sales girls to be approved by me. Then that situation makes me
a general partner because it amounts to interference or
participation in the management of the business of the
partnership. And under the law Sir, it says that when a limited
partner participates in the management of the business of the
partnership then they will be considered as a general partner.
The creditor, therefore, can go after me.
SIR: So you think that was already part of management recruiting,
subjecting applicants to physical examination, ocular inspection?
JORE: Yes, Hiring of employees is an exercise of management
prerogative. Management includes hiring and firing.
RIGHTS OF A LIMITED PARTNER (1851)
SIR: What are the rights of a Limited Partners?
ORAPA: They have the right to:
1. inspect partnership books,
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2. demand full information of any matters relating to
partnership,
3. demand final account in cases of reasonable grounds,
4. demand for dissolution and winding up upon court decree.
SIR: May a limited partner act as an agent of the
partnership?
ORAPA: No because it pertains to interference in the management.
It cannot bind or enter into contracts in behalf of the partnership.
LOAN AND OTHER BUSINESS TRANSACTIONS WITH
LIMITED PARTNERSHIP (1854)
SIR: May a limited partner engage into a separate business?
CABADING: Yes, a limited partner may engage into a separate
business even if it is in competition of the partnership. General
partners (capitalist partner) can engage in business but are
prohibited from engaging into a separate business in competition
with the partnership business.
Industrial partners cannot engage in any business except if there
is consent from all partners.
SIR: So here is X, Y, Z limited partners. A, B, C are general
partners. They are engaged in a restaurant business. X is a
supplier of pigs and poultry. Can X supply pigs and poultry to the
partnership business? Can he extend credit to the partnership?
CABADING: Yes, as a limited partner, X can supply pigs and
poultry to the partnership business and extend credit to the
partnership.
SIR: Because it is extended on credit, X wanted to impose interest
on a 6-month credit. Can he do that?
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SIR: Yes, he can charge interest. Being able to engage in business,
being totally allowed to, he can engage in the business in any
manner he wishes. He can charge interest because charging
interest is not in conflict with being a limited partner.
In that same situation, can A, being a general partner, be a
supplier of poultry and pork to the partnership?
CABADING: Yes, A can supply pork and poultry to the partnership.
The only prohibition is the engagement of a general partner in the
same kind of business with the partnership. In the situation, it is
not a competition to the partnership business.
SIR: As a matter of fact, it is complementary. His just trying to
help the company. He is just offering lean pork, fresh pork. He can
even give 10% discount. However, if A extends credit, he can also
charge 10% interest because he also indebted of that money from
the bank. So the partnership is just to reimburse him of the
interest he pays to the bank. Can he therefore be a lender of his
partnership?
Student: Yes, he can.
Atty: Yes! As a matter of fact we learn in dissolution, in settlement
of accounts, the partner can be both a creditor and a partner. And
as a creditor, he is being priority here. His being a partner is only
secondary. The partnership pays ahead, the partner who is a
creditor. And if there is something remains, it is the partner for the
return of his investment.
However, although a partner is a creditor, there is one thing he
cannot do.
Student: He has no right to ask collateral security.
Atty: Why do you think he is not allowed to ask for collateral
security.
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Student: Because he is also a partner, so he can have undue Atty: So that a partner promise to contribute 10 thousand but he
influence. only delivered 5 thousand, dissolution came. The assets were not
enough to pay the creditors. Can the creditors demand payment
Atty: What are the rights of a limited partner? from him?

Student: He has the right to inspect the books and formanl Gonzaga: Yes sir. The creditor can demand up to the difference
accounting. between the actual contribution and the contribution he promised
in the certificate.
Atty: He has the right to inspect the book. Hence, he will be
able to know whether or not the partnership is already is Atty: In other words, the limited partnership's liability is limited
danger. This is not given as a right to other creditors. So that is only to the contribution. We do not say that his liability is limited
an advantage that the law is trying to neutralize. Otherwise, if he only to the assets because if he did not fully deliver what he
is able to do so, he will foreclose the collateral security to the promised to deliver, he will remain liable not because we want to
prejudice of this other creditors. make him liable beyond his contribution but only demanding
Unlike the general partnership, we also come to an end when it payment of what he has earlier promised to contribute.
comes to limited partnership. What happens in the winding up?
WE'RE STILL ON 1859. We will finish this for the next meeting but
DISSOLUTION OF A LIMITED PARTNERSHIP (1863) meanwhile let's just read CHAPTER 1 on AGENCY.
Cesante:
First, payment to the creditors, including limited partners, except SUMMARY:
those on account of the priority as provided by law.
Second, to the limited partner in respect to their share of the General partnership vs. Limited Partnership
profits.
Third, to the limited partner for the return of the capital General Limited
contributed. creation Generally, consensual Must comply with the
statutory
Fourth, to the general partners other than for capital and profits. requirements.
Fifth, due to general partners in respect to profits. Firm name No particular name Must be named „Ltd‟
Lastly, due to general partners for the return of the capital required.
contributed. composition Only involves general Must have at least one
partners general partner and at
least one limited
LIABILITIES OF A LIMITED PARTNER partner
Death, withdrawal or Dissolves general Doesn‟t necessarily
insolvency partnership. dissolve limited
Atty: What are the liabilities of a limited partner?
partnership
Fiduciary relationship Has fiduciary No fiduciary
Gonzaga: A limited partner can be liable up to the extent of his relationship relationship
share in the partnership.

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Both limited and general partner – a partner can be both a
general partner and limited partner. The advantage is that one can
spread or limit the risk of being a general partner. If he wants to
gain more profit, then he can invest more as a limited partner.
One can manage the risk, but can maximize his profit by investing
as a limited partner.
Basic distinction of general partner and limited partner - As
a limited partner compared to general, you have advantage as to
profits. As to losses or liabilities, you have LESSER RISK compared
to that of the general partner. One has the advantage to be part of
the management and has the advantage to earn more without
taking additional risk.
Forms required
1.) A signed and sworn certificate shall be executed stating
therein the requirements set forth by law.
2.) File it in the Office of the Securities and Exchange
Commission.
Substantial compliance in good faith with the requirements is
enough
Contributions of a limited partner
A limited partner can only contribute cash or property but not
services.
When he participates or interferes with the management of the
partnership like interviewing and selecting employees, he is to be
considered as a general partner.
Rights of a limited partner [BIDA]
1. Have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to
inspect and copy any of them;
2. Have on demand true and full information of all things
affecting the partnership affairs;
3. a formal accounts of partnership affairs whenever
circumstances render it just and reasonable;
4. have dissolution and winding up by decree of court.
Loan and other business transactions with limited
partnership
A limited partner can be a supplier to the partnership business. He
can also be a creditor to the partnership. And he can put interest
on said credit. However, he does not have the right to ask for
collateral security because he is also a partner which gives him
undue advantage compared to the other creditors of the
partnership. With knowledge that he has about the partnership‟s
state of affairs, he may foreclose the security to the prejudice of
the other creditors.
Dissolution of a limited partnership
First, payment to the creditors, including limited partners, except
those on account of the priority as provided by law.
Second, to the limited partner in respect to their share of the
profits.
Third, to the limited partner for the return of the capital
contributed.
Fourth, to the general partners other than for capital and profits.
Fifth, due to general partners in respect to profits.
Lastly, due to general partners for the return of the capital
contributed.
Liabilities of limited partner:
1. to pay the difference between his contribution as actually
made and that stated in the certificate as having been
made; (diri pata kutob)

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