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PARTNERSHIP AND

CORPORATION
DEFINITION OF PARTNERSHIP

• Is an association of two or more persons who bind


themselves to contribute money, property or
industry to a common fund, with the intention of
dividing the profits among themselves.
• It is a legal relationship among the contracting
parties
• It originates from a voluntary contract between
them
• Contract may be done orally or in writing as long as
the elements of mutual contribution and intent to
divide the profits are present
• A partners contribution may be in the form of
money, personal property or real property, if its real
property such as lands and buildings
• Registration with the Securities and Exchange
Commission is required of all partnerships with a
capital of P3,000 or more
CHARACTERISTICS OF A PARTNERSHIP

1. Mutual Agency-Each partner has the authority to act


for the partnership and to enter into contracts binding
upon it., provided this are within his expressed or
implied authority.
2. Limited Life or Easily Dissolved- Since a partnership is
based on a contract between individuals, its life is
limited to the duration of that contract. Any change
among the relationship among partners, terminates the
contract and therefore dissolves the partnership. The
addition of a new partner, death, insolvency(inability
to pay) or withdrawal of a partner automatically
dissolves the partnership.
3. Unlimited Liability-The liability of a partner for the
partnerships’ unpaid obligations goes beyond the
amount of his capital invested in the partnership. All
partners, except the limited partners, are liable to the
creditors for the partnerships debt up to the extent of
their personal assets. Partners, therefore, may be held
personally liable and their separate assets may be
attached to meet partnership obligations.
4. Co-ownership of Property-Assets invested in a
partnership are no longer separately owned but now
belong to the partnership.
5. Share in Partnerships Profits-Each partners share in
the profits of the partnership. The income earned or
loss incurred from the operations is divided among the
partners according to their agreement. The partners
are entitled to share in the firms’ profits as a return of
investment.
6. Separate Legal Entity-The partnership has a juridical
personality separate and distinct from the owners. A
partnership can acquire assets or incur liabilities or
enter into a contract with third parties in its own name.
It can sue or be sued.
ADVANTAGE

1. Easily formed. A partnership may be created by


an oral or written contract between two or more
persons
2. A greater amount of capital. May be raised in a
partnership than in a sole proprietorship.
3. Relative freedom and flexibility in decision
making. Decisions are made by the managing
partner and the changes in the enterprise may be
effected simply by the agreement among the
partners without the formalities necessary under a
corporation, provided such agreement comply
with the provisions of the Partnership Law.
4. Better Management. Resulting from the combined
experience and ability of several individuals,
compared to a sole partnership, the combined skills
of two or more partners will result in a better
operation of the firm.
DISADVANTAGE

1. Unlimited Liability- Each partner is personally liable for


partnership debts. A partnership creditor can run after
the assets of a general partner in case the assets of the
partnership are insufficient to cover the creditors’ claim
against the firm. This usually happens during the
process of liquidation.
2. Easily Dissolved. There is a lack of partnership
continuity because of its being easily dissolved. When
the old partners accept a new partnership, the
partnership is dissolved, and new articles of co-
partnership should be prepared and submitted to the
SEC (Securities and Exchange Commission) for
approval.
Also when a partner dies, or when a partner
withdraws from the partnership for whatever reason,
or when a partner becomes disabled, all of these will
cause the dissolution of the partnership, thus, the
organization is unstable compared to a corporation.
3. Difficulties in transferring ownership interest. The
interest of a partner in a partnership cannot be2
transferred without the consent of all the other
partners. This is not true in the case of a corporation
or sole proprietorship
4. Limited Capital. Unlike corporations, a partnership
cannot raise large amounts of capital from public
sources through the sale of securities. The partnership
capitalization therefore, is limited to what may be
invested by the partners.
KINDS OF PARTNERSHIPS

1. According to the Activities or Purpose


a. A commercial partnership is a partnership whose main
activity is the manufacture or the purchase and sale of goods
and services
b. A professional partnership is a partnership organized for the
purpose of rendering professional services such as the
professional firm of accountants, lawyers, engineers, doctors
and others
Two kinds of Professional Partnership:
1. a general professional partnership-partnership of
individuals of the same profession or licenses such as partnership
of lawyers, cpa’s, and others. This is exempt from income tax.
2. a multi-professional partnership-composed of individuals
with various professions. This is subject to income tax.
2. According to the Liability of the partner
a. A general partnership-is one wherein all
partners may publicly act on behalf of the firm and
each partner can be held individually liable for the
obligations of the firm to the extent of their personal
property.
b. A limited partnership-is a partnership wherein
one or more, but not all the partners have a limited
liability. The law provides that at least one partner of
the limited partnership shall be a general partner, a
limited partner is answerable for partnership debts
only to the extent of his contribution.
3. ACCORDING TO LEGALITY OF
EXISTENCE
• A. a de jure partnership-a partnership that has
complied with all the legal requirements to its
existence
• B. a de facto partnership a partnership that has not
complied with some or all the legal requirements for
its formation.
4. ACCORDING TO DURATION

• A. Partnership at will-term of existence is unlimited


since no period is fixed. However, it can be
terminated any time by the agreement of the
partners.
• B. Partnership with a fixed term-has a specific period
or term for existence and the expiration thereof
dissolves the partnership.
ACCORDING TO THE MANNER OF
CREATION
• A. Orally agreed upon-when the partnership
agreement was formed by means of articulation
• B. Written in a public or private instrument-when the
partnership agreement was incorporated in a
article of co-partnership and approved by SEC, it is
said to be written in a public instrument. When the
partnership agreement was made in writing but was
not submitted and approved by the SEC, it is said to
be written in a private instrument.
DIFFERENCE BETWEEN A GENERAL
AND LIMITED PARTNERSHIP
1. As to composition
General partnership
Composed of two or more general partners
including industrial partner, no limited partner
Limited partnership
Composed of at least one general partner and at
least one limited partner
2. As to contribution
General partnership
Contribution may be money, property or industry
Limited partnership
The limited partner can only contribute money and
property but not industry
3. As to contract
General Partnership
The contract is called “Articles of Partnership”
Limited Partnership
The contract is called “Certificate of partnership”
4. As to management
General Partnership
The general partners manage the partnership by
themselves as mutual agents or by a managing partner
Limited partnership
Only the general partner manages the business,
limited partners can not participate in the management
of the business
5. As to name of the firm
General Partnership
The name of one or more partners can be used as
the firm’s name
Limited partnership
The name of the firm should include the word
“Limited” and the names of the limited partners can not
be used in the firm’s name
6. As to liability to a third party
General partnership
General partners, including industrial partners, are
liable to the extent of their personal assets for net
contractual liabilities of the partnership
Limited partnership
Limited partners are liable only up to their
contributions, only the general partners are liable to the
extent of their personal assets to liabilities of the
partnership
7. As to return of contribution
General partnership
General partners get the return of their contribution
only during dissolution and liquidation
Limited Partnership
Limited partners get the return of contribution as per
stipulation in the certificate
KINDS OF PARTNERS

1. As to the nature of contribution


a. A capitalist partner-is one who contributes cash or non cash
properties
b. An industrial partner-is one who contributes only his labor,
knowledge and skill
c. An industrial – capitalist partner-in one who contributes not
only his labor, knowledge and skill but also cash or non cash
properties
2. According to liability
a. A general partner-is one who is liable to pay personally
the obligations or debts of the business in case its assets are not
sufficient to cover the claims of its creditors
b. A limited partner-is one whose liabiltiy extend only to his
contributed capital which normally is the amount actually
invested
3. According to the knowledge by the public and
management of the partnership
a. A secret partner-a partner who is not known
to the public as a partner but participates actively in
the management of partnership affairs
b. A silent partner-a partner who is known as a
partner but does not take an active part in the
management of partnership affairs
c. A dormant partner-is one who is not known to
be a partner and does not take an active part in the
management of the partnership
4. According to the nature of management work
a. A managing partner-is one who is chosen by the
partners to manage the operation of the partnership for the
partners
b. A liquidating partner-is one who is designated to win
up the affairs of the partnership
5. Pseudo partners
a. A nominal partner-is one who is not a partner but
allows the use of is name either for accommodation or for
consideration. He does not participate in the partnerships
management and has no financial investment in the business
b. A partner by estoppel-one who is not a partner but
represents himself or consents to another representing him to a
third person as a partner in an existing partnership. The aw
considers him partner in that existing partnership as far as the
third person in concerned.
STEPS IN THE FORMATION OF A
PARTNERSHIP
1. Business name
The partnership must have a business name. File an
application for a business name with the SEC. The business
name will be reserved until the Article of Co-Partnership is
approved.
2. Securities and Exchange Commission
An article of co-partnership, the partnership contract
should be filed with the SEC for approval, Within one month
from the date of filing, such partnership contract shall be
approved or disapproved by the said commission
3. SSS, Philhealth and Pag-ibig
The partnership must also register with the SSS,
Philhealth and Pag-ibig to secure the certificate of
membership and employer ID no.
4. Business Permit
Before starting operations, a business permit
should be secured from the city or municipality where
the business is located
5. BIR
The partnership must register with the BIT to
secure a tax identification no. (TIN) and be classified
as VAT or non VAT taxpayer. The partnership must
also acquire approval from the BIR for its books of
accounts and business forms, such as the sales
invoices and official receipts
OF CO-PARTNERSHIP

• Although a partnerhip may be formed through oral


agreement, it is always advisable that the
agreement be in writing so that a misunderstanding
between patners as to the nature and terms of the
contract may be avoided or minimized. The
agreement in writing is referred as the Articles of
Co-Partnership
IMPORTANT POINTS TO BE COVERED
BY THE PARTNERSHIPS CONTRACTS
ARE:
• 1. Partnerships name, nature, purpose and location
• 2. Effectivity date of the contract of partnership and its
duration
• 3. Names of partners and the agreed contribution of
each
• 4. Rights, powers and duties of the partners and their
limitations
• 5. Accounting period to be adopted and the name of
accounting records to be used
• 6. Profits and loss sharing ratio for the recognition of
difference in tangible resource and service contribution
• 7. Partners investment and withdrawal subsequent
to formation
• 8. provisions for the arbitration of disputes and the
dissolution of the partnership.
CHARACTERISTICS OF THE CONTRACT
OF PARTNERSHIP
• 1. consensual- because it is perfected by mere consent
• 2. nominate-because it has a special nomenclature or
designation in law
• 3. preparatory-because its organization or formation
must be perfected first before it can validly enter into a
contract with third persons
• 4. Onerous-because it involves contributions of the
partners to a common fund
• 5. bilateral or multi lateral-because it is entered into or
stipulated by two or more persons
• 6. principal-bcause it can stand alone, its existence is not
dependent upon another contract