PARTNERSHIP

THREE BASIC LEGAL FORMS OF BUSINESS



Single Proprietorship Partnership Corporation

SINGLE PROPRIETORSHIP


The oldest, simplest, and most common legal form of business. A single person has the controlling interest and is responsible for the firms policies, owns all its assets, and is personally liable for its debts.

SINGLE PROPRIETORSHIPADVANTAGES


Ease of formation, control, and the manner in which it is taxed. Few legal and organizational requirements associated with setting up a proprietorship organizational costs are very low.

SINGLE PROPRIETORSHIPADVANTAGES


Owner has total control of the business Earnings of the business are taxed at individual income tax rates which are lower than corporate tax rates

SINGLE PROPRIETORSHIPDISADVANTAGES


Unlimited personal liability Limited access to funds Limited lifetime

PARTNERSHIP - ADVANTAGES


Low cost and ease of formation Ability to raise a larger amount of capital Greater creditworthiness

PARTNERSHIP - DISADVANTGES
  

Unlimited liability Limited lifetime Taxed in the same manner as a corporation

CORPORATION


Limited liability Unlimited life Transferability of ownership

PARTNERSHIP DEFINED


Contract whereby two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing profits among themselves (Art. 1767)

CHARACTERISTICS
     

Consensual Bilateral/multilateral Nominate Principal Onerous Preparatory

ELEMENTS
    

Contribution of money, property or industry to a common fund Object must be lawful Intention of dividing the profit among the partners Desire to form an active union New personality must arise, distinct from each partner.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP How created Voluntary agreement How long it exists No time limit except upon agreement of parties. CORPORATION Operation of law Not more than 50 years.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP Liability to May be liable strangers with their private property beyond the contribution to the firm. CORPORATION Liable only for payment of their subscribed capital stock.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP Transferability of No person can interest become a partner without the consent of all other partners.
delectus personarum or the principle of mutual trust and confidence.

CORPORATION Transfer of interest makes the transferee a stockholder, even without the consent of the others.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP Generally, Ability to bind the partners acting firm CORPORATION Generally, the stockholders on behalf of the cannot bind partnership are the corporation agents thereof; since they are consequently, not agents they can bind both the firm and thereof.
the partners.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP A partner can Mismanagement
sue a partner who mismanages.

CORPORATION
A stockholder cannot sue a member of the board of directors who mismanages: the action must be in the name of the corporation.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP A partnership is Nationality
a national of the country it was created.

CORPORATION
A corporation is a national of the country under whose laws it was incorporated, except for wartime purposes.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP Attainment of legal The firm becomes a personality CORPORATION

The firm becomes a juridical person juridical person from the time the from the time it is contract begins. registered with SEC and all requisites have been complied with.

PARTNERSHIP V. CORPORATION
DISTINGUISHING PARTNERFACTOR SHIP Death, Dissolution
retirement, insolvency, civil interdiction, or insanity of a partner dissolves the firm.

CORPORATION
Such causes do not dissolve a corporation.

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING PARTNERFACTOR SHIP Created by CREATION
contract only (express or implied)

COOWNERSHIP
Created by contract, law, and other things

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING PARTNERFACTOR SHIP Has legal or JURIDICAL
juridical personality

COOWNERSHIP
Has no juridical personality (hence, it cannot sue or be sued as such).

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING PARTNERFACTOR SHIP For profit PURPOSE COOWNERSHIP
Collective enjoyment; (hence, not necessarily for profit)

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING PARTNERCOFACTOR SHIP OWNERSHIP As a rule, there As a rule, there is AGENCY OR no mutual REPRESENTATION is mutual
representation
representation (although it is enough for one co-owner to bring an action for ejectment against a stranger.

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING FACTOR TRANSFER OF INTEREST PARTNERSHIP
Cannot substitute another as partner in this place, without unanimous consent.

COOWNERSHIP
Can dispose of his share without the consent of the others.

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING FACTOR LENGTH OF EXISTENCE IF CREATED BY CONTRACT PARTNERSHIP COOWNERSHIP
years (although agreement, after termination may be renewed) (hence, if more than 10 years the excess is void)

No term limit is Must not be for set by the law. more than 10

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING FACTOR PROFITS PARTNERSHIP COOWNERSHIP
proportionate shares (any stipulation to the contrary is VOID)

Profits must May be stipulated upon always depend on

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING FACTOR DISSOLUTION PARTNERSHIP
Dissolved by death or incapacity of a partner

COOWNERSHIP
Not dissolved by the death or incapacity of coowner.

PARTNERSHIP V. COOWNERSHIP
DISTINGUISHING FACTOR FORM PARTNERSHIP
May be made in any form except when real property is contributed (Here public instrument is required).

COOWNERSHIP
No public instrument needed even if real property is the object of the coownership.

CAPACITY TO BECOME PARTNER

A

person capacitated to enter into contractual relations may become a partner.

CAPACITY TO BECOME PARTNER



A unemancipated minor cannot become a partner unless his parent or guardian consents. Without such consent, the partnership contract is voidable, unless other partners are in the same situation, in which case the contract is unenforceable.

CAPACITY TO BECOME PARTNER



A partnership being a juridical person by itself can, it is believed, form another partnership, either with private individuals or with other partnerships, there being no prohibition on the matter.

CAPACITY TO BECOME PARTNER



The majority view is that a corporation cannot become a partner on grounds of public policy, otherwise people other than its officers may be liable to bind it.

SEPARATE JURIDICAL PERSONALITY

ART. 1768 The partnership has a JURIDICAL PERSONALITY SEPARATE AND DISTINCT from that of each of the partners.

SEPARATE JURIDICAL PERSONALITY

A

ABCD Partnership

SEPARATE JURIDICAL PERSONALITY

CONSEQUENCES: The partnership can: a) Acquire and possess property of all kinds; b) Incur obligations

SEPARATE JURIDICAL PERSONALITY

CONSEQUENCES: The partnership can: c) Bring civil or criminal actions; and d) Can be adjudged INSOLVENT even if the individual members be each financially solvent

SEPARATE JURIDICAL PERSONALITY

Hongkong & Shanghai Bank v Jurado & Co, 2 Phil 671 Unless he is personally sued, a partner has no right to make a separate appearance in court, if the partnership being sued is already represented.

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769
1)

Persons who are not partners as to each other are not partners as to third persons (exception: Partners by estoppel, Art. 1825)

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769
2)

Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the use of the property;

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769
3)

The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769
4)

The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business;

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769 NO INFERENCE OF PARTNERSHIP IN THE FOLLOWING CASES: When profits were received in payment:

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769 When profits were received in payment: a) As a debt by installments or otherwise; b) As wages of an employee or rent to a landlord;

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769 When profits were received in payment: c) As an annuity to a widow or representative of a deceased partner; d) As interest on a loan, though the amount of payment vary with the profits of the business;

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

ART. 1769 When profits were received in payment: e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise;

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

Fortis v. Gutierrez Hermanos, 6 Phil, 100
Fortis was a bookkeeper in a partnership named Gutierrez Hermanos, with a yearly salary amounting to 5% of the net profits for each year. Fortis however had no vote at all in the management of the business. Was he a partner?

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

Fortis v. Gutierrez Hermanos, 6 Phil, 100

No. Fortis was a mere employee as their contract is a contract of employment.

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

Bastida v. Menzi and Co, 58 Phil. 188
Bastida worked for Menzi and Co., as procurer of contracts for fertilizers to be manufactured by the firm, and as supervisor of the mixing of the fertilizers. However he had no voice in the management of the business except in his task of supervising the mixing of said fertilizers. For his services, he was entitled to 35% of the net profits in the fertilizer business. Was a partner?

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

Bastida v. Menzi and Co, 58 Phil. 188 Not a partner, but a mere employee with no power to vote.

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

Lyons vs. Rosenstock, 56 Phil 632
Elser and Lyons are engaged in real estate. They co-owned a parcel of land. Elser, with the consent of Lyons, mortgaged the property to raise money for the development of the San Juan Estate. Lyons expressed his desire not to be part of the development project. The business prospered. Lyons demands for a share in the mortgage and in the business claiming he is a partner. Is Lyons a partner of Elser?

TESTS TO DETERMINE EXISTENCE OF PARTNERSHIP

Lyons vs. Rosenstock, 56 Phil 632 No. Lyons himself did not want to participate in the development project. No partnership was formed. The mortgage of the property is immaterial to the issue of partnership existence.

LAWFUL OBJECT
ART. 1770 A partnership must have a lawful object or purpose. Otherwise, it will be VOID.

LAWFUL OBJECT
ART. 1770
When an unlawful partnership is dissolved by a judicial decree, the PROFITS shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the INSTRUMENTS and EFFECTS of a crime.

LAWFUL OBJECT
ART. 1770 Partnership is still VOID, if the subject matter is outside the commerce of man or is impossible thing or service.

LAWFUL OBJECT
ARBES VS. POLISTICO, 53 Phil 489
Turnuhan Polistico and Co, is a private organization engaged in conducting a lottery among its partnersmembers every weekend. Contributions are made every week, except for certain , the contributions were distributed to the lottery winners. The court declared the partnership unlawful. May the partners retrieve their capital and profits?

LAWFUL OBJECT
ARBES VS. POLISTICO, 53 Phil 489
The partners can get their capital and but not the profits. The law authorizes only the confiscation of profits and not capital. Capital may be recovered, unless it constitutes instruments and effects of the crime.

FORMALITIES OF PARTNERSHIP CONTRACT

ART. 1771 GENERAL RULE: Any form (for validity and enforceability, regardless of the value of the contribution) Partnership contract is not one of those covered by Statute of Frauds.

FORMALITIES OF PARTNERSHIP CONTRACT

ART. 1771 EXCEPTION: Where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

FORMALITIES OF PARTNERSHIP CONTRACT

ARTS. 1771 and 1773 WHERE REAL PROPERTIES OR REAL RIGHTS ARE CONTRIBUTED:  A PUBLIC INSTRUMENT is needed.  An INVENTORY of the immovables.  A inventory must be SIGNED by the parties and ATTACHED to the public instrument.

FORMALITIES OF PARTNERSHIP CONTRACT

ART. 1771 EFFECT IF NOT COMPLIED Partnership is VOID.

FORMALITIES OF PARTNERSHIP CONTRACT

TO BIND THIRD PERSONS
Where immovable property had been contributed and the inventory properly made, to bind third persons, the contract of partnership must be registered with the Registry of Property where the immovable is located (Borja vs. Addison, et.al., 49 Phil. 895).

FORMALITIES OF PARTNERSHIP CONTRACT

AGAD VS. MABATO, 23 SCRA 1223
A partnership was entered into between Agad and Mabato to operate a fishpond. Neither partner contributed a fishpond or a real right to any fishpond. Their contributions were in cash only in the sum of P1,000 each. While the partnership contract was done in a public instrument, no inventory of the fishpond was attached in the said instrument.

FORMALITIES OF PARTNERSHIP CONTRACT

AGAD VS. MABATO, 23 SCRA 1223

Is there a valid contract of partnership?

FORMALITIES OF PARTNERSHIP CONTRACT

AGAD VS. MABATO, 23 SCRA 1223
The contract is VALID, despite the lack of the inventory. The purpose of the partnership was not to engage in the fishpond business but to operate a fishpond. Neither said fishpond nor real right thereto was contributed to the partnership, or become part of the capital thereof, even if a fishpond or a real right thereto could become part of its assets. (Dean Ernesto L. Pineda, Partnership, Agency & Trusts, 2006 Edition, pp. 33-34)

FORMALITIES OF PARTNERSHIP CONTRACT

ART. 1772 WHERE THE CAPITAL OF THE PARTNERSHIP IS P3,000.00 OR MORE, IN MONEY OR PROPERTY: a) The partnership contract must be in a public instrument; and b) Registered with the Securities and Exchange Commission

FORMALITIES OF PARTNERSHIP CONTRACT

ART. 1772 EFFECT OF NON-COMPLIANCE: a) The partnership contract is still VALID. Accordingly, the partnership still acquires juridical personality (Art. 1768, 1772) b) The liability of the partnership and the members thereof to third persons are NOT AFFECTED.

FORMALITIES OF PARTNERSHIP CONTRACT

ART. 1772 MANUEL VS. CRUZ, CA-GR No. 42050-R, July 14, 1975
Paragraph 1 of Art. 1772 of the New Civil code is not intended as a pre-requisite for the acquisition of juridical personality by the partnership, but merely a condition for the issuance of licenses to engage in business of trade (citing Capistrano, Civil Code of the Philippines, Vol. IV, p.260).

ACQUISITION/CONVEYANCE OF IMMOVABLE PROPERTY

ART. 1774

Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name.

ACQUISITION/CONVEYANCE OF IMMOVABLE PROPERTY

ART. 1774

 

Refers to immovable property The word title means real estate.

ACQUISITION/CONVEYANCE OF IMMOVABLE PROPERTY

ART. 1774
RULE ON CONVEYANCE OF REAL PROPERTY IN PARTNERSHIP NAME:

Title so acquired can be conveyed only in the partnership name.

ACQUISITION/CONVEYANCE OF IMMOVABLE PROPERTY

ART. 1774 Title so acquired can be conveyed only in the partnership name. IMPLICATION: An immovable property in the name of the partnership can only be conveyed in the name of the partnership. Otherwise, the conveyance is void.

ASSOCIATIONS AND SOCIETIES WHOSE ARTICLES ARE KEPT SECRET



ART. 1775 is applicable to:

 

Associations and societies whose articles are kept secret among the members, wherein any one of the members may contract in his own name with third persons

ASSOCIATIONS AND SOCIETIES WHOSE ARTICLES ARE KEPT SECRET



ART. 1775 is applicable to: These associations and societies shall have:
 

NO JURIDICAL PERSONALITY; and shall be governed by the provisions relating to CO-OWNERSHIP.

CLASSIFICATION OF PARTNERSHIP


As to object (1) Universal Partnership a. of all present property, or b. of all profits (2) Particular Partnership

CLASSIFICATION OF PARTNERSHIP


As to liability of partners (1) General Partnership one where all the partners are general partners. (2) Limited Partnership one where there is one or more general partners, and one or more limited partners.

CLASSIFICATION OF PARTNERSHIP


As to manner of creation (1) orally constituted; (2) constituted in a private instrument; (3) constituted in a public instrument; (4) registered in the Office of the SEC;

CLASSIFICATION OF PARTNERSHIP


As to legality (1) lawful or legal (2) illegal or unlawful

CLASSIFICATION OF PARTNERSHIP


As to duration (1) for a specific period or till the purpose is accomplished; (2) partnership at will.

CLASSIFICATION OF PARTNERSHIP


As to representation to others(1) ordinary partnership (2) partnership by estoppel.

CLASSIFICATION OF PARTNERSHIP


As to liability of partners (1) General Partnership one where all the partners are general partners. (2) Limited Partnership one where there is one or more general partners, and one or more limited partners.

UNIVERSAL PARTNERSHIP
TWO TYPES:
 

Partnership of all present property; Partnership of all profits

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

RULE ON CONTRIBUTION: ALL THE PROPERTY actually belonging to the partners are CONTRIBUTED and said properties become COMMON PROPERTY (owned by all the partners and by the partnership)

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

RULE ON CONTRIBUTION: Aside from the contributed properties, the PROFITS of said contributed COMMON PROPERTY are likewise contributed.

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

RULE ON CONTRIBUTION: PROFITS FROM OTHER SOURCES may become COMMON, but only if there is a stipulation to such effect.

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

RULE ON CONTRIBUTION: FUTURE PROPERTIES: Properties subsequently acquired by inheritance, legacy, or donation (ILD) cannot be included in the stipulation, BUT the fruits thereof can be included in the stipulation

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

HYPOTHETICAL CASES (Paras, Civil Code Book V): 1. A and B entered into a universal partnership of
all present property. No stipulation was made regarding other properties . Subsequently, A received a parcel of land by inheritance from his father; and another parcel of land from University of Bohol as remuneration for As work as professor.

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

HYPOTHETICAL CASES (Paras, Civil Code Book V): Are the two parcels of land and their fruits to be enjoyed by the partnership?

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

HYPOTHETICAL CASES (Paras, Civil Code Book V): ANS: No, because there was no stipulation regarding future properties or their fruits.

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

HYPOTHETICAL CASES (Paras, Civil Code Book V): 2. A and B entered into a universal partnership of all
present property. Subsequently, A received a parcel of land by inheritance from his father; and another parcel of land from University of Bohol as remuneration for As work as professor. It was stipulated that all properties subsequently acquired would belong to the partnership.

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

HYPOTHETICAL CASES (Paras, Civil Code Book V): 2. Are the two parcels of land and their fruits to be enjoyed by the partnership?.

UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY

HYPOTHETICAL CASES (Paras, Civil Code Book V): ANS: For land acquired as salary YES For land acquired as inheritance NO Fruits of inherited land - YES

UNIVERSAL PARTNERSHIP OF PROFITS

DEFINED (Art 1780).


Comprises all that the partners may acquire by their industry or work during the existence of the partnership.

UNIVERSAL PARTNERSHIP OF PROFITS

Art 1780


Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain EXCLUSIVELY to each, only the USUFRUCT passing to the partnership.

UNIVERSAL PARTNERSHIP OF PROFITS

Art 1780 Only the USUFRUCT of the properties of the partners becomes COMMON PROPERTY (owned by them and the partnership); NAKED OWNERSHIP is retained by each of the partners.

UNIVERSAL PARTNERSHIP OF PROFITS

Art 1780 ALL PROFITS acquired by the INDUSTRY or WORK of the partners become COMMON PROPERTY (regardless of whether or not said profits were obtained through the usufruct contributed)

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V) 1) In a universal partnership of profits, A contributed the use of his car. At the end of the partnership, should the car be returned to him?

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V) ANS: Yes, because the naked ownership had always been with him, and upon the end of the usufruct, full ownership reverts to him.

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V) 2) A and B entered into a universal partnership of profits. Subsequently, A won 1st prize in the sweepstakes. Will the money belong to the partnership?

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V) ANS: No, because it was not acquired by industry or work.

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V) 3) A and B entered into a universal partnership of profits. Subsequently, A became a professor at the UB College of Law. Will As salary belong to the partnership?

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V) ANS: Yes, even though no stipulation was made on this point because after all the salary was acquired by As industry or work during the existence of the partnership.

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V) 4) A and B entered into a universal partnership of profits. Later A purchased a parcel of land. Will the fruits of said land belong to the partnership?

UNIVERSAL PARTNERSHIP OF PROFITS

HYPOTHETICAL PROBLEMS (Paras, Civil Code, Book V)
ANS: No, because the usufruct (use and fruits) granted to the firm under Art. 1780, par. 2 refers only to that of the property possessed by the partner at the time of the celebration of the contract. After-acquired properties do not belong to the firm as a matter of right.

PRESUMPTION IN FAVOR OF PARTNERSHIP OF PROFITS

ART. 1781 Articles of universal partnership, entered into without specification of its nature, only constitute a UNIVERSAL PARTNERSHIP OF PROFITS.

PERSONS WHO CANNOT FORM A UNIVERSAL PARTNERSHIP

ART. 1782
1) 2)

3)

Husband and wife (Art. 133) Those guilty of adultery or concubinage (Art. 739) Those guilty of the same criminal offense, if the partnership was entered into in consideration of the same.

PARTICULAR PARTNERSHIP
ART. 1783


It has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. Husband and wife may enter into a particular partnership.