ACCTG 2 - Fundamentals of Accounting

PARTNERSHIP AND CORPORATION

1st Semester 2018-2019

GBS FOR WEEK NO. 2

PHASE 1: PARTNERSHIP

MODULE 1: NATURE OF A PARTNERSHIP

TOPIC: MODULE 1: NATURE OF PARTNERSHIP

Learning Objectives:

After studying this unit, you will be able to:

DEFINITION

A partnership is defined in Article 1767 of the Civil Code of the Philippines as

“a contract whereby two or more persons bind themselves to contribute
money, property or industry into a common fund with the intention of
dividing profits among themselves”.

CHARACTERISTICS OF A PARTNERSHIP

1. Mutual Agency

2. Unlimited Liability

3. Limited Life
 4. Mutual participation in profits

5. Legal Entity

6. Co-ownership of contributed Assets

7. Income Tax

ADVANTAGES

1. It is easy and inexpensive to organize.

2. The unlimited liability of the partners makes it reliable from the point
of view of creditors.

3. The combined personal credit of the partners offers better opportunity

for obtaining additional capital than does a sole proprietorship.

4. There is closer supervision of all the partnership activities.

5. The direct gain to the partners is an incentive to give close attention to

the business.

6. The personal element in the characters of the partners is retained.

DISADVANTAGES

1. The personal liability of a partner for the firm debts deters many from
investing capital in a partnership.

2. A partner may be subject to personal liability for the wrongful acts or

omissions of his/her associates.

3. It is less stable because it can easily be dissolved.

4. There is divided authority among the partners.

5. There is constant likelihood of dissension and disagreement when each

of the partners has the same authority in the management of the firm.

KINDS

1. As to activity

a. Trading Partnership- one whose main activity is the manufacture

and sale or the purchase and sale of goods
 b. Non-trading Partnership- one which is organized for the purpose
of rendering services.

2. As to object

a. Universal Partnership

1. Universal Partnership of all present property- one in which

the partners contribute, at the time of the constitution of the
partnership, all the properties which actually belong to each of
them into a common fund with the intention of dividing the same
among themselves as well as the profits which they may acquire
therewith.

All assets contributed to the partnership and subsequent

acquisitions become common partnership assets.

2. Universal Partnership of all 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.

Partnership assets consist of assets acquired during the life of

the partnership and only the usufruct or use of assets
contributed at the time of partnership formation. The original
movable or immovable property contributed do not become
common partnership assets.

b. Particular Partnership- one which has for its object determinate

things, their use or fruits, or a specific undertaking or the exercise
of a profession or vocation.

3. As to liability of partners
 a. General Co-partnership- one consisting of general partners who
are liable prorate and sometimes solidarily with their separate property
for partnership liabilities.

b. Limited Partnership- one formed by two or more persons having

as members one or more general partners and one or more limited
partners, who as such are not bound by the obligations of the
partnership. The word “LIMITED” or “LTD.” is added to the name of the
partnership to inform the public that it is a limited partnership.

4. As to duration

a. Partnership at will- one for which no term is specified and is not

formed for a particular undertaking or venture and which may be
terminated any time 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 exist is agreed upon. It may also refer
to a partnership formed for a particular undertaking and upon the
expiration of that term or completion of the particular undertaking the
partnership is dissolved; unless continued by the partners.

5. As to representation to others

a. Ordinary partnership- one which actually exists among the

partners and also as to third persons.

b. Partnership by estoppel- one which in reality is not a partnership

but is considered as one only in relation to those who, by their conduct
or omission are precluded to deny or disprove the partnership’s
existence.

6. As to legality of existence
 a. De Jure partnership- one which has complied with all the
requirements for its establishment.

b. De Facto partnership- one which failed to comply with one or

more of the legal requirements for its establishment.

7. As to publicity

a. Secret partnership- one wherein the existence of certain persons

as partners is not made known to the public by any of the partners.

b. Open partnership- one wherein the existence of certain persons

as partners is made known to the public by the members of the firm.

CLASSES OF PARTNERS

1. As to contribution

a. Capitalist partner- one who contributes capital in cash (money) or

property.

b. Industrial partner- one who contributes industry, labor, skill,

talent, or service.

c. Capitalist-industrial partner- one who contributes cash, property

and industry.

2. As to liability

a. General partner- one whose liability to third persons extends to

his separate (private) property.

b. Limited partner- one whose liability to third persons is limited only

to the extent of his capital contribution to the partnership.

3. As to management
 a. Managing partner- one who manages actively the business of the
partnership.

b. Silent partner- one who does not participate in the management

of the partnership affairs.

4. Other classifications

a. Liquidating Partner- one who takes charge of the winding up of

the partnership affairs upon dissolution.

b. Nominal Partner- one who is not really a partner, not being a

party to the partnership agreement, but is made liable as a partner for
the protection of innocent third persons.

c. Ostensible partner- one who takes active part in the management of

the firm and is known to the public as a partner in the business.

d. Secret partner- one who takes active part in the management of

the business but whose connection with the partnership is concealed or
unknown to the public.

e. Dormant partner- one who does not take active part in the
management of the business and is not known to the public as a
partner; he is both a silent and secret partner.

EVALUATION:

In your opinion, which type of partnership best suits the

following organizations?

1. Accounting firm

2. Non-governmental organization

3. Hospital

4. School

5. Electric company
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PROFESSOR/SUBJECT SPECIALIST: DR. GERMILA P. TABIGNE