BASIC CONCEPTS

PARTNERSHIP

“a contract whereby 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”

ARTICLE 1767
New Civil Code of the Philippines
Contribution may consist of
 Money
 Property (real or personal)
 Industry (services: physical or mental)

-------------------
For a limited partner
only money and
property
but not services
Business Entity Concept
 Partnership has a juridical personality
separate and distinct from each of the
partners

Co-ownership
 Property invested in the partnership business
by the partners become property of the
business
 Not only in assets but also in obligations,
operating profits and losses
 For the exercise of the  Engaged in trade or
profession of the partners business

 Exempted from payment of  Taxed like a corporation…

income tax…

 …provided that no part of  …hence, subjected to 30%

income is derived from income tax rate based on
engaging in any trade or its taxable net income
business

General Professional
Co-Partnership
Partnership
 Mutual Division of Profit
Co-ownership
Contribution and Loss

Unlimited
Mutual Agency Limited Life
Liability

Capital and
Income Taxes
Drawing
(30%)
Accounts
 Created by mere agreement
 At least 2 persons
 Begins upon execution of
contract
 Exercise any power
authorized by the partners
 Unlimited liabilities
 Transfer of interest with
consent
 May be dissolved any time
by will of 1 or all
Partnership
 Created by operation of law
 At least 5-15 incorporators
 Begins upon issuance of
Certificate of Incorporation
 Exercise only powers
expressly authorized by law
 Limited liability
 Transfer of shares w/o
consent
 Can only be dissolved by the
State
Corporation
 Combined expertise of  Partnership’s creditors
partners can run after a
 Bigger capital (vs. sole) partner’s personal
 Exempted from income asset
tax (GPP)  Misunderstanding and
disputes
 Interest of one partner
 Limited source of
cannot be transferred
capital (vs. corp.)
to a new partner
 Possible divisiveness
without consent of
 Limited life
other partners

ADVANTAGES DISADVANTAGES
1. According to Purpose
a) Commercial or Trading

b) Professional or Non-Trading

2. According to the Partner’s Liability

a) General Partnership

b) Limited Partnership
3. According to Object
a) Universal Partnership of all present
property

b) Universal Partnership of profits

c) Particular Partnership

4. According to the Duration

a) Partnership with a fixed term or for a particular
undertaking

b) Partnership at will
5. According to Legality of Existence
a) De jure Partnership

b) De facto Partnership
1. As to Contribution
a) Capitalist Partner

b) Industrial Partner

c) Capitalist-Industrial Partner

2. As to Liability
a) General Partner

b) Limited Partner
3. Other Classifications
a) Nominal Partner or Partner by Estoppel

b) Secret Partner (not known but active)

c) Silent Partner (known but inactive)

d) Dormant Partner (not known and inactive)

e) Managing Partner (manager)

f) Liquidating Partner (wind up or settle affairs of

partnership after dissolution)
 Partnership is based on contract.
 Persons capable of entering into a contract
and desires to form a partnership must draw
up an agreement, either oral or written.
 Contract will govern the partnership’s:
◦ Formation
◦ Operation
◦ Division of profit and losses
◦ Dissolution
 Must be in writing and shall appear in the
public instrument to be recorded in the
Securities and Exchange Commission (SEC)
when:
1. Partnership’s capital ≧ P3,000
2. Immovable property or real rights are
contributed
 is VOID whenever immovable property or real
rights are contributed and a signed inventory
of said property is not made and attached to
a public instrument
 In case failure to provide agreement on the
division of profits and losses, provision of the
law shall apply: “profit and loss is divided
based on proportion
to their capital
contribution”
 Written contract by the partners
 Requires registration with SEC
 Must contain among others the following:
◦ Name of partnership, nature and place of business
◦ Names of partners with addresses and contribution
◦ Effective date and duration of partnership
◦ Accounting period to be adopted
◦ Profit and loss sharing
◦ Rights, powers and duties of the partners
◦ Treatment of additional investment and withdrawal
◦ Provision pertinent to dissolution and liquidation
 Mechanics:
◦ Secure a copy of any Articles of Co-
Partnership from SEC
◦ Compare its content to the list as
enumerated in the book
◦ Deadline of submission:
September 21, 2015