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Law on Partnership Comprehensive Summary
Accountancy (BSA)
St. Mary's College of Tagum, Inc.
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PARTNERSHIP
PARTNERSHIP
By the contract of partnership 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. Two or more persons may also form a partnership for the exercise of a profession. (Art. 1767) A partnership has a juridical personality which is separate and distinct from that of the partners. A partnership may sue and be sued in its name or by its duly authorized representatives. A managing partner of the partnership may execute all acts of administration including the right to sue debtors of the partnership in the case of their failure to pay their obligation when it becomes demandable. (Tai Tong Chuache & Co. vs. Insurance Commission 158 SCRA 336 [1988])
FORM OF PARTNERSHIP CONRTRACT No special form is required for the validity or existence of the contract of partnership.
- Where immovable property or real rights are contributed, the partnership contract shall be void unless: a. It is reduced to writing in a public instrument (Art. 1771). b. An inventory of the property contributed is made, signed by the parties and attached to the public instrument. (Art). A partnership contract which states that the partnership is established to operate a fishpond is not rendered void because no inventory of the fishpond was made (where it did not clearly appear in the articles of partnership that the real property had been contributed by anyone of the partners). (Agad vs. Mabolo and Mabolo Agad and Co., 23 SCRA 1223[1968])
- Where the contract is by its terms not to be performed within a year from the making thereof, such partnership
contract is covered by the statute of frauds and thus requires a written agreement to be enforceable. 3. Where the contract of partnership has a capital of 3,000 pesos or more, in money or property, it shall appear in a public instrument and must be recorded in the Office of the Securities and Exchange Commission. However, a partnership has a juridical personality even in case of failure to comply with this requirement.
Requisites:
- intention to create a partnership
- common fund obtained from the contributions
- joint interest in the profits
Essential Features:
- there must be a valid contract;
- the parties must have legal capacity to enter into the contract;
NOTE: With regard to number 2 (legal capacity of contracting parties), individuals not legally incapacitated to contract and partnerships may enter into a contract of partnership. With respect to corporations, the court held in Aurbach vs. Sanitary Wares Manufacturing Corporation 180 SCRA 130 [1989] that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. A joint venture has been generally understood to mean an organization formed for some temporary purpose. There is nothing against one corporation being represented by a natural or juridical person in a suit in court, for the true rule is that “although a corporation has no power to enter a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized by the charter. (JM Tuazon and Co., Inc vs. Bolanos 95 PHIL 106 [1954])
- there must be mutual contribution of money, property and industry to a common fund
NOTE: A partnership of a civil nature was formed because Gatchalian & Co. put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win as they did in fact in the amount of P50,000. (Gatchalian vs. CIR 67 PHIL 666 [1939]) Where the father sold his rights over 2 parcels of land to his 4 children so they can build their residences, but the latter after 1 year sold them and paid the capital gains, they should not be treated to have formed an unregistered partnership and taxed corporate income tax on the sale and on dividend income tax on their shares of the profits from the sale. (Obillos Jr. vs. CIR [1985]) 4. the object must be lawful; and 5. the primary purpose must be to obtain profits KEY: CJP 3 - D 2 AFT
Partnership Co-ownership 1. Creation Always created by a contract, either express or implied
Generally created by law, but may exist even without a contract
- Juridical personality Has a juridical personality separate and distinct from that of each partner
Has no juridical personality
- Purpose Realization of profits
Common enjoyment of a thing or right; does not necessarily involve sharing of profits
- Duration No limitation upon the duration is set by law
An agreement to keep the thing undivided for more than 10 years is not allowed 5. Transfer of interests A partner may not dispose of his individual interest in the partnership so as to make the
A co-owner can dispose of his share without the consent of the others
assignee a partner without unanimous consent 6. Power to act with third persons In the absence of stipulation to the contrary, a partner may bind the partnership
A co-owner cannot represent the co- ownership
- Dissolution Death or incapacity of a partner results in the dissolution of partnership
Death or incapacity of a co-owner does not necessarily dissolve the co- ownership 8. Agency or representation As a rule, there is mutual agency
As a rule, there is no mutual representation (although it is enough for a co- owner to bring an action for ejectment against a stranger) 9. Profits May be stipulated upon
Must always depend upon proportionate shares and any stipulation to the contrary is VOID (Art) 10. Form May be in any from except when real property is contributed (here a public instrument is required)
No public instrument is needed even if real property is the object of the co- ownership
KEY: CNJ – PMERET 2 - FPG
Partnership Corporation 1. Creation Created by mere agreement of the parties
Created by law or by operation of law 2. Number of incorporators May be organized by at least two persons
Requires at least five incorporators (except a corporation sole)
- Commencement of juridical personality Acquires juridical personality from the moment of execution of the contract of partnership
Acquires juridical personality from the date of issuance of the certificate of
NOTE: Under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. Hence, a joint venture may be treated like any other contract, innominate in nature to be regulated and governed primarily by the stipulations of the parties thereto and suppletorily by the general provisions of the Civil Code on obligations and contracts, by rules governing the most analogous contracts (e. law on partnership), and by the customs of the place.
Other Similar Contracts
- Collaboration- the act of working together in a joint project.
- Association- act of a number of persons uniting together for some special purpose or business.
RULES TO DETERMINE EXISTENCE OF PARTNERSHIP (ART 1769)
- GENERAL RULE: Persons who are not partners as to each other are not partners as to third persons. EXCEPTION: partnership by estoppel
- Co-ownership of a property does not itself establish a partnership, even though the co-owners share in the profits derived from the incident of joint ownership.
- Sharing of gross returns alone does not indicate 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.
- Receipt of share in the profits is a strong presumptive evidence of partnership. However, no such inference will be drawn if such profits were received in payment: (a) as a debt by installments or otherwise; (b) as wages of an employee or rent to a landlord; (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; and
(e) as the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
CLASSIFICATION OF PARTNERSHIP
as to object: a) universal partnership i. universal partnership of all present property ii. universal partnership of profits b) particular partnership
as to liability of partners: a) general partnership b) limited partnership
as to duration: a) partnership at will b) partnership with a fixed period
as to legality of existence: a) de jure partnership b) de facto partnership
as to representation to others: a) ordinary or real partnership b) ostensible or partnership by estoppel
as to publicity: a) secret partnership b) notorious or open partnership
as to purpose: a) commercial or trading b) professional or non-trading
UNIVERSAL PARTNERSHIP
- A universal partnership of all present property is one wherein the partners contribute all the property which actually belong to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith.
In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as
the profits which they may acquire therewith. A stipulation for the common enjoyment of any other profits may also be made; but the properties which the partners may acquire subsequently by inheritance, legacy or donation cannot be included in such stipulation, except the fruits thereof.
Where the articles of partnership do not specify the nature of the universal partnership, whether it is one of “present property” or of “profits” only, it will be presumed that the parties intended merely a partnership of profits. NOTE: Future properties cannot be contributed. Thus, property subsequently acquired by (1) inheritance, (2) legacy or (3) donation cannot be included by stipulation except the fruits thereof.
- A universal partnership of profits is 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 posses at the time of the celebration of the contract.
Movable or immovable property which each of the partners may posses at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership.
NOTE: Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership. (Art. 739, Art. 87, Family Code) Profits acquired by their partners through chance (i. lottery) without employment of any physical or intellectual efforts are not included.
PARTICULAR PARTNERSHIP A particular partnership is one which has for its object determinate things, their use and fruits, or a specific undertaking, or the exercise of a profession or vocation.
GENERAL PARTNERSHIP
A partnership consisting of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts.
LIMITED PARTNERSHIP One formed by two or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership.
PARTNERSHIP AT WILL A partnership wherein no time is specified and is not formed for a particular undertaking or venture and which may be terminated at anytime by mutual agreement of the partners, or by the will of anyone partner alone; or one for a fixed term or particular undertaking but has been continued by the partners after termination of such term or particular undertaking without express agreement.
PARTNERSHIP WITH A FIXED TERM A partnership wherein the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking, and upon the expiration of the term or completion or the particular enterprise, the partnership is dissolved, unless continued by the partners.
OTHER KINDS OF PARTNERSHIP
- De Jure Partnership- one which has complied will all the legal requirements for its establishment.
- De Facto Partnership- one which has failed to comply with all the legal requirements for its establishment.
- Ordinary or real partnership- one which actually exists among the partners and also as to third persons.
- Ostensible partnership or partnership de facto- one which in reality is not a partnership, but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence.
c) To answer to the partnership for the fruits of the property the contribution of which is delayed, from the date they should have been contributed to the time of actual delivery d) To preserve the property with the diligence of a good father of a family pending delivery to the partnership e) To indemnify the partners for any damages caused to it by the retention of the same or by delay in its contribution.
II. Obligations with respect to contribution of money and money converted to personal use a) To contribute on the date due the amount he has undertaken to contribute to the partnership b) To reimburse any amount he may have taken from the partnership coffers and converted to his own personal use c) To pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any amount from the common fund and converted to his own personal use d) To indemnify the partnership for the damages caused to it by the delay in the contribution or the conversion of any sum for his personal benefit.
III. Obligation Not to Engage in Other Business for Himself
- Industrial partner- cannot engage in any business for himself unless the partnership expressly permits him to do so. The other partners have the remedy of either excluding the erring partner from the firm or of availing themselves of the benefits which he may have obtained. Note: The prohibition is absolute and applies whether the industrial partner is to engage in the same business in which the partnership is engaged or in any kind of business. It is clear that the reason for the prohibition exists in both cases, which is to prevent any conflict of interest between the industrial
partner and the partnership and to insure faithful compliance by said partner with his prestation (Evangelista & Co. vs. Abad Santos, 51 SCRA 416, 1973)
- Capitalist partner- The prohibition extends only to any operation which is of the same kind of business in which the partnership is engaged unless there is a stipulation to the contrary.
IV. Obligation to Contribute Additional Capital As a general rule, a capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute but in case of an imminent loss of the business, and there is no agreement to the contrary, he is under obligation to contribute an additional share to save the venture. If he refuses to contribute, he shall be obliged to sell his interest in the partnership to other partners.
V. Obligation of Managing Partner who Collects Debt Where a person is separately indebted to the partnership and to the managing partner at the same time, any sum received by the managing partner shall be applied to the two credits in proportion to their amounts, except where he received it entirely for the account of the partnership, in which case the whole sum shall be applied to the partnership credit only.
Requisites for the application of the rule:
- There exists two debts, one where the collecting partner is creditor, the other, where the partnership is creditor.
- Both debts are demandable
- The partner who collects is authorized to manage and actually manages the partnership.
VI. Obligation of Partner Who Receives Share in Partnership Credit A partner who receives, in whole or in part, his share in the partnership, when the others have not collected
theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only.
Requisites for application of rule:
- A partner has received, in whole or in part, his share in the partnership credit
- The other partners have not collected their shares.
- The partnership debtor has become insolvent.
VII. Obligation of Partner for Damages to Partnership Every partner is responsible to the partnership for damages suffered by it through his fault. He cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry.
VIII. Duty to Render Information Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner of any partner under legal disability.
IX. Obligation to account for any benefit and hold as trustee unauthorized personal profits Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, liquidation of the partnership or form any use by him of its property.
RIGHTS OF A PARTNER:
Property rights of a partner a) His rights in the specific partnership property b) His interest in the partnership c) His right to participate in the management
Right to reimbursement for amounts advanced to the partnership and to indemnification for risks in consequence of management
Right to associate with another person in his share
Right of access and inspection of partnership books
Right to true and full information of all things affecting the partnership
Right to a formal account of partnership affairs under certain circumstances NOTE: The ten year period to demand an accounting by a partner begins at the dissolution of the partnership.
Right to have partnership dissolved under certain conditions.
RULES FOR DISTRIBUTION OF PROFITS AND LOSSES
- Distribution of profits a) According to their agreement (but not inequitously to defeat Art) b) If none, 1) Share of capitalist partner shall be in proportion to his capital contribution 2) Industrial partner shall receive such share as may be just and equitable under the circumstances
- Distribution of losses a) According to their agreement as to losses (but not inequitously to defeat Art) b) If none, according to their agreement as to profits c) If none, in proportion to his capital contribution, but the purely industrial partner shall not be liable for the losses
A stipulation excluding a partner from any share in the profits or losses is VOID (Article 1799) Article 1797(2) excludes an industrial partner from losses. Thus, a stipulation excluding an industrial partner from losses is VALID, but he is NOT exempted from liability insofar as third persons are concerned. NOTE: In general, LIABILITY refers to responsibility towards third persons, and LOSSES refers to responsibility as among partners
- Appointment other than in the articles of partnership a. Power to act may be revoked at any time, with or without just cause b. Extent of power: as long as he remains manager, he can perform all acts of administration, but if others oppose and he persists, he can be removed
B. When two or more managing partners have been entrusted with the management of partnership 1)Without specification of their respective duties and without stipulation requiring unanimity of action Each managing partner may execute all acts of administration If any of the managing partners should oppose, a) Decision of the majority of the managing partners shall prevail b) In case of a tie, decision of the partners representing the controlling interest shall prevail
- With stipulation requiring unanimity of action Unanimous consent of all the managing partners shall be necessary for the validity of the acts and absence or inability of any managing partner cannot be alleged When there is an imminent danger of grave or irreparable injury to the partnership, partner may act alone without the consent of the partner who is absent or under disability
II. When manner of management has not been agreed upon a) All partners shall be considered managers and agents
b) Unanimous consent required for alteration of immovable property
OBLIGATIONS OF PARTNERS TO THIRD PERSONS I. Liability for contractual obligations (ART 1816) 1. All partners, including industrial partners, are personally liable with all their property. Their individual liability is pro rata and subsidiary, unless otherwise stipulated 2. Liability of partnership for acts of partners a) Acts for apparently carrying on in the usual way the business of the partnership Act binds the partnership. Partnership is not bound if: i. acting partner has in fact no authority and ii. the third person knows that the acting partner has no authority b) Acts of Strict Dominion or Ownership (acts which are not apparently for carrying on in the usual way the business of the partnership) Act does not bind the partnership. Partnership is bound if: i. the act is authorized by all the partners; or ii. they have abandoned the business c) Acts in contravention of a restriction on authority i. Partnership is not liable to third persons having actual or presumptive knowledge of the restrictions
II. Liability arising from partner’s tort (ART 1822) or Breach of Trust (ART 1823) 1. Where, by any wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with authority of his co-partners, loss or injury is caused to any person,
not being a partner in the partnership (Article 1822) 2. Where one partner, acting within the scope of his apparent authority, receives money or property of a third person and misapplies it (Article 1823) 3. Where the partnership, in the course of its business, receives money or property and it is misapplied by any partner while it is in the custody of the partnership (Article 1823)
NOTE: All partners are solidarily liable with the partnership for any penalty or damage arising from a partnership tort or breach of trust
III. Criminal liability of partnership Partnership liability does not extend to criminal liability where the wrongdoing is regarded as individual in character. But where the crime is statutory, especially when it involves a fine rather than imprisonment, criminal liability may be imposed
LIABILITY OF STOCKHOLDERS IN A DEFECTIVELY FORMED CORPORATION It is ordinarily held that persons who attempt but fail to form a corporation and carry on business under the corporate name occupy the position of partners inter se. Thus where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter-se. Exception: One who takes no part except to subscribe for stock in a proposed corporation, which was never legally formed, does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution. (Pioneer Insurance & Surety Corporation vs. Court of Appeals, 175 SCRA 668 [1989].)
PRINCIPLE OF DELECTUS PERSONARUM
A rule inherent in every partnership wherein no one can become a member of the partnership without the consent of all the partners.
NOTE: This element of delectus personae is true only in case of a general partner, but NOT as regards a limited partner.
MUTUAL AGENCY Partnership is a contract of “mutual agency”, each partner acting as a principal on his own behalf, and as an agent of his co-partners and the partnership.
Requisites When A Partner Binds The Partnership
- when he is expressly or impliedly authorized
- when he acts in behalf and in the name of the partnership
PARTNERSHIP BY ESTOPPEL Arises when a person, by words spoken or written or by conduct, represents himself or consents to another representing him to anyone, as partner in an existing partnership, or with one or more persons not actual partners; he is liable to any such person to whom such representation has been made, who has, on the faith of such representation given credit to the actual or apparent partnership. (Art 1825 )
NOTE: Art. 1825 does not create a partnership as between the alleged partners. A contract, express or implied is essential to the creation of partnership. The law considers them partners and the association as a partnership insofar as it is favorable to third persons. However, partnership liability is created only in favor of persons who on the faith of such representation given credit to the actual or apparent partnership
prejudicially the carrying on of the business; d. A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him. e. The business of the partnership can only be carried on in a loss; f. Other circumstances render a dissolution equitable. On application of the purchaser of a partner’s interest under Article 1813 or 1814: a. After the termination of the specified term or particular undertaking; b. At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued.
EFFECTS OF DISSOLUTION A. As to partner’s authority to act for the partnership Dissolution terminates all authority of any partner to act for the partnership
- Acts necessary to wind up partnership affairs
- Acts necessary to complete transactions begun but not then finished Note: Thus, dissolution terminates the ACTUAL authority of a partner to undertake NEW business for the partnership
QUALIFICATIONS TO THE GENERAL RULE:
- With respect to the partners (in so far as partners themselves are concerned) a) Dissolution is not by act, insolvency or death of a partner: General Rule applies. Hence, dissolution terminates the ACTUAL authority of a partner to undertake NEW business for the partnership
b) Dissolution is by act, insolvency or death of a partner: Authority of partners inter se to act for the partnership is NOT deemed terminated. Thus, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership has not been dissolved
- The cause of dissolution is the ACT of a partner and the acting partner had KNOWLEDGE of such dissolution
- The cause of dissolution is the DEATH or INSOLVENCY of a partner and the acting partner had KNOWLEDGE or NOTICE of such dissolution
- With respect to persons not partners (third persons) a) When partnership is bound to third persons after dissolution
Act appropriate for winding up partnership affairs
Act appropriate for completing unfinished transactions
Completely NEW transaction which would bind the partnership if dissolution had not taken place provided: the other party is in good faith, meaning: i. Previous creditor (had previously extended credit) AND he had NO KNOWLEDGE or NOTICE of the dissolution, OR ii. NOT a previous creditor AND the fact of dissolution had not been published in a newspaper of general circulation b) When partnership is NOT bound to third persons after dissolution
Where partnership was dissolved because it was unlawful to carry on the business, except when the act is for winding up
Where the acting partner in the transaction has become insolvent
Where the partner is unauthorized to wind up, except if the transaction is with third persons in good faith (under the same circumstances as defined above)
Where act is NOT appropriate for winding up partnership affairs or for completing unfinished transactions
completely NEW transaction which would bind the partnership if dissolution had not taken place with third persons in bad faith
B. As to partner’s existing liability Dissolution does not automatically discharge the existing liability of any partner A partner may be relieved from all existing liabilities upon dissolution ONLY by an agreement between:
- Partner concerned
- Other partners
- Partnership creditors Note: The consent of the partnership creditors and the other partners to the novation may be implied from their conduct.
RIGHTS OF A PARTNER UPON DISSOLUTION
- Where dissolution is NOT in contravention of the partnership agreement a) To have partnership property applied to discharge partnership liabilities b) To receive in cash his share of the surplus
- Where dissolution is in contravention of the partnership agreement a) Rights of a partner who has not caused the dissolution wrongfully 1) To have partnership property applied to discharge partnership liabilities
- To receive in cash his share of the surplus
- To be indemnified for damages caused by the partner guilty of the wrongful dissolution
- To continue the business in the same name during the agreed term of the partnership, by themselves or jointly with others
- To possess partnership property should they decide to continue the business b) Rights of a partner who has wrongfully caused the dissolution
- If the business is not continued by the other partners i. To have partnership property applied to discharge partnership liabilities ii. To receive in cash his share of the surplus less damages caused by his wrongful dissolution
- If the business is continued i. To have the value of his interest in the partnership at the time of the dissolution, surplus less damages caused by his wrongful dissolution to his co-partners, ascertained and paid in cash or secured by a bond approved by the court; AND ii. To be released from all existing and future liabilities NOTE: The value of the goodwill of the business is not considered in ascertaining the value of the interest of the guilty partners.
RIGHTS OF A PARTNER WHERE PARTNERSHIP CONTRACT IS RESCINDED ON THE GROUND OF FRAUD OR MISREPRESENTATION (NOTE: The following are the rights of the partner entitled to rescind)
- Right of LIEN on, or RETENTION of, the surplus of partnership property after satisfying partnership liabilities
partnership obligations beyond the amount of their capital contributions 4. The limited partners may ask for the return of their capital contributions under the conditions prescribed by law 5. The partnership debts are paid out of the common fund and the individual properties of the general partners
Limited Partner/Partnership
General Partner/ Partnership
- Extent of liability Limited partner’s liability extends only to his capital contribution
General partner is personally liable for partnership obligations 2. Right to participate in the management of partnership Limited partner has no share in the management of a limited partnership and renders himself liable to partnership creditors as a general partner if he takes part in the control of the business
General partners have an equal right in the management of the business (when the manner of management has not been agreed upon) 3. Contribution Limited partner must contribute cash or property to the partnership but not services
General partner may contribute money, property or industry to the partnership
- Proper party to proceedings by or against the partnership
Limited partner is not a proper party to proceedings by or against a partnership Unless:
- he is also a general partner, or
- where the object of the proceeding is to enforce a limited partner’s right against or liability to the partnership
General partner is the proper party to proceedings by or against a partnership
- Transferability of interest
Limited partner’s interest is freely assignable, with assignee acquiring all the rights of the limited partner subject to certain qualifications
General partner’s interest in the partnership may not be assigned as to make the assignee a new partner without the consent of the other partners, although he may associate a third person with him in his share 6. Inclusion of partner’s name in the firm name
As a general rule, name of a limited partner must not appear in the firm name
Name of a general partner may appear in the firm name
- Prohibition to engage in other business
No such prohibition in the case of a limited partner who is considered a mere contributor to the partnership
General partner is prohibited from engaging in a business which is of the SAME kind of business in which the partnership is engaged, if he is a capitalist partner, or in ANY of business for himself if he is an industrial partner
- Effect of retirement, death, insanity or insolvency
Retirement, death, insanity or insolvency of a limited partner does not dissolve the partnership for his executor or administrator shall have the rights of a limited partner for the purpose of selling his estate
Retirement, death, insanity or insolvency of a general partner dissolves the partnership
- Creation Limited partnership is created by the members after substantial compliance in good faith with the requirements set forth by law
General partnership, as a general rule, may be constituted in any form by contract or conduct of the partnership
- Members of the partnership Composed of one or more general partners and one or more limited partners
Composed only of general partners
- Firm name Firm name must be followed by the word Limited
No such requirement
- Rules governing dissolution and winding up Governed by Art. 1839 Governed by Art. 1863
ESSENTIAL REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP
- A certificate or articles of limited partnership which states the matters enumerated in Article 1844, which must be signed and sworn;
- Such certificate must be filed for record in the Office of the Securities and Exchange Commission.
NOTE: A strict compliance with the legal requirements is not necessary. It is sufficient that there is substantial compliance in good faith. If there is no substantial compliance, the partnership becomes a general partnership as far as third persons are concerned, in which all the members are liable as general partners. (Jo Chung Cang vs. Pacific Commercial Co., 45 PHIL 142 [1923].) However, a firm which fails to substantially comply with the formal requirements of a limited partnership is a general partnership only as to its relations to third persons. The firm is a limited partnership, subject to all rules applicable to such partnership; and as between the partners they are bound by their agreement; and that all the limited partner’s relations to his co-partners and their obligations to him growing out of the relation remain unimpaired.
As to third persons or creditors guilty of estoppel, the firm shall not be treated as a general partnership despite lack of substantial compliance to the requirements of a limited partnership. If creditors deal with the firm as a limited partnership, they will be estopped from insisting that there is no such partnership, or that the terms of the partnership were not sufficiently stated in the notice of its formation. (40 Am. Jur. 476.)
CONTENTS OF THE CERTIFICATE OR ARTICLES OF LIMITED PARTNERSHIP
- Name of the partnership, adding thereto the word “limited;”
- Character of the business;
- Location of the principal place of business;
- Name and place of residence of each member, general and limited partners being respectively designated;
- Term for which the partnership is to exist;
- Amount of cash and description of and the agree value of the other property contributed by each limited partner;
- Additional contributions to be made by each limited partner and the times at which or events on the happening of which they shall be made;
- Time, if agreed upon, when to contribution of each limited partner is to be returned;
- Share in the profits or other compensation by way of income which each limited partner shall receive by reason of his contribution;
- Right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution;
- Right, if given, of the partners to admit additional partners;
- Right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority;
When the return of the contribution may be rightfully demanded:
- On the dissolution of the partnership
- Upon the arrival of the date specified in the certificate for the return
- After he has given 6 months notice in writing to all other partners, if no time is specified in the certificate their for the return of the contribution or for the dissolution of the partnership c) The certificate is cancelled or so amended as to set forth the withdrawal or reduction
LIABILITIES OF A LIMITED PARTNER
- Liability for unpaid contribution a) For the difference between his contribution as actually made and that stated in the certificate as having been made; AND b) For any unpaid contribution which he has agreed in the certificate to make in the future at the time and the conditions stated in the certificate
- Liability as trustee a) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned; AND b) Money or other property wrongfully paid or conveyed to him on account of his contribution
NOTE: These liabilities can be waived or compromised only by consent of all the members; but a waiver or compromise shall NOT affect the right of a creditor of a partnership who extended credit or whose claim arose after the filling and before the cancellation or amendment of the certificate, to enforce such liabilities.
SUBSTITUTED LIMITED PARTNER
A person admitted to all the rights of a limited partner who has died of has assigned his interest in the partnership.
RAL RULE: He has all, the rights and powers, and is subject to all the restrictions and liabilities of his assignor. Those liabilities which he was ignorant at the time he became a limited partner AND which could not be ascertained from the certificate.
REQUISITES IN ORDER THAT THE ASSIGNEE MAY BECOME A SUBSTITUTED LIMITED PARTNER
- All the members must consent to the assignee becoming a substituted limited partner, OR the limited partner, being empowered by the certificate must give the assignee the right to become a limited partner
- The certificate must be amended in accordance with Art.
- The certificate as amended must be registered in the Securities and Exchange Commission
ALLOWABLE TRANSACTIONS OF A LIMITED PARTNER Being merely a contributor to the partnership is not prohibited from:
- granting loans to the partnership
- transacting other business with the partnership
- receiving a pro rata share of the partnership assets with the general creditors if he is NOT also a general partner
NOTE: In transacting a business with the partnership as a non-member, the limited partner is considered a non- partner creditor
PROHIBITED TRANSACTIONS OF A LIMITED PARTNER
- receiving or holding as collateral security any partnership property; or
- receiving any payment, conveyance, or release from liability if it will prejudice the partnership creditors
NOTES:
Violation of the prohibition will give
rise to the presumption that it has been made to defraud partnership creditors
The prohibition is NOT ABSOLUTE,
there is no such prohibition if the partnership assets are sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.
Law on Partnership Comprehensive Summary
Course: Accountancy (BSA)
University: St. Mary's College of Tagum, Inc.
- Discover more from:Accountancy (BSA)St. Mary's College of Tagum, Inc.52 Documents
- More from:Accountancy (BSA)St. Mary's College of Tagum, Inc.52 Documents