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PARTNERSHIPS Chapter 1: General Provisions Article 1767: 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.

Concept of Partnership (other definitions) 1. A partnership is an association of two or more persons to carry on as co-owners a business for profit 2. A partnership is a legal relation based upon the expressed or implied agreement of two or more competent persons whereby the unite their property, labor or skill in carrying on some lawful business as principals for their joint profit 3. A partnership is a joint undertaking to share in the profit and loss 4. A partnership is the status arising out of a contract entered into by two or more persons whereby they agree to share as common owners the profits of a business carried on by all or any of them on behalf of all of them 5. A partnership is an organization for production of income to which each partner contributes one or both of the ingredients of income, which are capital or service 6. A partnership is an entity, distinct and apart from the members composing it and for the purpose of which it was created; it is a person having its own assets and liabilities and any benefit or liability attaching to a member of the partnership, results from the partnership relation **note: as a form of business organization, a partnership falls between two extremes of organizational form the single proprietorship and the corporation Partnership for the exercise of a profession: - A profession is a calling in the preparation for or practice of which academic learning and which has

for its prime purpose the rendering of public service - It may also refer to the whole body of persons or a group of persons engaged in a calling. - Thus, it has been defined as a group of men pursuing a learned art as a common calling in the spirit of public service-no less a public service because it may incidentally be a means of livelihood. - Paragraph 2: exercise of a profession. Strictly speaking, the practice of a profession is not a business or an enterprise for profit. However the law allows the joint pursuit thereof by two or more persons as partners, the law does not allow individuals to practice a profession as a corporate entity. Personal qualifications for such practice cannot be possessed by a corporation. Characteristic elements of partnership: 1. Consensual perfected by mere consent, that is upon the express or implied agreement of two or more persons 2. Nominate it has a special name or designation in law 3. Bilateral it is entered into by two or more persons and the rights and obligations arising therefrom are always reciprocal 4. Onerous each of the parties aspires to procure for himself a benefit through the giving of something 5. Commutative - the undertaking of each of the partner is considered as the equivalent of that of the others 6. Principal it does not depend for its existence or validity upon some other contract 7. Preparatory because it is entered into as a means to an end, i.e. to engage in business for the realization of profits with the view of dividing them among the contracting parties. A partnership contract in its essence is a contract of agency.

Essential features of partnership:

1. Existence of a valid contract a. A form of voluntary and personal association: partnership is a form of voluntary association entered into by the associates. It is a personal relation in which the element of delectus personae exists, No one can become a member of the partnership association without the consent of all the other associates. b. Creation and proof of existence: it may be informally created and its existence proved by the conduct or acts of the parties but it is customary to embody the terms of the association in a written document known as the articles of partnership. Obviously, a person cannot enter into a contract of partnership solely with himself; there must be at least two competent parties. c. Other forms of association excluded: partnership, therefore excludes from its concept all other associations, which do not have their origin in a contract, express or implied. There is no such thing as a partnership created by law or by operation or implication of law. Religious societies, conjugal or community partnerships and others of a similar nature are not therefore included as they are not created by the express or implied contract of the parties.

*A limited partnership cannot be created by mere voluntary agreement alone. 2. Legal capacity of parties to enter into a contract A. General rule: any person may be a partner who is capable under the law of entering into contractual relations. Consequently any person who cannot legally give consent to a contract cannot be a partner. The following cannot give consent to a contract of partnership a. Unemancipated minors b. Insane or demented persons c. Deaf-mutes who do not know how to write d. Persons who are suffering from civil interdiction

e. Incompetents who are under guardianship B. Exceptions: persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership. A married woman may enter into a contract of partnership without her husbands consent but the latter may object under certain conditions C. Capacity of partnership/corporation to be a partner: the typical partnership is composed of individual human beings. But there is no prohibition against a partnership being a partner in another partnership. Unless authorized by law, a corporation is without capacity or power to enter into a contract of partnership. The reason for this limitation is that in a partnership, a corporation would be bound by the acts of persons who are not its duly appointed and authorized officers and agents and this is entirely inconsistence with the policy of the law that the corporation shall manage its own affairs separately and exclusively. 3. Mutual contribution to a common fund A. Proprietory or financial interest the very definition of partnership provides for this element (must have a proprietory or financial interest in the business). Without the element of mutual contribution to a common fund, there can be no partnership B. Form of contribution: the partners must contribute money, property and/or industry or services to the common business a. Money legal tender, must be in cash b. Property may be real or personal, tangible or intangible. Hence credit such as promissory note or other evidence of obligation or even a mere goodwill may be contributed as it is considered property c. Industry in the absence of money or property or in concurrence with these two, the law permits the contribution of industry. Industry: the work or services of the party associated which may be either personal manual efforts or intellectual and for which he receives a share in the profits (not merely salary) of the business

*A limited in a limited partnership however cannot contribute mere industry or services 4. Legality of object A. Effect of legality: the object is unlawful when it is contrary to law, morals, good customs, public order or public policy. As in other kinds of contract, the purpose of a partnership must be lawful; otherwise no partnership can arise as the contract is void ab initio, i.e. void or without force and effect from the beginning. B. Businesses partnership not permitted to engage in a partnership may be organized for any purpose except that it may not engage in an enterprise for which the law requires a specific form of business organization such as banking which is under the general banking of law of 2000, only stock corporations may undertake. 5. Intention to realize and divide profits A. Very reason for existence of partnership: the idea of obtaining pecuniary profit or gain directly as a result of the business to be carried on is the very reason for the existence of a partnership, As a matter of fact, this element is what distinguishes the contract of partnership from voluntary religious or social organizations. B. Sufficient if obtaining profit principal purpose the realization of pecuniary profit, however, need not be the exclusive aim of a partnership. It is sufficient that it is the principal purpose even if there are incidentally moral, social or spiritual ends. In a partnership, the parties intend to share the profits in certain proportions.

Sharing of profits: a partnership is essentially a business enterprise established for profit. 1. Not necessarily in equal shares: must be shared but not necessarily equal. There must be a joint interest in the profits. Without the sharing or profits, it cannot be said that an agreement of partnership has been entered into and that it exists.

2. Not conclusive evidence of partnership: sharing of profits is merely presumptive and not conclusive even if cogent evidence of partnership, there are numerous instances of parties who have a common interests in the profits and losses of an enterprise but who are not partners. Thus if the division of profits is merely used as a guide to determine the compensation due to one of the parties, such one is not a partner Sharing of losses 1. Necessary corollary of sharing in profits 2. Agreement not necessary