Why should a partner’s name (who is both limited and general) appear twice in the certificate, one listed

under
general partners and another one listed under limited partners?

Among the advantages of being a limited partner is that he has preference over general partners when it comes to
distribution of profits and return of capital contribution. That is why his name must be listed as a general partner
and as a limited partner in the certificate. It is for him to enjoy the privileges as far as that particular investment is
concerned.
Article 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on
account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim:
(1) Receive or hold as collateral security any partnership property, or
(2) Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not
sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.
The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership.

C, being a limited partner already with a 10M contribution, partnership wanted to borrow 20M from her. Do you
think C can lend money to the partnership?

Yes. C can still lend money to the partnership. However, if she was a general partner she can no longer lend money
because of the conflict of interest. A general partner is even prohibited from engaging in another business similar
to the partnership, how much more dealing with the partnership itself.

What’s the danger? Why is there a conflict of interest?

This occurs especially when the assets of the partnership are not sufficient to meet all its liabilities. There is a
tendency that the general partner may give preference to his credits over the credits in favor of 3rd parties.

Going back to the limited partner, he can lend money. But can he demand for interest?

Yes he can demand for interest.

But can he ask for collateral as security?

No. he cant.

If you were the partner would you lend money? Is the amount that you lend at risk?

No. It is not at risk. (a creditor does not assume the risk as compared to an investor). Because he still enjoy
preference to be paid. He can still collect for payment. (although the possibility of collection is affected by the fact
that there is no collateral)

We said that a limited partner can lend money, however he is prohibited from making as collateral the partnership
property and to receive payment, conveyance or release from liability, if the assets of the partnership are not
sufficient to discharge partnership liabilities to persons not claiming as general or limited partners

In short, if the limited partner acts as a creditor, he has disadvantages over the other creditors, namely:

1. Although he has preference of credits over general partners, he has no preference over third persons (cannot
receive ahead of creditors who are not partners)

2. He is not entitled to hold collaterals

Otherwise, if he does?

This would constitute as fraud to third party creditors.

A limited partner enjoys certain preferences. What are these preferences?

1. Preference on the return of capital, sharing of profits over the general partners but not over third parties
(creditors who are not partners)

Senior over general partners in so far as preferences of credits but junior to third parties.
Article 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited
partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be
stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing.

Among the limited partners, do they have preferences?

G.R: they stand in equal footing

Exc: They may agree among themselves that one or more limited partners shall have priority over other limited
partners as to the return of their contributions, as to their compensation by way of income, or as to any other
matter.
Article 1856. A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the
certificate; provided, that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in
excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners
Article 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there
remains property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its return has arrived, or
(3) After he has six months' notice in writing to all other members, if no time is specified in the certificate, either for the return of the contribution or for the
dissolution of the partnership.
In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution,
has only the right to demand and receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands the return of his contribution, or
(2) The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required by the first paragraph,
No. 1, and the limited partner would otherwise be entitled to the return of his contribution.

During the dissolution, there will be a distribution and where does a limited partner stand?

A limited partner is senior to that of general partner and junior to that of third party creditors.

If the limited partners, upon dissolution, are demanding the return of their contributions, can they immediately
demand for the return?

No, they can only demand if all the partnership liabilities (except liability to limited partners for their contribution
and to general partners) are already paid, or if it with the consent of all the members, or the certificate is cancelled
or amended.

Can they demand the return of their contributions even if credits due to general partners still exist?

No. They can only demand the return of their contributions as a matter of right:

1. on the dissolution of a partnership,

2. when the date specified in the certificate for its return has arrived,

3. after he has given 6 months’ notice in writing to all other members, if no time is specified in the certificate for the
return of the contribution or for the dissolution of the partnership
If the partnership does not return his contribution, what could happen?

He may have the partnership dissolved and its affairs wound up. Upon dissolution, there will be distribution of the
assets.

So, if a limited partner is entitled to the return of his contribution, for example the date specified in the certificate of
its return has arrived, can he demand a specific property as the return of his contribution?

No. For the return of the contribution, the law provides that it shall be in CASH. But there are exceptions as when
(1) all the partners agreed to pay the contribution in the form of property or (2) when it is stated in the certificate.

We already mentioned of one instance when a limited partner may ask for the dissolution of the partnership, is there
another instance?

The other liabilities of the partnership have not been paid, or the partnership is insufficient for their payment and
the limited partner would otherwise be entitled to the return of his contribution

The partnership might become insolvent and might no longer be able to settle all its liabilities. We don’t have to
wait for that so a LP is entitled to protect his contribution, and one way of protecting that is to seek for dissolution
and distribute all the assets if it is now clear that the partnership has now become insolvent.
Article 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that stated in the certificate as having been made, and
(2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed to him on account of his contribution.
The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all 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 filing and before a cancellation or amendment of the
certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any
sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such
return.

We said a LP has his own obligations, what are some of its obligations?

1. To give his contribution as he has promised, (in lump sum or in installments depending on their agreement)

2. To answer for interest and damages in case he fails to give his contribution – partners may demand from him
what he has promised to contribute (he is a creditor as to the amount he promised to contribute if it has become
overdue the partnership may even seek for damages and interest )
However, during the time that he fails to deliver this, he is considered as a trustee of the funds thus he is
responsible to preserve and protect these amounts while it is in his custody.

if LP has still obligations to perform can a third party creditor go to him and demand payment?

Yes, that is property of the partnership forming part of partnership funds so LP is supposed to give it as part of
partnership assets. So the creditors now may compel him to put it in so they could go after such amount.
Article 1859. A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to
inspect the partnership books; he is only entitled to receive the share of the profits or other compensation by way of income, or the return of his contribution,
to which his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by
the certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with article 1865.
The substituted limited partner has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those liabilities of which
he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under articles 1847 and 1858.
May a GP assign their rights?

GP can assign his right, regardless of whether or not there is consent of other partners.

General Partner Limited Partner

GR: Can assign his interest
Effect of 1. Assignee does not become a partner
assignment: (unless all of the partners give their
consent thereto)
1.1 Assignee’s rights:
a. Receive profits the assigning
partner would otherwise be
entitled
b. Avail himself of usual remedies
in case of fraud in management
c. If case of dissolution, require an
account of partnership affairs
from date of last account agreed
to by all partners
NO right to:
a. Interfere in management
b. Require any information of
partnership transactions
c. Inspect partnership books
2. Does not cause dissolution of
partnership
Can freely assign his interest
1. Assignee may become a substituted limited partner
provided:
a. All members of the partnership consent to the
assignee becoming a substituted limited partner,
unless the assignor is empowered to by the
certificate to give the assignee such right
b. Certificate is amended to reflect the substitution
c. Amended certificate is registered with SEC (Art.
1859)
1.1 Assignee’s rights:
a. If he does not become a limited partner
1.1 Receive profits the assigning partner would
otherwise be entitled
1.2 Receive other compensation by way of
income the assigning partner would
otherwise be entitled
1.3 Receive a return of the contribution
NO right to:
1.1 Interfere in management
1.2 Require any information of partnership
transactions
1.3 Inspect partnership books
b. If he becomes a substituted limited partner
1.1 He has all the rights and powers, and is
subject to all restrictions and liabilities of the
assignor, except
i. Liabilities which he is ignorant at the time
he became a limited partner
ii. Liabilities which could not be ascertained
form the certificate
1.2 Substitution does not release the assignor
from liability
i. To persons who rely on a false statement
in the certificate
ii. To creditors who extended credit of
whose claims arose before the assignment
(Art. 1858)

Last question was: can an assignee have the right to inspect the partnership books?

Suggested answer is no unless such an assignee has become a substituted limited partner. Take note, the rights of
an assignee in a limited partner is the same as that of an assignee in a general partner (as distinguished in the
table). Thus, he has no right to insect partnership books and the like.