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Gomez Discussion and Illustrations Introduction to Partnership
What is a Partnership?
Definition according to Article 1767 of the Civil Code of the Philippines:
By a 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.
Review: Types of Business Organizations
Characteristics of a Partnership
1. Mutual agency – each partner has the right to enter into transactions in behalf of the partnership and the other partners. 2. Limited life – every time the membership in the partnership is changed, the life of the old partnership is terminated and a new partnership is created. 3. Co-ownership – all assets contributed in the common fund are not owned by the individual partners who made the investment, but are owned in common or equally by all the partners, with the right to use such assets. 4. Participation in profits and losses – net income and losses are distributed to the partners accordingly. Any agreement excluding any partner from the distribution of profits is void. 5. Based upon a contract – all partnerships are based on the agreement of the partners which is often embodied in a document called articles of co-partnership. 6. Unlimited liability – as a general rule, a partner is personally liable for partnership obligations in case the partnership is unable to settle its own liabilities (general partnership). However, it may be agreed upon that one or some, but not all, partners shall be liable only to the extent of their investment (limited partnership). 7. Voluntary association – the relationship between and among the partners because
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Ostensible partner – a partner who is known to the partner as part of the management of the business d. Formation 2. As to extent of liability a. Changes in ownership and dissolution 4. c. General – a partner who is liable not only to the extent of this contribution but also up to his personal assets b. Gomez Discussion and Illustrations Introduction to Partnership Classes of Partners 1. Secret partner – a partner who. Managing partner – a partner who takes active part in the management of the operation of the partnership b. As to management a. Capitalist – a partner who contributes money or property b. skill. As to contribution a. Dormant partner – a partner who is both a silent partner and a secret partner Accounting for Partnerships 1. though taking an active part in the management. Liquidating partner – a partner who takes charge of the winding up activities (liquidation) of the partnership b. Preparation of financial statements acc30_l1_01_introduction to partnership_cgomez Page 2 of 2 . even in a limited one. is not known to the public as such e. Capitalist-industrial 3. but does not participate actively in the management of the business 4. there should at least be one general partner) 2. or service. Limited – a partner who is liable up to the extent of his investment (Note: in a partnership.ACC30 Partnership Accounting C. Nominal partner – a partner whose name is used for the firm name. Operations 3. Industrial – a partner who contributes his industry. but is not liable as a general or limited partner c. Liquidation 5. labor. Other classifications a. Silent partner – a partner who has made a contribution.