CHAPTER 1: NATURE OF A PARTNERSHIP
Pag bumubuo ka ng partnership
What is Partnership?
According to Article 1767 of the Civil Code of the Philippines
"Partnership is 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. "
Himay himayin natin para maintindihan mo
1. Partnership is a contract, paano nga ba siya naging contract?
-because it has the three elements of a contract namely: consent,
object and cause.
A. Consent, parang sa isang relationship yan kahit may gusto ka sa
isang tao hanggat hindi mo sinasabi sa kanya ang nararamdaman
mo at hindi siya sumasagot ng "kayo na" kahit kailan hindi
magiging kayo. Ganun din sa partnership hanggat hindi
nagtutugma ang gusto at nararamdaman niyo hindi mabubuo
ang partnership.
B. Object, yun yung icocontribute mong money, property or
industry
C. Cause, is to earn profit
2. two or more persons bind themselves
Baka tanungin mo ako maam bakit two or more persons diba sa
isang relationship dapat dalawa lang kayo? Wag kang masyado
puro ka love life. Sa partnership kahit ilan kayo pwede basta
nagkakaintindihan kayo, maam sino sino pala ang pwedeng mag
create ng partnership?
The term “Persons” may mean one of the following:
a. Individuals
b. Sole Proprietorship
c. Partnerships
d. Corporations
e. Cooperatives or Associations
3. to contribute money, property, or industry to a common fund
Para mas medaling mong maintindihan. Example diba accountant
ka gusto mo mag tayo ng painting business. Dahil marami kang
pera anong icocontribute mo? Malamang sa malamang MONEY
kasi wala ka naming ibang talent kundi mag compute, next dahil
may condo space ang friend mo nag decide siya na sumali at
icontribute yun sa partnership so example naman yun ng
PROPERTY at dahil hindi nga kayo marunong mag paint, tinawag
niyo pa yung isa niyo pang kaibigang walang pera at walang
kahiht anong property at inalok nyo siya sa partnership para siya
na lang ang mag paint. Ang tanong pwede bang sumali sa
partnership yung kaibigan niyong walang pera at kahit anong
property na pwedeng icontribute? Syempre pwede ang tawag
dun ay industry. NOTE: All investments given by the partners,
whether in cash and other properties will be transferred in the
name of the partnership and all the partners will be co-owners of
the assets of the partnership. Basta tandaan mo once na
naicontribute mo na yung property mo sa partneship its no longer
yours it is already the partnerships property.
4. intention of dividing the profits among themselves
As always the main goal of a business is to earn profit. If the
partnership is a business venture, a non-profit organization cannot
be formed into a partnership because there will be no profits to
divide.
CHARACTERISTICS OF A PARTNERSHIP
1. Mutual agency- any partner may act as agent of the partnership
in conducting the affairs.
Para mas maitindihan mo.
kailangan nan dun yung trust mo once na nag yes ka kailangan
ibigay mo yung buong tiwala mo. Bakit ko sinasabi to? Kapag
sinabi mo kasing mutual agency, from the word mutual it means
nagkakaintindihan kayo, you have something in common. Kaya in
the end kung anong ginawa ng isa kahit hindi niya ipaalam sayo
kasama ka na rin sa nag desisyon nun. Tandaan mo you trust each
other at ang presumption natin lahat ng gagawin ng isa ay para
sa ikakabuti ng relasyon or partnership or business niyo. Nagegets
mo? Magulo lang yung sentence construction pero tiwala ako
sayong maiintindihan mo.
2.Unlimited liability
Simple lang sinabi ko na ito dati, kapag nalugi yung business mo
kahit yung sariling pag aari mo (personal assets) yung tipong hindi
mo naman ininvest sa business ay pwedeng kuhanin pang bayad
sa utang ng business. Yung tipong ubos ka na nga lugi ka na nga
sasagarin ka pa hanggang wala ng matira sayo kundi ang damit
mo. Char. Sad but true. Kaya konti lang nag tatayo ng partnership
sa pilipinas isa ito sa dahilan.
3. Limited life
parang sa isang relationship lang yan, walamg forever, char lang.
Bakit? Kapag ayawan na wala na, kapag namatay yung isa wala
na, kapag wala ka ng benefit wala na ayawan na. Sabihin mong
hindi. Wag ako. Char lang. Basta do you get my point, dahil nga
madali niyo lang siyang buuhin ganun din siya kadaling tapusin.
4. Mutual participation of profits
lahat ng partners kailangan may share sa profits.
5. Legal entity
partnership has a legal identity separate and distinct from the
partners. Bigyan na lang kita ng example kapag may reklamo si
customer sayo pwedeng yung partnership yung i sue niya at hindi
ikaw.
6. Co-ownership of contributed assets
sinabi ko kanina once na nai contribute mo na yung assets mo
hindi na saiyo yun kundi co owners, hmm kayong magpapartners
na ang may ari nun.
7. Income tax
parang corporation lang taxable siya 30% of taxable income
(except general professional partnership examples are partnership
of lawyers, cpas, engineer)
Enumerated below are the advantages of a partnership:
1. It is easier and cheaper to organize due to fewer legal
requirements.
2. The partnership is easier to dissolve or liquidate in the
event the partners do not wish to continue the businessfor
whatever reason.
3. Since there will be less decision makers and lesser
formalities, business decisions will be facilitated.
The following indicates the disadvantages of a partnership:
1. There is uncertainty in business continuity or stability,
which can be of great concern to prospective long-term
creditors because it can be easily dissolved.
2. As to liability, the general partners will be affected by
partnership debts extending beyond their interest or
capital in the partnership, since creditors may attach the
partners’ personal properties to satisfy their claim.
3. As an agent of the partnership, a partner is responsible for
his wrongful acts or poor decisions because it may the
interest of the partnership.
4. Partnership capital will be limited only to the extent of the
actual contribution of the partners
 5. The ownership or interest of the partners in the business c) Silent Partner – does not participate actively in the
cannot be transferred without dissolving the partnership. management of the business but is known to be a partner.
d) Dormant Partner - does not participate actively in the
management of the business and is not known to be a partner.

The following may help us in classifying a partnership:

The partnership contract is called the “Articles of CoPartnership”.
The following are the important points to be covered in the
 According to its Activities
contract:
a) Commercial Partnership – engaged in trading, manufacturing or
1) Name of the partnership
servicing business. Thepartnership pays the income tax on the
2) Nature of the business of the partnership
earnings of the business.
3) Place of business
b) Professional Partnership – engaged in the exercise of a vocation
4) Effectivity date of the partnership and its duration if there is fixed
or profession such as Accounting firm, Law firm and the like. The
term
partners are responsible in paying the income tax on the earnings
5) Names and addresses of the partners and the agreed capital
distributed to them.
contribution of each
6) Rights, duties, and powers of each partner including the
 According to the Liability of the Partners
limitations
a) General Partnership – the liability of the all the partners are
7) The profit and loss sharing ratio
unlimited to the extent that they can be personally liable for the
8) Other compensation the partners may be entitled to
partnership debts. All the partners in this partnership are called
9) Partner’s investments and withdrawals subsequent to the
general partners.
partnership formation
b) Limited Partnership – the liability of one or more, but not all the
10) Provision for the arbitration of disputes and the manner of
partners is limited only up to the extent of his interest or capital in
partnership liquidation
the partnership. However, the law requires that there must be at
least one general partner.

 According to the Duration of the Partnership

Partnership at will – there is no fixed term for its existence. It can be
terminated anytime.
Partnership with a fixed term – it is formed for a specific purpose,
undertaking or venture and is terminated upon completion of the
undertaking or accomplishment of the objective. It is also a
partnership where the partners agree on the term of its existence.
A partnership with a fixed term becomes a partnership at will if
after the expiration of the term; the partners will decide to continue
the business.
 According to the Legality of its Existence
a) De Jure Partnership – has complied with all the legal
requirements pertaining to its formation.
b) De Facto – has not complied with all the legal requirements
pertaining to its formation.
Identifying the kinds of partners in a partnership is also necessary. A
partner may be classified according to the following:
Below are the requirements when registering a partnership:
1. It is important that the partnership contract (Articles of Co-
Partnership) be registered with the Securities and Exchange
Commission (SEC) which will issue a certificate of registration.
2. The partnership or business name will be registered with the
Department of Trade and Industry or known as DTI, which will
then issue a certificate of registration of business name.
3. A mayor’s permit will be secured from the city or municipality
where the principal office of the business is located.
4. The partnership must also register with the Bureau of Internal
Revenue (BIR) to secure a tax account number.
5. After securing a tax account number, the books of accounts,
invoices, and official receipts of the partnership will likewise be
registered.
6. The partnership must also register with the Social Security System
(SSS) to secure the SSS certificate of the membership and the
SSS employer ID number after which, the employees of the
business must likewise be registered.

As to Contribution
a) Capitalist Partner – contributes cash or other properties.
b) Industrial Partner – contributes only his services with no capital
contribution.
c) Capitalist-industrial Partner – contributes both cash or other
properties and services. An industrial partner shares in the profits
but not in the losses. He is not liable for the partnership debts as far
as his co-partners are concerned. However, as far as creditors are
concerned, he is liable but he can ask for re-imbursement from his
co-partners. An industrial partner is not allowed to engage in any
business without the consent of the other partner. His profit sharing
ratio must be clearly stipulated in the contract.

As to Liability to Outsiders
a) General Partner - his liability for the partnership debt is unlimited.
The creditors can run after him in case the partnership becomes
insolvent.
b) Limited Partner – his liability for the partnership debts is limited
only up to the amount of his equity or capital in the business.

As to Participation in Management
a) Managing Partner – actively manages the affairs of the business
and is known to be a partner.
b) Secret Partner – actively manages the affairs of the business and
is not known to be a partner.