Robelyn S.

Balwit ULO a – Nutshell LAW201(3006)

In a Nutshell

ACTIVITY 1

After learning the legal principles and concepts of Partnership, reading the articles
found in the Self-Help, and using other resources, what do you think are the pros
and cons in partnership? (300 words)

ANSWER:
The pros of a partnership are you have an extra set of hands. When you have
a business partner, he/she is the one who can help you with all the business tasks.
The partners can divide up tasks, meaning tasks will get done faster and the
partners might be able to tackle more than if they worked alone. You have the
benefit from additional knowledge were partners can bring skills and knowledge to
your business that you don’t have. You have the less financial burden means instead
of paying for everything yourself, your partner can split the cost because of the
partner’s financial contributions, the business might be able to afford more things up
front and you might be able to avoid large amounts of debt when starting your
business. Last, there is fewer paper works were all partners involved must sign a
partnership agreement. This agreement will detail the duties and responsibilities of
each partner, how decisions will be made, how profits and losses are divided, and
more. Creating and signing this document is simpler than filling out the paperwork for
other business structures.

The cons of the partnership are you can’t make decisions on your own. You
cannot act independently when you are in a partnership. You must work with your
partner to make decisions, or at least run all decisions by your partner. You all have
disagreement means anytime you get people together at work, there’s potential for
conflict. You might even get sick of working with each other. If this happens, you
cannot easily dissolve the partnership. You have to split profits means when you run
a business by yourself, you have an opportunity to gain all the profits from the
business. But when you have a partnership, you have to share the profits. You aren’t
separate from the business. A partnership is not a separate legal entity from you and
the other partners. All partners are legally and financially responsible for the
business.

ACTIVITY 2

Ethics Challenge

Paul, Frank and Basil formed a partnership 10 years ago and Paul is about to retire.
Paul is not financially minded, but he knows that he is entitled to one-third of
partnership assets upon his retirement. Total assets have a book value of P900,000
and Paul feels that he is entitled to his share. Frank and Basil are aware that the
market value of the firm's net assets approximates P1,500,000. Frank and Basil plan
to form a new partnership.

Required: What are the financial and ethical and legal implications of distributing
P300,000 to Paul upon his retirement?

ANSWER:
It was unethical and illegal for the partners to give P300, 000 to Paul as his
one third share of partnership assets upon retirement. According to Article 19 of
Philippine Civil Code, in every business agreement, every party must exercise his or
her rights with justice, and he must perform his or her duties with fairness by giving
every party in agreement what is due to them while observing good faith.

In simple words, the law forbids unjust enrichment in every business

agreement that parties might have established. This means every party is liable to
pay any other party in an agreement what the receiver is rightfully entitled for based
on the agreement the parties had.
 Based on the above case, when Frank and Basil give Paul P300, 000 as his
share of partnership assets based on their partnership agreement, they would have
gained unfair advantage. This is because the current market value of the partnership
assets is P1, 500,000.00, which means Paul is legally entitled for P500, 000.
Therefore, they would have violated Article 19 of Philippine Civil Code by committing
an unjust enrichment offence.

On the other hand, according to the ethical theory of Deontology, in every

situation that a party faces, for him or her to make the most ethical decision, he or
she must make a decision based on his or her duty that is established by the law.
Based on the above case, under Article 19 of Philippine Civil Code, Frank and Basil
had a duty to act honestly and fairly when paying Paul his share of partnership
assets. However, they violated the duty when they paid him P300, 000 instead of
P500000. Therefore, under Deontology ethical theory, the parties are liable for acting
in an unethical manner.

Activity 3

Communicating in Practice

Your friend, Oliver Lung, recently completed his second year in his own business.
Oliver's business is growing rapidly, and he needs an infusion of funds to help
finance the expansion. Oliver tells you about his friend Mary who has access to
funds and is a creative individual with whom Oliver gets along very well. Oliver is
considering offering Mary a piece of the business and forming a business
partnership. Oliver says, "Mary and I go way back and are close friends, so I don't
think we need any formal written partnership agreement."
Required: Write a memo to your friend Oliver to explain the purpose of a partnership.
Comment on why a written agreement is essential and what matters should be
included in the agreement.

ANSWER:
 A Partnership Agreement may be a contract between two or more individuals
who would really like to manage and operate a business together so as to form a
profit. Each Partner shares some of the partnership's profits and losses and every
Partner is personally responsible for the debt and obligations of the Partnership.

The partnership agreement includes the following elements:

 Names and contact information of each individual partner

 Purpose of the partnership and primary place of business
 Designated terms of ownership
 Amount of capital each partner invests in the business
 Partnership shares
 Directives about the distribution of profit among partners
 Company management
 Operation details

The purpose of a partnership agreement is to guard the owner's investment

within the company, governs how the corporate is going to be managed, clearly
define the rights and obligations of the partners, and determine the principles of
engagement should a disagreement arise among the parties. A well-written
partnership agreement will reduce the danger of misunderstandings and disputes
between the owners.

A written agreement is essential:

 To Avoid a State's Default Rules-A written agreement allows owners to vary the
rules when situations dictate that it would be in their best interests. Without a
written agreement, owners in a company will be stuck with the state's default
rules.

 To Have Control Over Who Owns the Company-A partnership agreement should
include reasonable restrictions on sales and transfers of interests in a company
to control who owns the business. Without an agreement specifying how interests
 are going to be sold, an owner can sell her interests to anyone else, including a
competitor

 To Agree on Important Issues in Advance-A written agreement will allow partners

to agree in advance on important decisions, like dispute resolution, Without that
in writing, there is no way to compel mediation or arbitration of disputes, and
avoid costly and time-consuming litigation

 To Remove a Disruptive or Non-Performing Partner-While partners may form a

company with the best of intentions, reality often does not align with those
intentions. Over time, owners who were the simplest of friends or closest of
relations can grow apart and commit acts that endanger the business.

 To guard the Business and therefore the Partners' Investment- An agreement

should include provisions that address what happens within the event of an
owner's death, disability, or personal bankruptcy. Each of these events could
have a negative impact on the company. Without an agreement that addresses
these situations, owners might be forced to dissolve the corporate, putting in
danger the investments of all of the partners.

Activity 4

INDIVIDUAL RESEARCH

This activity is designed to reinforce the student’s understanding of the partnership

form of business.
1. A partnership is a form of multiple ownership. For legal and tax purposes no entity
is recognized. How does the entity concept relate to partnerships? Can entities
be partners?

ANSWER:
 There is no federal statute defining partnerships, but nevertheless, the IRC
includes detailed rules on their federal tax treatment.

Partnerships do not pay income tax. The tax responsibility passes through to
the partners, who are not considered employees for tax purposes.

Individuals in partnerships may receive more favorable tax treatment than if

they founded a corporation. That is, corporate profits are taxed, as are the dividends
paid to owners or shareholders. Partnerships' profits, on the other hand, are not
double taxed in this way.

2. Creditors of a partnership may sue the partnership jointly or severally. What are
the liabilities of a partner? What are the liabilities of the partnership? What do you
understand by jointly and severally?

ANSWER:
Several liability (or proportionate liability) is when all parties are liable for just
their own respective obligations. In effect, it is the opposite of joint liability. An
example would be if several business partners took out a loan for their business
under the arrangement that each partner was responsible for their own share
(severally liable). In such a case, if one partner did not meet their obligation under
the loan, then the lender would only be able to sue the one partner for failure to meet
their obligation. Several liability is often used in syndicated loan agreements.

When partners have joint and several liability for a debt, a creditor can sue
any of the partners for repayment. It is a variation of joint liability. If one partner pays
the debt, then that partner may pursue other partners to collect their share of the
debt obligation. In short, it is the responsibility of defendants to sort out and reconcile
their separate shares of liability and payments.

3. What happens if the partner has withdrawn all of the income of the partnership?

ANSWER:
The withdrawal of a partner from a business is a commonly overlooked issue,
yet one which everyone should think through when they first decide to go into
business together. Failing to address this critical issue at the outset can result in
unnecessary conflict and even costly litigation later. Business partners decide to
leave businesses for many reasons: They may not be committed to the business, the
business may not be as successful as envisioned, they may discover a new venture
they would like to pursue, or they may decide they want to retire. As part of deciding
to go into business together, partners should decide what will happen if one of them
leaves the partnership. Then they should make sure that whatever they decide is
accurately reflected in their partnership agreement. This will help ensure a smooth
and orderly transition for both partners when one is ready to exit the partnership.

4. Can a partner avoid paying income taxes legally by not withdrawing income from
the partnership?

ANSWER:
Partners must pay tax on the net income of the partnership, even if the
partnership retains the income. Any amount that a partner does not withdraw
increases that partner's basis and distributions decrease it. Therefore, distributions to
partners per se are not taxed unless the distribution exceeds the partners' adjusted
basis in the partnership, in which case, the excess is taxable otherwise the draw is
considered a return of capital.

Activity 5

Hitting the Road

Identify three partnership enterprises operating in your in the City of Davao. Contact
these businesses and ask how many partners comprise the partnership. Did any
partners withdraw from the partnerships during the past year and did any new
partners enter the partnership?

ANSWER:
NCCC'S 21ST SUPPLIERS CONVENTION

Another night of success was shared between LTS Retail Specialists Inc.
(LRSI) and its valued business partners last January 30 for the annual Suppliers'
Convention Night held at Davao Convention Center with Nestle Philippines, Inc.
bagging the highest award.

This annual commemoration recognizes the outstanding business partners of

the previous year with the giving of the Henry Lim Awards, named after of the Lim
family, owners of NCCC Group of Companies.

The Platinum Award for Excellence in Business Partnership is given as the

highest recognition to the business partner that has shown impressive overall
growth, service, and support. In 2018, Nestle Philippines, Inc. has met all the
standards given and so was awarded. 

“Awarded with such recognition has been a valuable experience for us. We
truly believe in NCCC, thus, we intensified our collaborations so that we would match
the needs and see ways on how we can show support,” said Nestle Account
Manager Anna Tan.

She said Nestle will continue to work on promotions that give great impact to
specific clusters, improve service level in all areas and expand availability and
category development initiatives.

Recognized as the Silver Awardee for Excellence in Business Partnership,

Unilever Philippines received the award with gratitude as it represented how they
versioned themselves being a sustainable and responsible partner of NCCC (LRSI).

“This year, we will ensure to achieve the ideal service level and that our
programs are aligned with NCCC's 2019 strategies”, said Unilever Philippines
Account Manager Carl Loquias.

On the other hand, Monde Nissin Corporation was also awarded with Gold
Award for Excellence in Business Partnership.
 Senior Vice President for Retail Tjader Regis opened the event with gratitude
to all the companies who stayed beside NCCC in the middle of recovery from all the
trials it faced in the past years.

“You all understand how it is to be a long-term partner and we truly appreciate

it. We want to sustain and preserve this strong bond we share for a more fruitful
projects together along with our growing expansion in the retail industry”, he said.

Regis revealed that this year bears many opportunities within NCCC that may
need shared ideas between the company and its business partners to further expand
its services and market. He claimed 2019 to be a banner year for all.

“We are here tonight to bind our minds and actions, into one heart – heart of
one NCCC”, said President for LRSI Lafayette Lim.

Lim said NCCC will be taking its partnership with its business partners into the
next level which is mutual development in full collaboration to grow and improve
individual businesses together through aligning their partners' capabilities with
NCCC's corporate strategies.

Assistant Vice President for Operations Jezza Damada, in the event,

presented the retail plans for 2019 with the goal to align their business partners with
LRSI's agenda and also present the existing and future development in the retail.

President for LTS Malls, Inc. Sharlene Lim also presented the expansions and
opening of NCCC branches starting this year with the renovation of the NCCC Mall
Maa, the construction of the NCCC Township in Panacan and a new NCCC branch
in Kidapawan City.

With all these efforts to bolster the services and name of NCCC as the
number one retail choice in South Mindanao and in Palawan areas, Lafayette Lim
said that the retail company will never stop learning strategies to continuously
prosper despite the close competition and ever-evolving market trends of the
generation today.
 “We have cemented our market share as a leader here in South Mindanao
and in Palawan. That will not be sustained without both our teams that shared
dedication to fulfill the vision of my late grandpa, my dad and brother who all paved
the road to a glorious 40 years of NCCC,” said Lim.