PARTNERSHIP OPERATIONS

DIVISION OF PROFITS AND LOSSES

 Article 1797 of the Philippine Civil Code
- Additional rules in the P/L sharing of partners
o If shares in profit have been agreed upon, share in losses
shall be in the same proportion.
o In absence of stipulation, shares shall be proportioned to
what he may have contributed. Industrial P. shall not be
liable for losses. Industrial P. shall receive profit shares. If
industrial contributed capital, he shall receive profit.
 Industrial P. (contributes service)
 Capitalist P. (contributes cash or non-cash assets)
 Both Industrial and Capitalist P. (contributes both)
o Designation of losses
o And profits cannot be entrusted to one of the partners.
 Salaries (Industrial P. receives salaries as compensation)
 Bonuses (Managing P. receive bonus for excellent
management. Entitled if partnership earns profit)
 Interest on capital contributions (Entitled to Capitalist P.)
o Any remaining P/L is shared based on their P/L ratio.
 ILLUSTRATION 1: Salaries
o Case 1: With remaining profit – different P/L ratios
o Case 2: No remaining profit – different P/L ratios
o Case 3: No P/L ratio
 ILLUSTRATION 2: Bonus
o Case 1: With profit
o Case 2: With loss
 ILLUSTRATION 2.1: Bonus – With Limit
 ILLUSTRATION 2.2: Bonus – Choice of profit-sharing scheme
 ILLUSTRATION 2.3: Bonus – Comparison of profit-sharing
scheme
 ILLUSTRATION 3: Interest on capital
 ILLUSTRATION 3.1: Interest on capital and bonus
 ILLUSTRATION 3.2: Interest on capital - partial year
 ILLUSTRATION 3.3: Interest on capital – with limit
 ILLUSTRATION 4.1: Partner’s capital account
 ILLUSTRATION 4.2: Reconstruction of Information
 ILLUSTRATION 4.3: Reconstruction of information – required
profit.