Partnership

General Provisions

What is a Partnership?

 It 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 (CC Art. 1767)

Does a partnership have separate juridical personality?

Yes. A partnership has juridical personality separate and distinct from that each of the
partners.

May a partnership form for the exercise of profession?

Yes. While strictly speaking the exercise of profession is neither a business undertaking nor
an enterprise for profits, the law considers the joint pursuit thereof, for mutual help, as
partnership.

Essential Features of a Partnership

1. There must be a valid contract. Partnership is created by voluntary agreement between

parties. There is no such thing as partnership created by law.
2. The partnership relation is evidenced by the term of the contract which maybe oral,
written, implied or express from the acts or declarations of the parties.
3. The parties must have legal capacity to enter into a contract
4. There must be a mutual contribution of money or property or industry to a common
fund.
5. The primary purpose must be to obtain profits and to divide the same among the
parties.
6. The purpose of the partnership must be lawful.

Parties who cannot give consent to a contract of partnership

1. Minors
2. Insane or demented persons
3. Deaf mutes who do not know how to write
4. Persons who are suffering from civil interdiction ( prisoners etc.)
5. Incompetents who are under guardianship.

What comprises a partner’s contribution in a contract of partnership

1. Money
 2. Property
3. Credit evidenced through promisory notes and other evidences of obligation
4. Industry

What are the consequences if the object or purpose of the partnership is void?

1. The contract is void ab initio

2. The profits shall be confiscated in favor of the government
3. The instrument or tolls and proceeds of the crime shall be forfeited in favor of the
government
4. The contributions of the partners shall not be forfeited in favor of the government
unless it falls into number 3.

Formalities Required by Law

1. In cases where immovable property or real rights is contributed, regardless of the

value
a. It must be in writing in a public instrument. (Without the public instrument, the
partnership in void and has no judicial personality as between the parties)
b. An inventory of said property should be made, signed by the parties and attached to
the public instrument
c. Where the contracts falls into the Statute of Frauds, the contract in itself must be in
writing.
2. In cases where personal property is contributed
a. If capital is less than Php, 3,000.00, no special form is required for its validity or
existence.
b. When the contract of partnership has a capital of Php 3,000 or more in money or
property, the same shall appear in a public instrument and must be recorded in the
Office of the Securities and Exchange Commission.

Rules to determine whether a partnership exists

Article 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by article 1825, persons who are not partners as to each other are not
partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-
owners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he
is a partner in the business, but no such inference shall be drawn if such profits were received
in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise. (Civil Code; Republic Act No. 386).

Different Classification of Partnership

The different classifications are the following

1. According to manner of creation

a. Orally constituted
b. Constituted in a private instrument
c. Constituted in a public instrument
d. Registered in the Office of the SEC
2. According to object
a. Universal with all present property
b. Universal with all profits
c. Particular
3. According to Liability
a. Limited Partnership
b. General Partnership
4. According to Legality
a. Lawful/legal
b. Unlawful/legal
5. According to Duration
a. For a specific period
b. Until the purpose is accomplished
c. A partnership at will
6. According to representation to others
a. Ordinary partnership
b. Partnership by estoppel.

What is a universal partnership?

A universal partnership may refer to all present property or to all profits

What is a universal partnership of all present property?

Is that which the partners contribute their property which actually belongs to them to a
common fund, with the intention of dividing the same among themselves
What is a universal partnership of all profits?
It comprises all that the partners may acquires by their industry or work during the existence of
the partnership.

Parties who cannot enter into a Universal Partnership

1. Husband and Wife

2. Those guilty with adultery and concubinage
3. Those guilty of the same offense, if the partnership was entered in consideration of the
same.

What is a particular partnership?

a particular partnership has for its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession or vocation.

What is a general partnership?

A general partnership is one where all the partners are general partners, that is, they
are liable even with respect to their individual properties, after the properties have been
exhausted.

Limited partnership
Is one formed by two or more persons, having as members one or more general
partners or one or more limited partners. The limited partners as such shall not be bound by
the obligations of the partnership.

What is a partnership at will?

A partnership at will is a continuation of the business by the partners or such of them as

habitually acted therein during their term, without any settlement or liquidation of the
partnership affairs is a prima facie evidence of the partnership.

What is a Partnership by estoppel?

When a person, by words spoken on written or by conduct, represents himself, or consents to

another representing him to anyone, as a partner in an existing partnership or with one or more
persons not actual partners, he is liable to any such persons to whom such representation has
been made, and who has on the faith of such representation given credit to the credit or actual
partnership, and if he has made such representation or consented to it being made in a public
manner he is liable to such person, whether the representation has or has not been made or
communicated to such person.

When can there be partnership by estoppel?

 1. Represents himself as a partner or consents himself to be presented as a partners of an
existing partnership with or without the consent of the partnership
2. Represents himself as a partner to a non-existent partnership.

Kinds of partners

As to liability
a. General partner – one who is liable for partnership debts to the extent of his separate
property after all the assets of the partnership has been exhausted
b. Limited partner – one who is liable for partnership debts to the extent of his capital
contribution only
c. General-limited partner – one who has all the rights and powers and is subject to all the
restrictions of a general partner, except that, in respect to his contribution, he shall have
the rights against the other members which he would have had if he were also a general
partner. He shall be liable pro rata to partnership creditors to the extent of his separate
properties after the partnership assets has been exhausted, but he can demand
reimbursement of the amount he paid from his co-partners.

As to contribution

a. Capitalist partner – one who contributes money or property to the common fund
b. Industrial partner- one who contributes his services or industry to the partnership
c. Capitalist-industrial partner – one who contributes not only money or property but also his
services to the partnership.

Other Classifications

a. Managing partner – one who manages the business of the partnership

b. Liquidating partner – one who takes charge of the winding up of the affairs of the
partnership after it dissolved
c. Nominal partner – one who is not actually a partner but who may become liable as such
to third persons
d. Ostensible partner – one who is active and known to the public as a partner, such by
allowing his name to be included in the firm name.
e. Secret partner – one whose connection with the partnership is kept from the public
f. Silent partner – one who has no voice in the management of the business
g. Dormant partner – a partner who does not participate in the management of the
business.

References

De Len, Hector S. 2014. Comments and Cases on Partnership, Agency and Trust