KRISTEL AN TECSON LAMORENA BS Management Accounting II

Assignment No. 2 in Business Law February 3, 2022

1. How is a partnership formed and created?

According to Article 1767, a partnership comes into existence (is formed and created) when two
or more persons bind themselves (associate) to contribute money, property, or industry to a
common fund in which they have the intention of dividing the profits (and possible losses, if
any) among themselves. It can also be two or more persons in the form of a partnership to
exercise of a profession (i.e. private audit firms and law firms).

2. What is the general rule and exception in the form of a partnership?

Under Article 1771, the general rule is that no form is required in the contract of partnership,
which means that it may be oral or written. The exception for this rule is that in terms of real
properties and real rights in real properties contributed regardless of its value, a public
instrument is needed and the partnership is, otherwise, considered void without it.

3. What are the rules in determining the existence of a partnership?

It is stated in Article 1769 that the following rules shall apply in order to determine the existence
of a partnership:
(1) 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
persons (co-owners or co-possessors) do or do not share any profits made by the use of the
property;
(3) The sharing of the gross returns does not of itself establish a partnership, whether or not
the said persons sharing them have joint or common right or interest in any property from
which returns are derived; and
(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 interference 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; and/or
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.
4. What are the classification and kinds of partnership? Define them.
Under Article 1776, the following are the classifications of partnership and its kinds:
1. According to object
a. Universal Partnership
(1) Universal partnership of all present property where the partners contribute all the
properties that belong to them to a common fund, with the intention of dividing the
same among themselves, as well as all the profits which they may acquire therewith
(2) Universal partnership of all profits where it comprises all that is acquired by the
industry or work of the partners during the term or existence of the partnership.
b. Particular Partnership
- Has for its object determinate things, their used or fruits, or specific undertaking, or
the exercise of a profession or vocation.

2. According to liability
a. General Partnership
- All partners are general partners and are liable up to the extent of their individual
properties after the assets of the partnership have been exhausted.
b. Limited Partnership
- One where one or more is/are a limited partner provided that atleast one is a
general partner. The general partner/s shall only be liable beyond the extent of
his/their contribution/s while the limited partners only upto the extent of what they
have contributed.

3. According to duration
a. Partnership at will
- One where no fixed term or particular undertaking is stated, or it is one for a fixed
term or a particular undertaking which is continued after the termination of such
term or particular undertaking without any express agreement.
b. Partnership with a fixed term
- One where the life or period of existence of the partnership is agreed upon by the
partners.
c. Partnership for a particular undertaking
- One which exists until the purpose of the partnership is fulfilled or accomplished.
4. According to representation to others
a. Ordinary Partnership
- One where two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intent of dividing the profits (or losses, if any)
amongst themselves.
b. Partnership by estoppel
- One where persons, whether spoken or written or by conduct, represent
themselves, or consent to another representing them to anyone, as partners in an
existing partnership or with one or more persons not actual partners.
 5. According to legality of its existence
a. De jure partnership
- One which is in compliance with the law and all legal requirements for its creation.
b. De facto partnership
- One which is not in compliance with all the legal requirements for its creation.

5. What are the kinds of partners? Define them.

The kinds of partners are the following:
1. As to contribution
a. Capitalist partners – Contributes money, property or both to the common fund.
b. Industrial partners – Contributes only their industry or labor to the common fund.
c. Capitalist-industrial partners – Contributes money or property and industry or both
money, property and industry to the common fund.
2. As to liability
a. General partners - Liable to the extent of their personal properties to third persons in
cases of obligations in the partnership (loans, etc.)
b. Limited partners – Not held liable to third persons for partnership obligations.
3. As to management
a. Managing partners – Manages actively in the business or affairs of the partnership.
b. Silent partners – Does not take active part in the business or affairs but share in the
profits or losses of the partnership.
c. Liquidating partners – Take charge of the winding up or liquidation of the partnership
after its dissolution.
4. As to third persons
a. Ostensible partners – Take active part in the partnership and is a known partner to the
public.
b. Secret partners – the connection of this partner to the partnership is not publicized.
c. Dormant partners – Is not actively participating in the business and is also not know as a
partner of the partnership to the public. Both a secret and silent partner.
5. As to membership
a. Real partners – partners in an existing legal partnership.
b. Partners by estoppel - are not really partners but represents themselves, or consent to
another or others representing them to anyone as partners in existing partnership or in
one that is fictitious or apparent.
6. As to continuation of the business affairs after dissolution
a. Continuing partners – those who continues the partnership business after dissolution.
b. Discontinuing partners – those who do not continue the partnership business after
dissolution.
7. As to the nature of membership
a. Original partners – members of the partnership from the time of its constitution.
b. Incoming partners – became members after the establishment.
c. Retiring partners – those who withdraw from the partnership.
 8. As to state of survivorship
a. Surviving partners – those who continue the partnership after dissolution by reason of
death of a partner.
b. Deceased partners – died while being a member of a partnership.
9. As to effect of expulsion
a. Expelled partners – expelled from a partnership by the partners for a valid cause.
b. Expelling partners – caused the expulsion of a partner for a valid cause.
10. As to the value of the contribution
a. Majority partners – Contributes majority or controlling interest in a partnership.
b. Nominal partners – contribution represents minority interest in the partnership.

6. What are the obligations of the partners among themselves? Discuss each briefly.
The following are examples the obligations of the partners amongst themselves:
1. To give their promised contribution because the first test in the contract of partnership is
the mutual contribution to the common fund.
2. Not to convert partnership money to their own use because since the moment of formation
and creation, each partner is associated to each other and the funds contributed therein
which means that the capital account of a partnership is co-owned by all partners.
3. To account and hold as trustee for any profits derived without consent of other partners
meaning mutual trust and respect is established in a partnership and each partner may hold
the profit provided he or she declares it and accounts for it in the common fund.
4. Not to engage in any business which is of the kind in which the partnership is engaged
meaning he or she shall not be a partner or take part in a business that is of the same nature
or in competition with the partnership.
5. Obligation of managing partners to credit to the partnership the payment made by a
debtor who owes them and the partnership meaning they shall be transparent as to any
other business engagement made during the partnership and shall return the said payment
of the debtor to the partnerships fund.
6. Obligation to share with the partners the share of the partnership credit which they have
received from an insolvent partnership debtor meaning as the profits is shared, so are the
possible losses caused by insolvency and other business related activities.
7. Pay for damages suffered by the partnership through their fault because it is said that the
association made by a partner to the rest of the partners makes them liable to the fault of
one, that who has caused the damages suffered due to his fault shall pay for what the
partnership was held liable in.