PARCOR

BUSINESS LAW
PARTNERSHIP
AND
CORPORATION
Module 1
Law on Partnership (Article 1767 – 1867, Civil Code of the
Philippines, RA 386)
Learning Outcomes:
Upon finishing this module, the student is expected to:
1. Distinguish Partnership from Corporation, Cooperatives and other Business
Organizations
2. Describe the elements and Kinds of Partnerships
3. Explain the formalities required in the formation of partnership
4. Identify the Obligations of the Partners to themselves, to the Partnership and to
Third Persons
5. Identify the Rules of Management
6. Explain the Distribution of Profits and Losses
7. Explain the Sharing of Losses and Liabilities
8. Describe the modes and retirement requirements of Partnerships.
9 Explain Limited Partnership and the laws and rules that govern them.
2 | Business Law (PARTNERSHIP AND CORPORATION)

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MODULE 1
Subtopic 1
General Provisions, Obligations of the Partners (Articles 1767-
1827, Civil Code of the Philippines)
Learning Outcomes:
1. Distinguish Partnership from Corporation, Cooperatives and other Business

Organizations
2. Describe the elements and Kinds of Partnerships
3. Explain the formalities required in the formation of partnership
4. Identify the Obligations of the Partners to themselves, to the Partnership and
to Third Persons
5. Identify the Rules of Management
6. Explain the Distribution of Profits and Losses
7. Explain the Sharing of Losses and Liabilities
Learning Contents:
CHAPTER I. GENERAL PROVISIONS (ARTICLES 1767-1783)
Article 1767. By the contract of partnership 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. Two or more persons may also form a
partnership for the exercise of a profession.
Let us go into the definition of Partnership as defined under the Law, specifically, Article
1767 of the Civil Code of the Philippines.
First, By the contract of Partnership,
A partnership is a contract, specifically a Nominate Contract since the Law provides for a
particular name, a Contract of Partnership.
Second, Two or more persons bind themselves
A Contract of Partnership just like any other contract is CONSENSUAL, it is perfected by

mere consent. It also requires as a minimum of TWO PERSONS. It is not only NATURAL
persons who can enter into a Contract of Partnership but also JURIDICAL persons like
existing partnerships and associations. However, a Corporation may NOT enter into a
Contract of Partnership but it can be an Incorporator in a newly formed Corporation.
Who are those persons that may be bound in a Contract of Partnership?
Just like any other Contract, they must be capable, competent and legally
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capacitated to enter into Contracts. Under the Law, persons who are legally capacitated to
enter into contracts are those persons who are NOT absolutely disqualified to enter into
contracts. The definition provided under the Law is stated in its negative form.
Who are then those persons that are disqualified from entering into Contracts?
The following persons are disqualified from entering into contracts:

1. Minors
2. Deaf – mute who does not know how to read and write
3. Those persons under civil interdiction or convicted of any criminal offense.
4. Insane persons
5. Incompetent persons
HOWEVER, if the person is still an ACCUSED in a pending criminal case, he may still bind
himself into a contract since there is no final judgement yet.
Third, TO CONTRIBUTE MONEY, PROPERTY OR INDUSTRY
This makes a Contract of Partnership an onerous one since this Obligation of the
Partners is MUTUAL and thus ALL PARTNERS must give either one of the above –
Illustrative Examples:
1. A and B create a partnership with a promise of contributing P10, 000 each in cash. A
gave his share while B gave a check worth P10,000. Is the issuance a contribution of
money?
Answer: No, unless the check is encashed.
Considering the same information above but with B contributing P10,000 in equivalent
dollars.
Answer: No, the contribution must be made using the legal tender, in this case, the
Philippine pesos because only those coins and currencies issued by the Bangko Sentral ng
Pilipinas are considered legal tender in the Philippines.
Property contributed may be movable, immovable or intangible property. (Ex: equipment,

land, patents, etc.) - If the partners did not contribute money or property, then industry
or service may be contributed.
Note: Contributions may differ for each of the partners.
Fourth, TO A COMMON FUND
It must be emphasized that in a Contract of Partnership, there should be MUTUAL

CONTRIBUTION. Whatever properties that a Partner may bring to the partnership, it
should form part of the mutual fund of the partnership. Simply stated, the ownership over
the property contributed is transferred to the Partnership and shall form part of the
common fund of the partnership. It then partakes the nature of a Donation, the partners
donating the properties contributed to the Partnership.
Fifth, WITH THE INTENTION OF DIVIDING PROFITS AMONG THEMSELVES
The primary objective of Commercial Partnerships is to generate profits. Perhaps,

this is the primary reason why persons form partnerships, in order to earn profits that will
be distributed to them in accordance with their agreement. Note however that profits are
to be construed differently from revenues. Profits are the excess of the revenues after
deducting the expenses. Revenues on the other hand are those INCOME earned by any
business from the rendition of service or sale of goods. Note further, that the Partners must
also share in the losses in cases the business proved to be unsuccessful. Losses are the
excess of the Expenses over the Revenues.
As we go on with our discussion, we will be discussing different principles, rules and

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laws that govern with the distribution of profits and losses.
Initially, we have discussed that a Contract of Partnership is a Consensual Contract.

It is perfected by mere consent. Take note of the principle of DELECTUS PERSONAE. It
means that a Contract of Partnership is based on the principle of Mutual Trust and
Confidence. This is the primary reason why consent of all partners is necessary to admit a
new partner to the partnership. Without the consent of ALL the partners, an outsider can
never be admitted as a new partner to the partnership. This is also because any change in
the relation of the partners, when one partner resigns, dies or retires or a new partner is
admitted, it will cause the dissolution of the partnership. Dissolution will be discussed in
the succeeding chapter.
Article 1768.
The partnership has a juridical personality separate and distinct from that of each
of the partners, even in case of failure to comply with the requirements of article
1772, first paragraph.
What is a juridical personality?
In simplest term, juridical personality means that an entity is regarded as a PERSON

in the eyes of Law (JURIDICAL). Normally, we identify PERSONS as those coming from the
“homo sapiens specie, us, humans”. However, in law, we encounter this concept, juridical
persons. This means that a particular entity is clothed with a PERSONALITY separate and
distinct from the persons that compose them. It only means that the entity will be treated
as a SEPARATE PERSON and as a PERSON, it enjoys the rights afforded to him by the Law.
Consequently, he enjoys the rights outlined under Article III, Bill of Rights of the 1987
Constitution except for those rights which a Natural person can only perform such as the
right to vote. It enjoys all the Civil Rights as guaranteed in the 1987 Philippine Constitution.
Illustrative Example:
If A and B form a partnership, AB Partnership, the property of AB Partnership is not that

of A & B’s property. Likewise, A & B’s property does not belong to AB Partnership. Since
AB Partnership is a juridical person, it can acquire any property since the partners are
merely agents. Accordingly, the obligations of AB Partnership are not those of A & B. AB
Partnership can file against A & B and be sued by A & B. Also, if a third party sues AB
Partnership, A & B are not affected. If AB Partnership is exempted from certain things, it
does not follow that A & B are included in the exemption such as when a partnership is a
tax exempt entity, it does not follow that the partners are also exempted from income tax.
Take note of the second sentence of Article 1768, “even in case of failure to comply
with the requirements of article 1772, first paragraph”
This provision only means that the partnership will still be regarded as a juridical
person even without compliance with the first paragraph of Article 1772. The first
paragraph of Article 1772 provides that Partnerships with a contributed capital of Php 3,000
or more, in money or property, must be written and should appear in a public instrument,
duly registered and recorded with the Office of the Securities and Exchange Commission.
Article 1768 explicitly provides that even in cases of noncompliance of these requirements,
the Partnership is still regarded as a juridical person. This confirms the principle that
PARTNERSHIPS ARE CONSENSUAL CONTRACTS and not FORMAL CONTRACTS. It does not
need to comply certain formalities to be conferred of the separate juridical personality
unlike in a Corporation where it is created by OPERATION OF LAW and not by mere consent.
A corporation must comply with the formalities required by Law in order to be validly
formed and be conferred with the separate juridical personality.
Consequences of being a Juridical Person

- Can sue and be sued
- Acquire any kind of property
- Insolvency of a partnership does not mean that the partners themselves are
insolvent.
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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 odes 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 in the profits of a business is prima facie
evidence that he is 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 amounts of payment vary with the
profits of the business
(e) As consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
Article 1769 provides for the rules in construing and determining whether there
exists a partnership in the circumstances provided above.
First paragraph of Article 1769
As a rule, persons who are not partners to each other, by mere logic, are not
partners as to third persons. Note however of the opening sentence of the first paragraph
of Article 1769, “Except as provided by Article 1825”, this is the only instance when
persons who are not partners to each other are treated as partners as to third persons.
What is then in Article 1825?
Article 1825 discusses the principle of Partner by Estoppel and a Partnership by

Estoppel. Estoppel is a concept in Civil Law that is based on the principle of equity and
justice. A person who is not a partner but represented himself as a partner to third person,
then following the principle of equity and justice, he cannot set up the defense that he is
not a partner in order to escape liability. He is then regarded as a Partner by Estoppel.
Note however that this is only for the purpose of enforcing any liability against the Partner
by Estoppel by those third persons who might be prejudiced of the representation. In all
other instances, there exists no partnership and the Law does not afford any protection
nor remedies to a Partner by Estoppel or a Partnership by Estoppel.
If A & B disclose PUBLICLY that they are partners even in reality they are not, then
in accordance with the first paragraph of Article 1825, any third person who might
be prejudiced by such representation such as the creditors and suppliers, may
enforce the liability against the Partnership by Estoppel of A & B.
Second Paragraph of Article 1769
Co-ownership or Co-possession over any property does not in itself establish a

Partnership. As discussed and emphasized, it requires that there should be Mutual
Contribution by the Partners and that the properties contributed must form part of the
Mutual Fund or Common Fund of the Partnership. In Co-ownership or Co-possession, the
properties remain under the ownership and name of the Co-owners or Co-possessors and
thus there is no Mutual Contribution over the properties which is an essential requisite in
a Contract of Partnership.
1. If A & B inherited land from their parents and subsequently leased the land out for
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P50,000/month, then it can be said that they share profits, but are they in a partnership?
Answer: No, they are merely co-owners. The properties that A and B inherited
remain under their name thus there is no mutual contribution over the properties.
2. If A & B bought the land for P1,000,000 each to build a house but instead opted to resell
it for P2,500,000 then they have a profit of P500,000, Supposed they share in the profits,
are they considered partners?
Answer: No, because even if they share in the profit of P500,000, there was no
mutual contribution of the properties. The house and lot never form part of the
common fund to constitute a partnership.
3. If the land was instead used to build an apartment that is rented out, is there any
partnership that exists?
Answer: Yes, because the rent that is earned from the leasing of the apartment forms part
of the mutual fund of the partnership. It is presumed that the right of a usufructuary is
granted to the partnership over the apartment and the lot.
How do you distinguish partnership from co-ownership?
CJP DDPE Partnership Co-ownership

Generally created by law,
Always created by a
Creation may exist even without a
contract
contract
Separate and distinct from
Juridical Personality No juridical personality
partners
Common enjoyment of a
thing or a right which does
Purpose Realization of profits
not necessarily involve
sharing of profits
Agreement to keep thing
Duration No limitation as to duration undivided for more than 10
years is not allowed
May not dispose of
individual interest in the
Disposal of interests partnership to make Can freely do so
assignee a partner unless
agreed upon by all partners
Cannot represent the co-
Power to act with third Partner may bind the ownership; judgment
persons partnership against one does not bind
the others
Death of partner results to
Does not necessarily
Effect of Death dissolution of the
dissolve the co-ownership
partnership
Third paragraph of Article 1769
Gross returns should be differentiated from profits. As initially discussed, profits are
excess of the Income earned by the business over its expenses. While Gross Returns refer
to the Income earned without deducting the expenses. It thus follows that receipt of the
Gross Returns does not itself establish a Contract of Partnership for it is the receipt of the
Profits that establishes a prima facie presumption that there exists a Contract of
Partnership. In essence, the partners must also share in the expenses not only in the gross
returns.

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If a person owns a big tract of land for planting rice and entered into an agreement with a
farmer that they will divide the harvest, is the farmer a partner with the owner of the land?
No because of the following reasons:

(1) The farmer had no contribution.
(2) The farmer has no say in the disposition of the land.
(3) The farmer has no say in management.
(4) In case of loss, the owner shall carry the entire burden and the farmer need not
pay anything.
(5) Mere sharing of the gross returns, the harvest, does not in itself establish a
partnership
Fourth paragraph of Article 1769
As discussed, the receipt of the share of the Profits of a business is a prima facie evidence
that he is a partner in the business. Note however that the presumption is only prima facie
and not absolute. It means that contrary evidence may be introduced to rebut the
presumption. The enumeration listed in the last sentence of the fourth paragraph of Article
1769 provides for the instances when receipt of the profits does not in itself establish a
Contract of Partnership.
First Illustrative Example:
A partnership borrowed P50,000 and instead of giving the creditor a specific amount to be
repaid, they agreed that the C, Creditor will receive 1% of the partnership’s annual gross
profit. Is C a partner?
Answer: No, because the receipt of the share in net income happens to be a mode of
payment of an existing debt.
Second Illustrative Example:
Suppose in the Illustrative Example above, C was an employee in the partnership and as
part of his salary package, C will receive 1% of the partnership’s annual gross profit. Is C
a partner?
Answer: No, because the receipt of the share in net income happens to be a form of
payment for his salaries. C is not a partner but an employee. There exists a Contract of
Employment and not a Contract of Partnership.
Third Illustrative Example:
Suppose in the Illustrative Example above, C was a lessor and the partnership leased an
office space for the partnership and as a form of rent, C shall receive 1% of the
partnership’s annual gross profit. Is C a partner?
payment for the rent. There exists a Contract of Lease and not a Contract of Partnership.
Fourth Illustrative Example:
Suppose in the Illustrative Example above, C was the spouse of a deceased partner and it
was agreed that C shall receive 1% of the partnership’s annual gross profit. Is C a partner?
payment for her annuity from her deceased spouse.
Fifth Illustrative Example:
Suppose in the Illustrative Example above, C was a creditor and he extended an amount
of 1,000,000 to the partnership. As a form of payment of the principal and interest, C shall
receive 1% of the partnership’s annual gross profit. Is C a partner?
payment for the principal and interest on a loan, though the amount of payment vary with
the profits of the business. There exists a Contract of Mutuum and not a Contract of
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Partnership.
Sixth Illustrative Example:
Suppose in the Illustrative Example above, C sells his 1 hectare tract of land to the
partnership. As a form of payment of the sale, C shall receive 1% of the partnership’s
annual gross profit. Is C a partner?
payment for the sale of property. There exists a Contract of Sale and not a Contract of
Partnership
The importance of determining whether there exists a Contract of Partnership is

to determine what law should be applied. Article 1769 is then very important in
guiding whether the Law on Partnership should be applied or not.
Article 1770.
A partnership must have a lawful object or purpose, and must be established for
the common benefit or interest of the partners. When an unlawful partnership is
dissolved by a judicial decree, the profits shall be confiscated in favor of the State,
without prejudice to the provisions of the Penal Code governing the confiscation
of the instruments and effects of a crime.
The partnership must have a lawful object or purpose

- Lawful object refers to CAPITAL
- Lawful purpose refers to the BUSINESS itself
- There must be common interest and benefit
If the partnership is UNLAWFUL, it will cause the automatic dissolution of the partnership
and consequently the profits shall be confiscated in favour of the State without prejudice
to the provisions of the Revised Penal Code governing the confiscation of the instruments
and effects of the crime.
Example of unlawful purpose:
A & B are partners in AB Partnership where A contributed P100,000 in cash and B

contributed gambling paraphernalia. They were raided and the gambling paraphernalia was
confiscated. Can the P100,000 also be confiscated?
Answer: No because the P100,000 was not the reason for the crime anyway. The state is
therefore required to return this amount to A.
Legal effects of a Judicial Dissolution

• Partnership is considered void from the beginning
• Profit and instrument of the crime is confiscated
• The only returnable items are those that were never related to or connected with
the crime committed
Article 1771.
A partnership may be constituted in any form, except where immovable property
or real rights are contributed thereto, in which case, a public instrument shall be
necessary.
Can a partnership be created orally?
Answer: Yes. A partnership may be constituted in any form (as stated in Article 1771). As
initially discussed, Contract of Partnership is consensual in nature and is not a Formal
contract. It does not require certain formalities to validly constitute a Contract of
Partnership.
General Rule: Partnerships are not covered by the Statute of Fraud thus these are not
necessarily required to be in writing.
Exception:
If immovable property and/or real rights are contributed to the partnership, then the
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contract must be in a public instrument (notarized documents)
Note: In order to bind third persons, the transfer of OWNERSHIP of immovable property
MUST BE REGISTERED with the REGISTRY OF PROPERTY in the province or city where the
property is located.
What are the immovable properties?

Answer:
ARTICLE 415.The following are immovable property:
(1)Land, buildings, roads and constructions of all kinds adhered to the soil;
(2)Trees, plants, and growing fruits, while they are attached to the land or form
an integral part of an immovable;
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in
buildings or on lands by the owner of the immovable in such a manner that it
reveals the intention to attach them permanently to the tenements;
(5)Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried on in a building or
on a piece of land, and which tend directly to meet the needs of the said industry
or works;
(6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of
similar nature, in case their owner has placed them or preserves them with the
intention to have them permanently attached to the land, and forming a
permanent part of it; the animals in these places are included;
(7)Fertilizer actually used on a piece of land;
(8)Mines, quarries, and slag dumps, while the matter thereof forms part of the
bed, and waters either running or stagnant;
(9)Docks and structures which, though floating, are intended by their nature and
object to remain at a fixed place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and other real rights over
immovable property.
What are the kinds of immovable properties?

Answer: Immovable by nature, incorporation, destination, law
Q: Do you see those big luxury vessels floating? They move from pier to pier, are they
movable?
Answer: The law considers them an immovable property.
Movable and Immovable properties sows confusion because when you go to the bank and
you offer the vessel as a security you will be required not to execute a Real Estate Mortgage
but a Chattel Mortgage.
Power plants can be moved in actuality but the moment they are incorporated, they are
considered immovable property.
Article 1772. Every contract of partnership having a capital of P3,000.00 or more,

in money or property, shall appear in a public instrument, which must be recorded
in the office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third persons.

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If the partnership’s capital is P3, 000.00 or more (in any form), it must be in a public
instrument, recorded with the SEC and note that property referred to in this article only
pertains to MOVABLE PROPERTIES since immovable property is covered by Article 1771.
Failure to comply with the requirements of Article 1772 will not affect the liability of the
partnership to third persons. Isn’t this inconsistent with Article 1358?
Answer: No, remember that in Article 1358, if the contract terms exceed P500.00 then the
contract must be in writing. This is merely for purposes of convenience and not for validity
or enforceability of the contract. Also, note that according to Article 1768, the partnership
will still be valid and still acquire juridical personality even if there is noncompliance with
the requirements set forth under first paragraph of Article 1772.
How do we reconcile this with Article 1358 and 1357?

Answer: Article 1358 is for purposes of convenience and not for validity or enforceability
of the law.
ARTICLE 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of
real property or of an interest therein are governed by articles 1403, No. 2, and
1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of

the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object
an act appearing or which should appear in a public document, or should
prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in
action are governed by articles 1403, No. 2 and 1405.
Note however that Article 1357 states that contracting parties have the right to compel
each other to have that form as mentioned under Article 1358 but does not apply to void
and unenforceable contracts.
ARTICLE 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article, the contracting parties
may compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon the
contract.
If Registration with the SEC can be dispensed with, what is then the purpose of
Registration?
Purpose of Registration:
(1) It is a Condition for obtaining a license to engage in business and in trade
(2) Third persons want proof that the partnership is existing and that who composes
the partnership and what is the capitalization of the partnership before they enter
into contracts/engage in business.
(3) The government requires this so that tax liabilities may not be evaded

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Note however that failure to comply with the Article’s requirements will not prevent the
formation of the partnership.
The Statute of Fraud will only apply in the following instances as provided under Article
1403:
(a) An agreement that by its terms is not to be performed within a year from the making
thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to
marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than
five hundred pesos, unless the buyer accept and receive part of such goods and chattels,
or the evidences, or some of them, of such things in action, or pay at the time some part
of the purchase money; but when a sale is made by auction and entry is made by the
auctioneer in his sales book, at the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and person on whose account the sale
is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
(f) A representation as to the credit of a third person.
It thus follows that those agreements falling within the Statute of Fraud must be reduced
at least in writing and subscribed by the parties involved otherwise the Contract is valid
but unenforceable. Note however that Statute of Fraud only applies to executory contracts
and not those contracts which have been partially executed as the partial execution is
equivalent to ratification of the contract.
A and B promise to contribute to their partnership money worth P10,000.00 each within
one year from their agreement. A contributes early but when the time comes for B to
contribute his share, he refuses to do so contending that the contract is unenforceable
since the agreement was not reduced into writing. Can A compel B to give his contribution?
Yes. The agreement between A and B is valid and enforceable since A has already partially
executed the contract. The Statute of Fraud does not apply to executed contracts but only
for executory contracts.
Article 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if an inventory of said property is not made, signed by the
parties and attached to the public instrument.
This article applies when one or both of the parties contribute an immovable or real
property. The requirements are:
(1) The contract must be in a public instrument
(2) An inventory of the immovable property must be made, signed by BOTH parties
and attached to the public instrument, Otherwise the partnership is VOID.
1. A and B agree to form a partnership engaging in a fish pond business where both
partners will contribute cash. The cash is later used to buy land that is converted into a
fish pond. C comes along and points out that the partnership is void because no inventory
of the land was made. Is the partnership really void?
Answer: No, the partnership is not void because according to the Supreme Court, Article
1773 need not apply since the land was BOUGHT from the CASH CONTRIBUTION.

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2. Suppose a partnership contributes immovable property but does not conduct an
inventory and enters into a contract with A. The partnership does not fulfill its obligation
to A and A sues the partnership. Was A right in suing the partnership?
Answer: No, since the partnership was void from the beginning. A should instead file
against the partners themselves. They will be sued under the legal basis, they, being
partners by estoppels, as stated in Article 1825.
3. If A wishes to be in a partnership with B and promises to contribute land but

subsequently sells the same lot to C, who immediately registers the transfer, who owns
the land?
Answer Answer: C owns the land because A never registered the transfer of the land to the
partnership. It was C who first registered the transfer in good faith. Under the Law, the
first registrant in good faith is always preferred in case of double sale or transfers.
Alternatively, B may file a criminal case for Estafa against A. There is deceipt or estafa
when the owner of a property sells the same lot to two or more different persons having
different interests.
Article 1774.
Any immovable property or an interest therein may be acquired in the partnership

name. Title so acquired can be conveyed only in the partnership name.
Being a juridical entity, a partnership can acquire property and subsequently become the
owner thereof. It is among the Civil rights that a juridical person can exercise and enjoy.
Article 1775.
Associations and societies whose articles are kept secret among members, and
wherein anyone of the members may contract in his own name with third persons,
shall have no juridical personality and shall be governed by the provisions
relating to Co-ownership. (1669)
There is no juridical entity since the members or the partners contract with third persons
under its own name without binding others and the partnership. Accordingly, it is the Law
on Co-ownership that shall apply.
In a partnership:
(1) The partners are merely agents who cannot act alone except with the
prior authority of the Partnership and all the partners.
(2) Articles of Partnership are known to ALL partners AND to the
GENERAL PUBLIC.
Article 1776
As to its object, a partnership is either universal or particular. As regards to the

liability of the partners, a partnership may be general or limited.
Classifications of Partnerships:
(1) As to the Object:
(a) Universal Partnership of All Present Property defined in Article 1778.
(b) Universal Partnership of All Profits defined in Article 1780.
(c) Particular Partnerships defined in Article 1783.
(2) As to the Liability:

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(a) General Partnership - general partners are liable PRO-RATA and subsidiarily,
sometimes solidarily, with their own property/assets if the partnership is insolvent.
(may include industrial partners).
(b) Limited Partnership - limited partners are liable only up to the extent of their
contribution.
(3) As to Duration:
(a) Partnership At will - no particular undertaking, can be dissolved at any time.
(b) Partnership With a Fixed Term - may only be dissolved upon the end of its term
unless continued by the partners.
(4) As to Legality of Existence:
(a) De Jure Partnership - complied with ALL requirements set forth under the Law.
(b) De Facto Partnership - failed to comply with ALL requirements set forth under
the Law.
(5) As to Representation to Others:
(a) Ordinary/Real Partnership - actually exists in Law
(b) Ostensible/ Partnership by Estoppel - exists only with respect to third persons
for the purpose of enforcing liability.
(6) As to Publicity:
(a) Secret Partnership - some partners are not known to the public.
(b) Open/Notorious Partnership - all partners are known to the public .
(7) As to Purpose:
(a) Commercial/Trading – The purpose of the partnership is for the purposing of

conducting business transactions.
(b) Professional/Non-Trading – The purpose of the partnership is for the exercise of

a profession.
Kinds of Partners:
(1) Under the Civil Code:
(a) Capitalist Parnter - contributes money/property.
(b) Industrial Partner - contributes industry.
(c) General Partner – liability extends to the personal assets of the partners.
(d) Limited Partner - liability is limited to its contribution to the partnership.
(e) Managing Partner - manages the partnership.
(f) Liquidating Partner - responsible during dissolution and liquidation of the
partnership
(g) Partner By Estoppel – one who is not actually a partner but is considered as a

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partner for the purpose of enforcing liability as to third persons.
(h) Continuing Partner - continues business after dissolution.
(i) Surviving Partner - remains after the death of any of the partners.
(j) Sub-partner - contracts with an existing partners.
(2) Other Classifications:
(a) Ostensible Partner – a partner by estoppel.
(b) Secret Partner - active, unknown to the public.
(c) Silent Partner - inactive, known to the public.
(d) Dormant Partner - inactive, unknown to the public.
(e) Original Partner - member at time of organization.
(f) Incoming Partner – a person who is about to be admitted in an existing
partnership.
(g) Retiring Partner – a partner who withdraws, retires or resigns from the
partnership.
Article 1777. A universal partnership may refer to all the present property or to
all the profits.
Article 1778 A partnership of all present property is that in which the partners
contribute all the property, which actually belongs to them to a common fund,
with the intention of dividing the same among themselves, as well as the profits
which they may acquire therewith.
Article 1779. In a universal partnership of all present property, the property

which belongs to each of the partners at the time of the constitution of the
partnership becomes the common property of all the partners, as well as all the
profits which they may acquire therewith.
A stipulation for the common enjoyment of any other profits may also be made;
but the property which the partners may acquire subsequently by inheritance,
legacy or donation cannot be included in such stipulation, except the fruits
thereof.
Why is the universal partnership of all present property not popular in the Philippines?
All Properties owned by the partners at the time of the constitution of the partnership
becomes the COMMON PROPERTY of ALL THE PARTNERS, as well as all the profits which
they may acquire therewith. Clearly, it is so onerous that ALL YOUR PROPERTIES will be
transferred to the Partnership. You left nothing except your interest in the Partnership.
A and B form a Universal Partnership of All Present Property and stipulate that property
and profits that are acquired during any legitimate business undertaking or exercise of a
profession will become common property even if these were not due to their contributions
and that if anyone inherits property, it will become common property as well. A acquires
land as part of his compensation package from Ayala Land and B inherits land from his
parents. Whose property will become common property?

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Answer: Only A’s land will become common property because it was acquired as part of his
compensation package while B’s land was acquired through inheritance. Second paragraph
of Article 1779 prohibits property subsequently acquired through inheritance, legacy or
donations to become common property of the partnership, only fruits of such property can
become common property of the partnership. In a partnership, contributions must be
determinate/certain and partners are akin to donors of the properties contributed.
Donations cannot comprehend future property but profits can be stipulated.
Article 1780. A universal partnership of profits comprises all that the partners
may acquire by their industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may possess at the
time of the celebration of the contract shall continue to pertain exclusively to
each, only the usufruct passing to the partnership.
Unlike in a Universal Partnership of ALL Present Property, a Universal Partnership of profits

only pertains to the profits that may be acquired by any industry or work during the
existence of the partnership. The properties, both movable and immovable, remain under
the ownership and name of the partner. It is only the usufruct that passes to the
partnership.
1. Suppose A and B form a Universal Partnership of Profits and A wins in the lotto,
P100,000.00. B tries to share in 50% citing the existence of their partnership and that A
used the partnership’s money to purchase the lottery ticket. Can B really share in the lotto
winnings?
Answer: No, B cannot share in the lotto winning since it came from CHANCE, not from
WORK or INDUSTRY. It is outside of the coverage of the Universal Partnership of Profits.
2. Supposed in the example above, the P100,000.00 came from A’s work in DLSU. Can B
share in the profits of A?
Answer: Yes, because it came from WORK. As long as there is PROFIT, it becomes the
common property of the partnership UNLESS there was a stipulation to the contrary in
their agreement.
3. If A and B form a Universal Partnership of Profits for a Taxi-Cab business and both
contribute vehicles that will serve as the taxi-cab for the business, what they were actually
contributing is the USE or the RIGHT TO USE over the vehicles. Upon dissolution, the
vehicles will be returned to them since there was never a transfer of ownership.
Note: Unique feature of the Universal Partnership of Profits: The partners retain
the title of the properties.
ARTICLE 1781. Articles of Universal Partnership, entered into without

specification of its nature, only constitute a universal partnership of profits.
If the Articles of Universal Partnership are doubtful or unclear or does not specify the type
of Universal Partnership, then the Law provides that it is a Universal Partnership of profits
because a Universal Partnership of Profits requires less obligations and it is less onerous
since the partners retain ownership over the property contributed. What they contribute is
a mere usufruct over the property.
ARTICLE 1782. Persons who are prohibited from giving each other any donation
or advantage cannot enter into a universal partnership.
As discussed, partners contributing their properties to the Universal Partnership is akin to

one of a Contract of Donation. The partners are considered to be the donor over the
properties contributed. It is then logical that those who are prohibited from giving each
other any donation or advantage cannot enter into a Universal Partnership.

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For example, A husband and wife cannot join a Universal Partnership since the Law
prohibits them from giving each other any donation except for moderate ones.
Note however that they can enter into a Particular Partnership instead. A partnership
formed in violation of this article shall be null and void. It shall not have any legal
personality either.
Illustrative Case:
A, B and C form a partnership to engage in the importation, marketing and operation of

automatic phonographs, radios, television sets, amusement machines and their parts
accessories, with B and C as limited partners.
Subsequently, A and B got married and thereafter, C sold his share to A and B for a nominal
amount. Was the partnership dissolved after the marriage of A and B and C’s sale to them
of his share in the partnership?
Answer: No, the firm was not a universal partnership but a particular one.
Pertinent Legal Provisions
(1) Article 87: Every donation or grant of gratuitous advantage, direct or indirect, between
spouses during their marriage, valid or not, shall be void except moderate gifts which the
spouses may give each other on the occasion of any family rejoicing.
(2) Article 739: The following donations shall be void:
(a) Those made between persons who were guilty of adultery or concubinage at the
time of the donation
(b) Those made between persons found guilty of the same criminal offense, in
consideration thereof
(c) Those made to a public officer or his wife, descendants and ascendants by reason
of his office Article 1783
ARTICLE 1783. 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.
Particular partnerships are those that are neither a universal partnership of all present
property nor a universal partnership of profits. It is Popular because it is easy to create
and is oftentimes more practical and specific unlike in a Universal Partnership where it is
so general and vague in scope.
Examples:
Those partnerships that are formed for the acquisition and sale of property, accounting
Firms, Law Firms, and other professional firms.
Chapter 2. Obligations of the Partners among Themselves
Legal Relations created by a contract of partnership
(1) Relations among the partners themselves
(2) Relations of the partners with the partnership
(3) Relations of the partnership with third persons
(4) Relations of the partners with third persons

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Article 1784. A partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated.
Partnership is perfected by mere consent and if ALL the requirements are met such as
Consent, Object, Cause or Consideration, then the Partnership shall commence. Contract
of Partnership is executed by mere consent of all the Partners notwithstanding the fact that
the partners have not given their contributions yet.
Illustrative Example 1:
A and B agree to form a partnership that will begin on December 1 and upon the arrival of
certain machinery needed by the business. In this situation, Had A and B validly formed a
Contract of Partnership?
Answer: As long as the agreement remains executory, then A and B are NOT partners
therefore there is no partnership yet.
Note: Partners may agree to form a partnership to take effect in the future.
Illustrative Example 2: A and B agree to form a partnership 1.5 years later, with
contributions of P100,000.00 each. A contributes his share early but when the time comes
for B to contribute his share, he refuses and says he no longer wants to partake in the
partnership. Can A compel B to contribute his share to the partnership?
Answer: Yes. There exists a valid and binding partnership. B is then considered to be a
debtor to the partnership for the amount he promised to contribute to the partnership.
ARTICLE 1785. When a partnership for a fixed term or particular undertaking is

continued after the termination of such term or particular undertaking without
any express agreement, the rights and duties of the partners remain the same as
they were at such termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted

therein during the term, without any settlement or liquidation of the partnership
affairs, is prima facie evidence of a continuation of the partnership.
Partnership at will
- it is one where there is no fixed term or;

- it is not formed for a particular undertaking;
- it is one with a fixed term or particular undertaking continued after termination
without express agreement.
Partnership with a fixed term
- it is one where the life or period of existence of the partnership has been agreed
upon by the partners.
Partnership for a particular undertaking
- it is one where it will exist until the purpose is accomplished.

When a partnership with a fixed term/particular undertaking is continued without express
agreement, the rights and duties remain the same as they were at termination.
Illustrative Example: If A and B form a partnership to last until December 30, 2017 and A
is the manager and they share profits 50-50 and after December 30, 2017 they continue
with their partnership. What happens?
Answer: A and B retain their rights, meaning A is still the manager and they still share
profits 50-50. If there was express agreement for the term of existence, then when the
term expires, the partnership is dissolved and becomes a partnership at will.

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ARTICLE 1786. Every partner is a debtor of the partnership for whatever he may
have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and
determinate things which he may have contributed to the partnership, in the
same cases and in the same manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof from the time they should
have been delivered, without the need of any demand.
Obligations of every partner
1. The obligation to contribute what had been promised. The failure to do so

make the partner a debtor to the partnership even if there is no demand. In case
of failure to deliver the promised contribution, the remedy is specific performance
with interest and damages occasioned thereby.
2. The obligation to deliver the fruits thereof; and
3. The obligation to warrant

- The warranty in case of eviction refers only to specific or determinate things
which a partner contributed to the partnership.
ARTICLE 1787. When the capital or a part thereof which a partner is bound to
contribute consists of goods, their appraisal must be made in the manner
prescribed in the contract of partnership, and in the absence of stipulation, it shall
be made by experts chosen by the partners, and according to current prices, the
subsequent changes thereof being for account of the partnership.
Rationale: In order to know the monetary value of the contribution of partner as of date of
contribution.
Manner of Appraisal
1. By stipulation
2. In the absence of stipulation, by experts chosen by the partners according to current
prices.
Article 1788. A partner who has undertaken to contribute a sum of money and
fails to do so becomes a debtor for the interest and damages from the time he
should have complied with his obligation. The same rule applies to any amount
he may have taken from the partnership coffers, and his liability shall begin from
the time he converted the amount to his own use.
Suppose A, B and C are partners. A promises to contribute a RED CAR, B promises to

contribute GOODS WORTH P50,000.00 and C promises to contribute P50,000.00 IN CASH
on October 2017. On October 2017, none of them comply. What happens?
Answer: A, B and C thus become debtors to the partnership.
Suppose B and C contribute their parts but A does not. Can B and C ask for the rescission
or annulment of the contract?
Answer: NO. If one of the partners fails to comply with his requirements, then the others
can request for specific performance with damages from the defaulting partner A.
What are the obligations of A before October 2017?
Answer:
(1) To contribute what he promised
(2) To be held liable to answer for eviction if the partnership is deprived of his
contribution
(3) To take care of the contribution with the diligence of a good father of a family.

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Suppose A leased the car out and gets it back by December 2017. Then A must deliver the
car and the fruits (profits from lease) to the partnership because there was a delay.
Suppose that after A contributes the car, a third person, D, claims to the real owner of the
car and is able to prove so. Then, A is held liable for eviction because the partnership is
deprived for a specific thing. A is also held liable for damages to BOTH the partnership and
to D.
What about B? Can the partnership determine the value of the goods he contributed?
In Article 1787, it clearly states that the goods SHOULD be appraised by the partnership.
If there was no agreement/stipulation, then the partnership shall have the goods appraised
by an expert.
What if the goods appreciate/depreciate?

Answer: It will be charged to the partnership’s account.
What will happen if C fails to comply with his obligation?

Answer: C will be liable for his contribution plus interest and damages from the date he
was supposed to contribute.
Note that the same rule will apply if the partners take money from the partnership’s funds
without everyone’s consent. He will however, not be charged for theft or estafa and his
obligation will only be to return the money he took plus interest and damages from the
time he took the money.
When will a partner be held criminally liable?

Answer: Suppose the partners set aside P10,000.00 for payment to one of their creditors.
A takes this amount from the fund and is subsequently discovered to have done so. Then
A can be charged for estafa since he misappropriated the money ALREADY SET ASIDE.
ARTICLE 1789. An industrial partner cannot engage in business for himself,

unless the partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail themselves of
the benefits which he may have obtained in violation of this provision, with a right
to damages in either case.
An industrial partner contributes his industry. Partnership has the EXCLUSIVE RIGHT to his
industry
General rule. Prohibited from the engaging in business of ANY kind Except The
partnership has expressly permitted him to do so.
Remedies of capitalist partners against an industrial partner who engaged in business for
himself
1. The capitalist partners may exclude the industrial partner from the partnership plus
damages; or
2. The capitalist partners may avail themselves of the benefits which the industrial
partner may have obtained plus damages.
ARTICLE 1790. Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership.
The partners shall contribute to the capital of the partnership as per their agreement,
except if there was no agreement in the first place, in which case, they shall contribute
equally.
ARTICLE 1791. If there is no agreement to the contrary, in case of an imminent

loss of the business of the partnership, any partner who refuses to contribute an

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additional share to the capital, except an industrial partner, to save the venture,
shall he obliged to sell his interest to the other partners.
GENERAL RULE. Capitalist partners are not bound to contribute additional capital.
EXCEPTIONS.
1. Stipulation
2. In case of imminent loss of the business of the partnership to save the venture. The
partner who refuses to contribute additional funds, IF HE IS CAPABLE TO DO SO,
shall sell his share TO THE PARTNERS who are willing to contribute, unless he is an
industrial partner.
The industrial partner need not do so because he has already given 100% of his efforts
Note that more contribution to the partnership capital would mean you share more in the
profits but this should be voluntary.
Things to consider:
(1) There must be an IMMINENT LOSS
(2) The partner who is unwilling to contribute must be SOLVENT/FINANCIALLY

CAPABLE
(3) There was no agreement that the partners will not have to contribute additional
funds in cases of loss y If the purpose of additional contribution is simply to raise capital,
then this article will not apply.
ARTICLE 1792. If a partner authorized to manage collects a demandable sum

which was owed to him in his own name, from a person who owed the partnership
another sum also demandable, the sum thus collected shall be applied to the two
credits in proportion to their amounts, even though he may have given a receipt
for his own credit only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right
granted to the other debtor by article 1252, but only if the personal credit of the
partner should be more onerous to him.
Obligation of a managing partner who collects debt
Things to remember:
The two conditions should be both present in order for the Article to apply, otherwise, the
entire amount would go to whoever collects payment from the debtor.
(1) 2 debts and both are due and demandable
(2) The one collecting should be the managing
partnerIllustrative Example:
A and B are in a partnership where A is the managing partner. C owes A a sum of P5,000.00
and the partnership a sum of P10,000.00. The credit to A is due on September 1 while the
partnership’s is due on September 15, both debts are due and demandable. A collects from
C a total of P3,000.00 only and A subsequently issues a receipt in his name. Is the
partnership entitled to share in the P3,000.00?
Yes but in proportion to their respective debts so A gets P1,000.00 and the partnership
gets P2,000.00.

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If A issues a receipt on the name of the partnership instead, to whose credit will the
P3,000.00 be put?
The entire P3,000.00 will go to the partnership.
Supposing the credit of A carries 18% while that of the partnership carries only 10%. C
pays A and says that the P3,000.00 shall be applied to A’s credit. Is the partnership entitled
to share in the P3,000.00 still?
No, the debtor is given the right to apply payment to whichever debt is more onerous.
ARTICLE 1793. A partner who has received, in whole or in part, his share of a
partnership credit, when the other partners have not collected theirs, shall be
obliged, if the debtor should thereafter become insolvent, to bring to the
partnership capital what he received even though he may have given receipt for
his share only.
In this case, there is only ONE debt but 2 or more debtors, both of which are partners.
A and B are partners and C owes the partnership a sum of P10,000.00. B is the managing
partner but A collects his share in the P10,000.00 and C pays A P5,000.00 to which A issues
a receipt in his name. When B’s turn to collect comes, C is already insolvent. What should
A do?
A shall return his P5,000.00 to the partnership and split it with B because C has already
become insolvent.
Take not that whoever collects does not matter, as it does not make a difference. If you
get your share early and the other parties cannot get theirs because the debtor has become
insolvent, then you must return YOUR share to the partnership so that no one gets more
than he should have.
ARTICLE 1794. Every partner is responsible to the partnership for damages

suffered by it through his fault, and he cannot compensate them with the profits
and benefits which he may have earned for the partnership by his industry.
However, the courts may equitably lessen this responsibility if through the
partner's extraordinary efforts in other activities of the partnership, unusual
profits have been realized.
Rule
Damages suffered by the partnership through the fault or negligence of a partner

are not generally subject to set-off with the profits and benefits which the partner may
have earned for the partnership by his industry.
Why compensation will not apply:
Compensation will not apply because in compensation, you should be both a debtor
and a creditor at the same time. However, the partner here is only a DEBTOR for damages
and he cannot compensate using his profits and benefits earned for the partnership
because it IS HIS DUTY to do so in the first place.
Responsibility may be equitably mitigated by the courts if, through extraordinary

efforts of the partner, unusual profits are recognized/realized.
A partnership between A and B is engaged in an autoshop business. A customer brought

his car in to be painted YELLOW but A bought RED paint instead and the car is painted
RED. Damages are suffered by the partnership for P30,000.00 due to the repainting. Can
A compensate this loss using the profits he earned for the partnership?

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Answer: A cannot compensate it with the profits he earned because it is his obligation to
bring profits in the first place. The responsibility of the P30,000.00, however, may be
mitigated by the court if by other activities, A is able to bring about unusual or
extraordinary profits, meaning, he may be allowed by the courts to pay back just
P15,000.00 instead. It follows that if the partner is guilty of fraud or damages, he shall be
liable for that.
ARTICLE 1795. The risk of specific and determinate things, which are not
fungible, contributed to the partnership so that only their use and fruits may be
for the common benefit, shall be borne by the partner who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating, or

if they were contributed to be sold, the risk shall be borne by the partnership. In
the absence of stipulation, the risk of the things brought and appraised in the
inventory, shall also be borne by the partnership, and in such case the claim shall
be limited to the value at which they were appraised.
This article refers to the rules as to who bears the risks of the things contributed.
1. If the contribution is determinate and non-fungible but only the use is

contributed, when it is lost, then the one who contributes it is liable for it.
2. If fungible things are contributed, the partnership shall be the one to shoulder
the risks as there was transfer of ownership.
3. The partnership shall also be the one to bear the risk for items brought for sale
in inventory for appraisal for the value at which they were appraised.
ARTICLE 1796. The partnership shall be responsible to every partner for the
amounts he may have disbursed on behalf of the partnership and for the
corresponding interest, from the time the expense are made; it shall also answer
to each partner for the obligations he may have contracted in good faith in the
interest of the partnership business, and for risks in consequence of its
management.
This article refers to the obligation of the partnership to the partners. The partners are
merely agents so they are not personally liable except if they are at fault or if they exceeded
their expressed authority.
Obligations of the Partnership:
(1) To reimburse any amount disbursed by the partners in behalf of the partnership.
a. Example: A partnership borrows from the bank a sum of P10,000.00 for
additional funds but cannot pay it back when it is due to be paid back. A
pays back the P10,000.00 using his personal funds. Should he be
reimbursed by the partnership?
Yes, the partnership should reimburse A for the sum of P10,000.00
PLUS legal interest starting from the date A disbursed the P10,000.00.
(2) To answer for any obligation contracted in good faith
a. Example: A partnership needs office supplies so B contracts for
P10,000.00 worth of supplies. Who will pay for the contract price of
P10,000.00?
The partnership shall be the one to shoulder the cost as it was made
in good faith and B did not overstep his authority.
(3) To answer for risks in management.
a. Example: A partnership is engaged in selling goods and a customer keeps
asking for discounts and an argument ensues between the customer, C
and the partner A. A gets injured and is brought to the hospital. Who
shall shoulder the hospital bills?
The partnership shall shoulder the hospital bills as it was during A’s
time in managing the business that he was injured.

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ARTICLE 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a share in
the profits in proportion to his capital.
Rules for distribution of profits and losses of a partnership
1. Distribution of Profits
A. According to agreement
B. If there is no agreement
1. Pro rata basis
2. Capitalist partners – in proportion to what he may have contributed to the
common fund.
3. Industrial partners- that which is just and equitable under circumstances.
2. Distribution of Losses
A. According to agreement
B. If there is no agreement
1. Pro rata basis
2. Capitalist partners – in proportion to what he may have contributed to the
common fund.
3. Industrial partners- not liable for losses
ARTICLE 1798. If the partners have agreed to intrust to a third person the
designation of the share of each one in the profits and losses, such designation
may be impugned only when it is manifestly inequitable. In no case may a partner
who has begun to execute the decision of the third person, or who has not
impugned the same within a period of three months from the time he had
knowledge thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of the partners.
Can the partners appoint a third person to designate the division of their profits and
losses?
Answer: Yes and they will not be allowed to question his decisions unless the designation
of shares is manifestly inequitable.
General Rule
It is valid.
Exception
It is not valid and it may be questioned if it is manifestly inequitable unless:
1. A partner began to execute the decision of the third person; or

2. A partner has not questioned the said decision of the third person within a period
of 3 months from the time he had knowledge thereof.
Can the partners designate one of themselves to distribute profits or losses?

Answer: No, the law prohibits this situation because there may be disparities when it
comes to the distribution of net profits.

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Article 1799. A stipulation which excludes one or more partners from any share
in the profits or losses is void.
What is the legal effect of having a stipulation that excludes a partner from sharing in the
profits or losses?
Answer: Under Article 1799, the stipulation shall be void because there must be mutual
sharing of profits and losses.
Why an Industrial Partner not liable for losses?
Answer: The industrial partner cannot withdraw any labor or industry he had already
exerted. Moreover, in a certain sense, he already has shared in the losses in that, if the
partnership shows no profit, this means that he has labored in vain.
ARTICLE 1800. The partner who has been appointed manager in the articles of
partnership may execute all acts of administration despite the opposition of his
partners, unless he should act in bad faith; and his power is irrevocable without
just or lawful cause. The vote of the partners representing the controlling interest
shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time.
Who shall manage the partnership?
Either one, some or all the partners designated as managing partner either in the
articles of partnership or after the contract of partnership had already constituted. If there
is no agreement, management is vested in all partners.
Two Modes of Appointment
1. Appointment as manager in the Articles of partnership;
GENERAL RULE
Power is irrevocable without just or lawful cause.
EXCEPTION
i) To remove him for just cause, vote of partners having controlling interest is
necessary.
ii) To remove him without just cause, there must be unanimity including his own
vote.
Extent of power
i) If he acts in good faith, he may do all acts of administration despite opposition

of partners.
ii) If he acts in bad faith, he cannot do any act of administration. It must be noted
that the presumption in law is in favor of good faith.
2. Appointment as manager made in an instrument other than the articles of

partnership.
GENERAL RULE
The power to act may be revoked at any time, with or without just cause by the
partners owning the controlling interest.
Extent of Power
a) The manager can do all acts of administration.

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ARTICLE 1801. If two or more partners have been intrusted with the management
of the partnership without specification of their respective duties, or without a
stipulation that one of them shall not act without the consent of all the others,
each one may separately execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the majority shall prevail. In
case of a tie, the matter shall be decided by the partners owning the controlling
interest.
Requisites:
- Two or more partners as managers

- There is no specification of respective duties;
- There is no stipulation requiring unanimity, that is, that one of them shall not
act without the consent of all the others.
General Rule:
Each one may separately execute all acts of administration.
Exceptions. If any of the managers should oppose
- The decision of the majority, per head, of the managing partners prevail.
- In case of tie, the decision of the managing partners owning controlling interest who
has more than 50 percent shall prevail.
Assume that A, B, C and D are all managing partners. A appoints E as a secretary but
B objects to this. Is the appointment of E valid?
Answer: Yes since majority votes are first counted by head.
If C&D were the ones to object, and they owned a combined total of 51% of partnership
interest, then the appointment will not be valid. However, if B was still the one who
objected and he owns 51% of partnership interest, the appointment will still be valid
because majority votes are first counted by head.
If the partnership cannot make a decision and ends up in a tie (head count and
interest), then the partnership is to be dissolved. This will be the only remedy, unless
one of the other partners will relent.
ARTICLE 1802. In case it should have been stipulated that none of the managing
partners shall act without the consent of the others, the concurrence of all shall
be necessary for the validity of the acts, and the absence or disability of any one
of them cannot be alleged, unless there is imminent danger of grave or
irreparable injury to the partnership.
This is a case wherein two partners, A and B, stipulate that one cannot act without the
consent of the other. Thus, there must always be concurrence between the two before any
transactions may be entered into, the absence of the other’s consent shall not be used as
an excuse.
A sold to B, one of the managing partners of Partnership X, the other being C, a certain
number of mining claims without the consent of C. In an action by A to recover the unpaid
balance of the purchase price against Partnership X, C claims that the contract is not
binding upon the partnership for the reason that under the articles of partnership, there is
a stipulation that one of the partners cannot bind the firm by a written contract without
the consent of others. Is the transaction made by B binding upon the partnership?
According to the Supreme Court, the stipulation applies only to B and C. A has the
right to assume that B was authorized to complete the transaction. Therefore, the

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partnership is liable, and since B violated the terms of contract between himself and C, he
is required to reimburse C for the amount C will be paying A on behalf of the partnership,
the reason being, it would be unfair to C who had no knowledge of B’s transaction to have
to pay when he never agreed anyway.
The only instance in which a partner may transact without concurrence is when
there is imminent danger of grave or irreparable damage to the partnership if he does not
do so. However, the party involved must be able to prove so else he shall become liable
for what he has done. y Example: A and B are in a partnership where they sell fruits, B
notices that the fruits in the warehouse are starting to rot so, without consent of A, he sells
them. This will be alright because if the fruits rot, then it would have been bad on the part
of the partnership.
ARTICLE 1803. When the manner of management has not been agreed upon, the
following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them
may do alone shall bind the partnership, without prejudice to the provisions of
article 1801.
(2) None of the partners may, without the consent of the others, make any
important alteration in the immovable property of the partnership, even if it may
be useful to the partnership. But if the refusal of consent by the other partners is
manifestly prejudicial to the interest of the partnership, the court's intervention
may be sought.
When the manner of management has not been agreed upon.
If there is no agreement as to who will be the managing partners, during

constitution and after constitution of the partnership, then the assumption shall be that
ALL the partners are managing partners, without prejudice to Article 1801, meaning Article
1801 will then apply to their case.
The second paragraph of this article provides that the partners cannot simply alter
immovable property owned by the partnership without the consent of the other partners
because this is NOT an act of administration but of OWNERSHIP.
Note that consent here is no qualified, so it may be expressed or it may be implied.
Example:
Suppose A, B, C and D are in a partnership where the managing partner is not

specified and A decides to put up a warehouse in a piece of land owned by the partnership
without consent of other partners because he believes it to be useful and beneficial to the
partnership. His partners come over, once the warehouse is finished, to look at it and did
not object to its existence. Was this valid?
Yes, since the partners did not object, then there is IMPLIED consent. Since consent
was never qualified in the article, it is assumed that implied consent is enough.
Suppose before A builds the warehouse, he asks for the consent of the other partners, who
refuse to give it. When A tries to convince them and asks why they refuse to give consent,
they simply say that they do not want it to be there, making their objection manifestly
prejudicial, meaning, there is really no reason for their objection, what then, is the remedy
of A in this situation?
A may bring the matter to court. If the court finds the other partners of having no
solid reason to object, it may compel the other partners to give their consent.

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ARTICLE 1804. Every partner may associate another person with him in his share,
but the associate shall not be admitted into the partnership without the consent
of all the other partners, even if the partner having an associate should be a
manager.
This article refers to Contract of SUB-PARTNERSHIP. In a contract of sub-partnership, the

consent of the other partners is not required. Hence, all partners can have an associate in
his share or sub-partner.
A, B and C are in a partnership wherein A is the managing partner. A enters into a contract
with D that states D will receive 50% of A's share in partnership profits. Can A do this even
without the consent of the other partners?
Yes, because a sub-partnership will not affect the composition of the partnership
and D will not be able to interfere with the partnership’s management anyway.
When are you required to share your partnership profits with 3rd persons?
When you contract with 3rd persons because perhaps in some past event you
needed money and they provided you with it, and in your contract, it was agreed upon that
you will share in the partnership profits. The 3 rd person can also opt to receive ALL profits.
Can D become a partner without the consent of the other partners, if he associates with
the managing partner?
No, D would need to get the consent of all partners because this would change the
partnership composition.
ARTICLE 1805. The partnership books shall be kept, subject to any agreement
between the partners, at the principal place of business of the partnership, and
every partner shall at any reasonable hour have access to and may inspect and
copy any of them.
Each partner will have access to ALL partnership books.
The partnership books shall be kept in the following places, in order:
(1) In accordance with partnership agreements
(2) If there were no agreements, then the partnership books shall be kept in the
principal place of business of the partnership (ex: headquarters)
When will the partner be allowed to access the partnership books?
The partner is allowed to access partnership books during REASONABLE HOURS OF

BUSINESS (8am-5pm), according to the law. The one who is keeping the partnership books
cannot state when it can be inspected.
ARTICLE 1806. Partners shall render on demand true and full information of all
things affecting the partnership to any partner or the legal representative of any
deceased partner or of any partner under legal disability.
The article does not mean that the partners need wait for demands before disclosing
information, when they get hold of the information, they should disclose it immediately,
although additional details may be demanded.
If information is not disclosed and it is found out later on, the partner/s who did not disclose
such will be held liable for it and be charged for misrepresentation.
The violation of this article refers to concealment.
Who can demand true and full information?

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- Any partner
- Legal representative of any deceased partner; and
- Legal representative of any partner under legal disability.
ARTICLE 1807. Every partner must account to the partnership for any benefit,
and hold as trustee for it any profits derived by him without the consent of the
other partners from any transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its property.
A partner who receives benefits or profits derived without consent of others shall account
for it as the partnerships.
If particular property is mortgaged and foreclose, the partner who uses personal funds is
able to get the property back will not become the new owner, he will only be its trustee.
If the partner gets the property back after ONE year from the 3 rd party involved, then it
shall become his as it was a private transaction, so long as he uses his own funds.
Example:
A and B are partners engaged in the operation of a cinema business. The theater was
mortgaged to C who foreclosed the mortgaged debt. A, in his own behalf, redeemed the
property with his own private funds. Subsequently, A files a petition for the cancellation of
the old title of the partnership and the issuance of a new title in HIS name alone. Did A
become the absolute owner of the property?
No, the law says that he will only hold the property as the trustee and will be entitled
to reimbursement plus interest from the time he redeemed the property.
ARTICLE 1808. The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is engaged,
unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any
profits accruing to him from his transactions, and shall personally bear all the losses.
The article is with regards to a capitalist partner engaging in other businesses.
Is the capitalist partner allowed to engage in other businesses aside from the one he has
with the partnership?
Yes, as long as the business he engages in is something dissimilar or different from

the of the partnership’s.
What will happen if the capitalist partner violates the law regarding his ability to
engage in other businesses?
Then he shall have to bring the profits he gained from the other business to the
partnership and be liable for losses suffered by the partnership.
Why is the capitalist partner not allowed to engage in a similar line of business?
Because he might take advantage of the information in the partnership or of their

clients, resulting in a conflict of interest between himself and the other partners.
The capitalist partner can engage in a business similar to the partnership if there
was a stipulation in the contract of partnership and if the business he operates exists in a
different area or place.

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ARTICLE 1809. Any partner shall have the right to a formal account as to
partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of

its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable
General Rule: During existence, a partner is not required to demand for an accounting
because two Articles of the law, Article 1805 and Article 1806 already protect his interest.
But for specific cases, the law provides that he can DEMAND for an accounting of the
partnership books.
4 Cases where a partner can demand for an accounting:
(1) When he is wrongfully excluded from the partnership operations (business and
property possession)
(2) If the right exists under their agreement
(3) Under Article 1807
(4) Other circumstances which render it just and reasonable.
Section 2. Property Rights of a Partner
Article 1810
The property rights of a partner are:
(1) His rights in specific partnership property
(2) His interest in the partnership
(3) His right to participate in the management.
The partner has the following rights:
(1) Right to the ownership of partnership property
(2) Right to his interest in the partnership
(3) Right to participate in partnership management
Article 1811
A partner is co-owner with his partners of specific partnership property. The

incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement
between the partners, has an equal right with his partners to possess specific
partnership property for partnership purposes; but he has no right to possess
such property for any other purpose without the consent of his partners;
(2) A partner’s right in specific partnership property is not assignable

except in connection with the assignment of rights of all the partners in the same
property;

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(3) A partner’s right in specific partnership property is not subject to
attachment or execution, except on a claim against the partnership. When
partnership property is attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner, cannot claim any right under
the homestead or exemption laws;
(4) A partner’s right in specific partnership property is not subject to legal

support under Article 291.
The partners are considered co-owners of specific partnership property. If A, B and C are
partners who own specific property under the partnership’s name, what are their rights?
(1) They can use it for partnership business purposes
(2) They cannot use it for personal purposes WITHOUT the consent of others.
Why can’t A simply assign his right with respect to the partnership’s property?
(1) It doesn’t belong to him.
(2) The extent of his interest with regards to the property cannot be determined
before dissolution.
The partnership can altogether assign a third party with the right to use the
property for partnership business purposes.
The right of the partners as to the property is not subject to attachment unless it is
a claim against the partnership due to the reason that any one partner is not the owner of
it.
Under Article 291, the specific partnership property cannot be used as the subject
of legal support because it does not belong to any one of the partners.
Article 1812. A partner’s interest in the partnership is his share of the profits and
surplus.
The article defines what the partner’s interest in the partnership is.
What is the partner’s interest in the partnership?
(1) DURING operations, the partner’s interest is his share in profits and losses
(2) AFTER operations/LIQUIDATION/DISSOLUTION, his interest is in the surplus of

partnership assets after all debts have been cleared.
Interest can be subject to attachment or execution because it belongs to the partner, not
the partnership.
ARTICLE 1813. A conveyance by a partner of his whole interest in the partnership

does not of itself dissolve the partnership, or, as against the other partners in the
absence of agreement, entitle the assignee, during the continuance of the
partnership, to interfere in the management or administration of the partnership
business or affairs, or to require any information or account of partnership
transactions, or to inspect the partnership books; but it merely entitles the
assignee to receive in accordance with his contract the profits to which the
assigning partner would otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of the usual
remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his

assignor's interest and may require an account from the date only of the last
account agreed to by all the partners.

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How can a partner convey his interest in the partnership without getting the partnership
dissolved?
(1) By selling it to a third person
(2) By donating it to a third person
(3) By using it as security on a loan from a third person
Example:
D offers to buy A’s interest of P50,000.00 for P1,000,000.00 and A agrees to sell
his interest. What happens now?
D becomes the assignee and A becomes the assignor but the partnership will not
be dissolved because his interest in profits and surplus is the one being sold. A will also
continue to be the partner but D will be the one to receive his profits.
This is similar to sub-partnerships, so the consent of others is not required for interest to
be conveyed.
The assignee does not have any say in the management.
Rights of the Assignee:
(1) He shall get the assignor’s share in profits/surplus
(2) He may avail of legal remedies of the partners in cases of fraud by the assignor
(3) He can demand for an accounting upon dissolution but only starting from the
date of the last accounting undertaken by the partnership
(4) Can ask for the dissolution of the partnership if it has reached the end term or
anytime if the partnership is one at will, because he is interested in the surplus.
The assignee, however, cannot become a partner without the consent of the other
partners because it will entail a change in the partnership¶s composition.
ARTICLE 1814. Without prejudice to the preferred rights of partnership creditors

under article 1827, on due application to a competent court by any judgment
creditor of a partner, the court which entered the judgment, or any other court,
may charge the interest of the debtor partner with payment of the unsatisfied
amount of such judgment debt with interest thereon; and may then or later
appoint a receiver of his share of the profits, and of any other money due or to
fall due to him in respect of the partnership, and make all other orders, directions,
accounts and inquiries which the debtor partner might have made, or which the
circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure, or in case
of a sale being directed by the court, may be purchased without thereby causing
a dissolution:
(1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners with the
consent of all the partners whose interests are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if any, under
the exemption laws, as regards his interest in the partnership.

Ver 1
This article refers to a partner who obtained a loan from a third person and was unable to
repay such.
For example, PARTNER A failed to pay CREDITOR C a sum of P50,000.00, so C files against
A, knowing that A, being a partner, will receive his interest. C wins the case but A is still
unable to pay, so C asks that A’s interest be attached so that it goes to C and cancels out
A’s debt.
- Done to protect C’s interest
- Attached interest can be redeemed using the property of the partners or the
partnership’s property, as long as all partners consent to this, and are given reimbursement
from the defaulting partner
- Amount charged must e sufficient to pay the loan plus legal interest
SECTION 3. Obligations of the Partners as to third Persons
ARTICLE 1815. Every partnership shall operate under a firm name, which may
or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the
firm name, shall be subject to the liability of a partner.
Firm names are required for partnerships because they are juridical persons in need of
separate names so that they are distinguishable from the partners and other partnerships.
The name can come from any of the partners or third persons.
If a third person’s name is used with his consent, then he shall be liable as a partner
without the rights of a partner because the partnership uses his name.
Partnership name must be registered with the (SEC) SECURITIES AND EXCHANGE
COMMISSION because if there was already such an existing name, there might be cases
of duplication.
You cannot choose the name of a deceased partner as his death caused the partnership’s
dissolution.
Sample General and Limited Partnership Names:
(1) GENERAL -A & Company
(2) LIMITED -A, Ltd.
Article 1816. All partners, including industrial ones, shall be liable pro-rata with
all their property and after all the partnership assets have been exhausted, for
the contracts which may be entered into in the name and for the account of the
partnership under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.
Article 1817. Any stipulation against the liability laid down in the preceding article
shall be void, expect as among the partners.
As to third persons, ALL partners are liable pro-rata and subsidiarily, but as to each other,
they are liable in proportion to their capital contribution. This is only with regards to
contractual obligations entered into in the name and for the account of the partnership.

Ver 1
1. A, B and C are in a partnership where C is the industrial partner and a sum of P26,000.00
is owed to D. A and B contributed P15,000.00 and P5,000.00 respectively. How shall the
debt be shared?
As to D, the partners will share equally in the debt left after exhausting all assets
(P6,000.00) so they will each have to pay P2,000.00 regardless of C being an industrial
partner.
If C is insolvent, or if B died, or if A has left the country, the liability of the partners
cannot be increased. As to each other, they are liable in proportion to their capital
contribution, so B and C will be reimbursed by A.
2. A, B, C, D and E are sued in court but E is later cleared of his charges. The court orders
A, B, C and D to pay their creditor, but C moves to reconsider that all should be charged,
but this move was denied. Can A, B, C and D alone be liable for the debt?
According to the Supreme Court, the 4 partners cannot alone be liable for the debt
because in excluding E, they have increased the other partners’ liability and this is
prohibited by the law. The law states that the liability of the partners cannot be increased
such that they shoulder the liability of another partner.
3. What if there was an agreement that stated B is only liable up to P5, 000.00? How will
A, B and C share in their liability?
The stipulation shall be void as to 3rd persons, so they will still share pro-rata.
Anyway, A will reimburse B and C, because as among themselves, the stipulation is valid
and C is an industrial partner.
ARTICLE 1818. Every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the partnership
name of any instrument, for apparently carrying on in the usual way the business
of the partnership of which he is a member binds the partnership, unless the
partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the
fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of business of the
partnership in the usual way does not bind the partnership unless authorized by
the other partners.
Except when authorized by the other partners or unless they have abandoned the
business, one or more but less than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee's
promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary
business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.

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No act of a partner in contravention of a restriction on authority shall bind the
partnership to persons having knowledge of the restriction.
This article qualifies the authority of partners.
1. Authority must be in the usual course of business.
2. Transactions beyond a partner’s authority is binding if it is in the usual course of business

because the third person is assumed to have no knowledge of his lack of authority.
When are transactions not binding?
(1) When a transaction is not in the usual course of business and has no consent
from all other partners
(2) When the third person had knowledge of the lack of authority of the acting
partner
ARTICLE 1819. Where title to real property is in the partnership name, any
partner may convey title to such property by a conveyance executed in the
partnership name; but the partnership may recover such property unless the
partner's act binds the partnership under the provisions of the first paragraph of
article 1818, or unless such property has been conveyed by the grantee or a
person claiming through such grantee to a holder for value without knowledge
that the partner, in making the conveyance, has exceeded his authority.
Where title to real property is in the name of the partnership, a conveyance

executed by a partner, in his own name, passes the equitable interest of the
partnership, provided the act is one within the authority of the partner under the
provisions of the first paragraph of article 1818.
Where title to real property is in the name of one or more but not all the partners,
and the record does not disclose the right of the partnership, the partners in
whose name the title stands may convey title to such property, but the
partnership may recover such property if the partners' act does not bind the
partnership under the provisions of the first paragraph of article 1818, unless the
purchaser or his assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or more or all the partners,
or in a third person in trust for the partnership, a conveyance executed by a
partner in the partnership name, or in his own name, passes the equitable
interest of the partnership, provided the act is one within the authority of the
partner under the provisions of the first paragraph of article 1818.
Where the title to real property is in the name of all the partners a conveyance
executed by all the partners passes all their rights in such property.
This article refers to the conveyance of immovable property.
Suppose A, B and C are partners engaged in the buying and selling of property, and the
following situations occur:
(1) A, without authority, sells land to D in the partnership’s name but D immediately
sells it to E. The land title was originally under the partnership’s name. Can the partnership
recover the land?
Title passes to D, then to E. The partnership cannot recover the land once it has
transferred to E but if the land was still with D, they could have recovered it if the contract
was not binding.

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(2) What if A sells the property under his name?
Only the equitable title passes to D.
(3) What if A sells the property and the land title is registered under his name?
Title passes to D because land is registered under the partner’s names. This will
hold true if A, B and C are co- owners of the land, even if only A sold it to D.
(4) Land title belongs to one or more or all of the partners or a 3rd person in trust
for the partnership.
Only the equitable title will pass to D if the seller had no authority to sell such to D.
(5) A, B and C ALL sell the land to D, with the land title belonging to ALL of them.
Title passes to D because ALL partners sell to him.
ARTICLE 1820. An admission or representation made by any partner concerning

partnership affairs within the scope of his authority in accordance with this Title
is evidence against the partnership.
An admission or representation made by any partner concerning the partnership affairs

within the scope of his authority in accordance with this Title is evidence against the
partnership.
Anything a partner says or admits, as long as it is concerning the partnership affairs and it
is within the scope of his authority, is sufficient evidence against the partnership.
This article is a rule of evidence y In order that admission/representation made can be

used as evidence, the existence of the partnership must be established and proved first.
ARTICLE 1821. Notice to any partner of any matter relating to partnership affairs,
and the knowledge of the partner acting in the particular matter, acquired while
a partner or then present to his mind, and the knowledge of any other partner
who reasonably could and should have communicated it to the acting partner,
operate as notice to or knowledge of the partnership, except in the case of fraud
on the partnership, committed by or with the consent of that partner.
General rule.
Notice to ANY of the partners is notice to the partnership. (You don't have to notify
EVERY partner in relation to partnership affairs).
Knowledge of a partner acting in a particular manner (meaning the partner is a

managing partner) or Knowledge of any partner who SHOULD HAVE communicated it to
the managing partner, is knowledge to the partnership.
This is so EVEN IF the non-managerial partner does not communicate the information he
knows regarding partnership affairs. The partner SHOULD have communicated this.
Non knowledge by other partners is not a reason to evade from obligations.
If notice is delivered to a partner, that is an effective communication to the partnership,

notwithstanding the failure of the partner to communicate such notice or knowledge to the
other partners.
Suppose D wants to sell a piece of land to the partnership and notifies B (the managing
partner) about it, but warns him that the land is under litigation and there is a possibility
of the land to be claimed by E. B took the risk and purchased the land. Later on, E still
claimed the land. Can the partners reclaim this?

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Even though ALL partners were not informed about the litigation, the partnership
cannot get the land anymore since B was informed about it. Notice to B, the acting partner,
is already notice to the partnership.
Suppose before B became a partner, D was able to talk to him about the piece of land
under litigation. Later on, B became a managing partner and purchased the land D told
him about a long time ago. E won the litigation and was able to claim the land. Can the
partnership reclaim the land?
The partnership cannot get it anymore. Even if D was not informed WHILE he was
a partner, the information was still present in his mind. The issue here would be: If B can
still recall the conversation he had with D before he became a managing partner.
Suppose D informed C (who is not a managing partner) about the land under litigation.
Later on, D sold the land to B, the managing partner, without informing him that the land
was under litigation (take note: the information was given to C). Is notice to C, a notice to
B?
YES, because C should have communicated the information.
Article 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of his co-
partner, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefore to the
same extent as the partner so acting or omitting to act.
Article 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership.
Article 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823.
In the following cases, obligation is not pro-rata or equal, but a solidary obligation. Any
partner MAY pay for the obligation (Unlike in article 1816, each partner should only pay for
their SHARE):
(1) When by an unlawful act or omission, loss or injury is caused to 3rd person.
(a) A, B, and C are partners. A made an act of omission with D as the victim.
He caused P50,000 worth of injury to D. What can D do? D can go to A for the
full amount of P50,000 OR FROM B OR C.
(b) Can D go to B for the whole e P50,000 since B is the richest among the
partners? This is allowable since the partners have a solidary obligation through
A’s act of omission. B will be entitled for reimbursement from the one
responsible, A. - Any one of A, B, OR C, or all partners including the partnership
can pay without prejudice to the rights of partners to get reimbursement from
the one responsible for the crime
(2) A partner, within the scope of his authority, receives money or property from
a third person and misapplies it.
Illustrative Example: A partnership is engaged in a pawnshop business. D, a 3rd

person, pawned his watch to A and A sells it. Who is liable for the watch? All
partners are solidarily liable to D since A misapplies the watch received from D.

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(2) The partnership, in its ordinary course of business, receives money or
property from a 3rd person and a partner misapplies it while in the custody
of the partnership.
Illustrative Example: The partnership is engaged in a pawnshop business where

it received a watch from D to be pawned. The watch is placed in the partnership
VAULT. B, a partner, gets the watch from the vault and sells it. Who is liable for
the watch? All partners are solidarily liable.
ARTICLE 1825. When a person, by words spoken or 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, who has, on the faith of such representation, given credit to the actual or
apparent partnership, and if he has made such representation or consented to its
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 so
giving credit by or with the knowledge of the apparent partner making the
representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were an

actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the other
persons, if any, so consenting to the contract or representation as to incur
liability, otherwise separately.
When a person has been thus represented to be a partner in an existing

partnership, or with one or more persons not actual partners, he is an agent of
the persons consenting to such representation to bind them to the same extent
and in the same manner as though he were a partner in fact, with respect to
persons who rely upon the representation. When all the members of the existing
partnership consent to the representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of the person acting and the
persons consenting to the representation.
2 things being mentioned:

(1) PARTNERSHIP by estoppel - There is an existing partnership or there is no
existing partnership, and partners misrepresent themselves as partners to
third persons.
EXAMPLE:
(a) Suppose there is a partnership, X, with partners A, B, and C. D told E that he is

a partner of A, B, and C. E verified from the actual partners of X partnership if D is really
a partner, A, B, and C consented. E entered in a contract with D, believing he was a partner.
This is partnership by estoppel since A, B, and C verified D as a partner. In this

case, E can go after A, B, and C.
(b) Suppose only A and B consented, is there a partnership by estoppel?
There will be no partnership by estoppel since only A and B, not all partners,
consented to D’s misrepresentation.
2. PARTNERS by estoppel - 2 or more persons pretend to be partners in the eyes of

3rd persons.
Example: A, B, AND C said they were partners to D and entered in a contract with
the ‘partners´. When it was time for them to pay D for their obligation, they cannot for the
reason that they are not partners. What is their obligation to D?

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Their obligation to D will be pro rata, as if they were partners (since they are
partners by estoppels)
ARTICLE 1826. A person admitted as a partner into an existing partnership is

liable for all the obligations of the partnership arising before his admission as
though he had been a partner when such obligations were incurred, except that
this liability shall be satisfied only out of partnership property, unless there is a
stipulation to the contrary.
A new partner admitted to an existing partnership is also liable to the obligations existing
before he was admitted, but his liability only extends to his contribution to the partnership
UNLESS stipulated.
A new partner is liable to his separate property when the obligation was incurred when he
was already a partner.
Illustrative Example
A, B, and C are the original partners of the partnership X with contributions of P10,000.00
each. X partnership owes D P40,000.00. Later on, E entered the partnership and
contributed P4,000.00. How shall the debt be paid?
P34,000.00 will be paid to D out of the partnership assets, and the P6,000 will be
paid through A, B, and C’s personal assets. The P6,000.00 will be divided among the 3
original partners pro rata.
ARTICLE 1827. The creditors of the partnership shall be preferred to those of each
partner as regards the partnership property. Without prejudice to this right, the
private creditors of each partner may ask the attachment and public sale of the
share of the latter in the partnership assets.
Partnership creditors have BETTER RIGHTS to partner obligation WITH REGARD TO

PARTNERSHIP PROPERTY.
Personal creditors of partners have BETTER RIGHT than a partnership creditor with regards
to PERSONAL PROPERTY of the partner.
Illustrative EXAMPLE:
A, B, and C are partners. A OWES E P6,000.00. The PARTNERSHIP OWES D P28,000.00.

The total partnership assets amount to P40,000.00. Who has better right to the partnership
property?
In this case, D, the partnership creditor, has a better right to the partnership
property. When obligation to D is paid, what will be left for the partners to share is
P4,000.00. If E, the personal creditor of A, demands to be paid out of partnership property,
he will only get P4,000.00 from it since the priority is the partnership creditor. The
P2,000.00 will be paid out from A’s personal property.
If total partnership assets is only P28,000.00, and the liability of the partnership is
P40,000,, how shall the debt be paid?
A, B, and C will have to pay E P6,000.00 each.
If A only had P6,000.00 of personal property, who will have the better right to this?
A’s priority is his personal creditor, E. So D cannot collect A’s share of P4,000.00.
D cannot, also, increase the obligation of the other partners to be able to collect their debt.

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Learning Activity
Minimum 5-page Reflective Essay
Formation of Partnership
1. Make a minimum 5-page Reflective Essay summarizing your relevant learnings in the
topics covered by this Module and relate it to your personal experiences as a successful
business professional in the future and how these topics can be applied in the different
actual business transactions. In making your reflective essay, use your own words and
never attempt to just copy and paste it from any sources including the outputs of your
classmates and other students. Observe correct grammar and proper spacing, indention
and margin. Use A4 Size Bondpaper, 1’ margin except for the 1.5 margin at the top of the
page, font style and size of verdana, 12.
2. Find a partner whom you can work with in registering your own partnership online using
the online SEC Registration Portal. Download the system generated documents and
document the entire process of the online registration. Observe correct grammar and
proper spacing, indention and margin. Use A4 Size Bondpaper, 1’ margin except for the
1.5 margin at the top of the page, font style and size of verdana, 12.

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MODULE 1
Subtopic 2
Dissolution and Winding up, Limited Partnership (Articles 1828-
1867, Civil Code of the Philippines)
Learning Outcomes :
1. Describe the modes and retirement requirements of Partnerships.
2. Explain Limited Partnership and the laws and rules that govern them.
Learning Contents:
Chapter 3. Dissolution and Winding Up
ARTICLE 1828. The dissolution of a partnership is the change in the relation of

partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of business.
ARTICLE 1829. On dissolution, the partnership is not terminated, but continues

until the winding up of partnership affairs is completed.
ARTICLE 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in

the agreement;
(b) By the express will of any partner, who must act in good faith, when no
definite term or particular is specified;
(c) By the express will of all the partners who have not assigned their interests
or suffered them to be charged for their separate debts, either before or after the
termination of any specified term or particular undertaking;

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(d) By the expulsion of any partner from the business bona fide in accordance
with such a power conferred by the agreement between the partners;
(2) In contravention of the agreement between the partners, where the

circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing,
when the partner who contributed it having reserved the ownership thereof, has
only transferred to the partnership the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of the thing when it occurs after the
partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article.
Dissolution is usually caused by change in the relation of the partners. If there is

dissolution, no new partnership business may be undertaken. Upon dissolution, partnership
continues until winding up and liquidation is completed.
CAUSES OF DISSOLUTION:
(1) WITHOUT VIOLATION OF AGREEMENT
(a) Termination/expiration of term or specific undertaking
(b) Upon express will of any partner if there is no term or specific undertaking AS
LONG AS PARTERS ACT IN GOOD FAITH.
(c) Upon the will of the partners whose interest is not assigned or charged. -
Example: A sold his interest to E, and B¶s interest is charged to F because he borrowed
P50,000 from him. C and D are the only ones who can ask for dissolution since their interest
is not assigned or charged.
(d) Expulsion bona fide of a partner (a partner is expelled in good faith in accordance
with agreement.
(e) Expulsion has the effect of decreasing the # of partners.
(2) IN VIOLATION OF THE AGREEMENT - Example: A, B, and C agreed that the term of
their partnership is only until Dec. 31, 2011. A goes to premature resignation (resigns early
from partnership). No one can prevent A from resigning, but the partners can ask for
damages for not staying with the agreement.
(3) When it becomes unlawful for a partnership to carry on the business or partner to carry
on his role.
4) When specific thing is contributed, and before deliver, it is lost. - If it is lost after
delivery, partnership is not dissolved.
- If use is contributed, it is lost before or after delivery (it doesn’t matter when it was lost),
partnership is dissolved.

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- If what is to be contributed is generic, and it is lost, there is no dissolution.
ARTICLE 1831. On application by or for a partner the court shall decree a

dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to
be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the
partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the partnership

agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the business
in partnership with him;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under article 1813 or

1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was
assigned or when the charging order was issued.
ARTICLE 1832. Except so far as may be necessary to wind up partnership affairs

or to complete transactions begun but not then finished, dissolution terminates
all authority of any partner to act for the partnership:
(1) With respect to the partners,
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases
where article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834.
General Rule: When partnerships are dissolved, partners cannot engage in new business
transactions because their authority to do so terminates upon the occurrence of dissolution.
EXCEPTIONS:
(1) During the WINDING UP of Business - Transactions relating to the winding up

of business such as the liquidation of partnership assets can be entered into because the
partners’ authorities to do so shall continue.
(2) To complete unfinished transactions during dissolution
Example: A and B are in a partnership where they have contracted with C to deliver
goods in two installments. B resigns after the first delivery is made, thus dissolving the
partnership. Can A and B cease to continue with their obligation?

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NO. A and B must continue on with their obligation to complete unfinished
transactions.
If dissolution is not by an act, insolvency or death, the authority of partners as among

themselves is terminated.
Example: A partnership was dissolved due to the expiration of the term. If C

transacts with D after this and he defaults, he will be the only one liable AS TO THE
PARTNERS. If A & B are to pay D, C shall reimburse them.
ARTICLE 1833. Where the dissolution is caused by the act, death or insolvency of
a partner, each partner is liable to his co-partners for his share of any liability
created by any partner acting for the partnership as if the partnership had not
been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the
partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner
acting for the partnership had knowledge or notice of the death or insolvency.
B told A that he is resigning TODAY. The partnership is thus dissolved. Should A enter into
a contract with D, who shall be liable?
As among themselves, only A because he had knowledge of B’S resignation, thus

knowing that they are no longer in a partnership.
If B texts his resignation to A because A is in Mindanao and A contracts with D, was his
authority terminated when the text arrived?
No, A’s authority was not terminated as he has only received a NOTICE. Mere notice
cannot terminate the authority of partners because the grounds are BY AN ACT, and
because of this it should be PERSONALLY KNOWN by the acting partner.
If C texts A that B had died, does their authority terminate once A gets the text message?
Their authority is terminated because in this case, the cause of dissolution is death.
Mere notice is sufficient to terminate authority if the grounds are due to the insolvency or
to the death of a partner.
ARTICLE 1834. After dissolution, a partner can bind the partnership, except as
provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing

transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not
taken place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the
partnership prior to dissolution, and, having no knowledge or notice of
dissolution, the fact of dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more than one) at which the
partnership business was regularly carried on.

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The liability of a partner under the first paragraph, No. 2, shall be satisfied out of
partnership assets alone when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business
reputation of the partnership could not be said to have been in any degree due to
his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the

business, unless the act is appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs; except by
a transaction with one who —
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and, having
no knowledge or notice of his want of authority, the fact of his want of authority
has not been advertised in the manner provided for advertising the fact of
dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under article 1825 of any person
who after dissolution represents himself or consents to another representing him
as a partner in a partnership engaged in carrying on business.
Partners may still bind the partnership to transactions even after dissolution if the
transactions are with respect to the winding up or the completion of unfinished
transactions.
The transaction will be binding if:
(1) Credit was extended without knowledge of the dissolution before the dissolution
(2) No credit was extended but there was knowledge of the partnership’s existence
and none of the dissolution y The partnership is required to have the dissolution be
announced in general circulation newspapers of the place of operations. As long as they do
this, then it is sufficient notice to all third persons. (If you don’t read broadsheets, that’s
your fault, not the partnership’s)
Liabilities shall be satisfied out of partnership assets alone if the partner being dealt with
is a DORMANT partner.
Upon dissolution, the partnership is no longer bound by transactions :
(1) When it becomes unlawful to carry on the business
(2) Insolvency of a partner
(3) Unauthorized winding up, except when
(a) Credit was extended and there was no knowledge of the lack of authority
(b) No credit was extended and there was no knowledge of the dissolution
because there was no advertisement of such. In the case wherein ³A´ still

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represents himself as a partner even if the partnership has already been dissolved,
then he is a PARTNER BY ESTOPPEL.
ARTICLE 1835. The dissolution of the partnership does not of itself discharge the
existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of the

partnership by an agreement to that effect between himself, the partnership
creditor and the person or partnership continuing the business; and such
agreement may be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or partnership continuing the
business.
The individual property of a deceased partner shall be liable for all obligations of
the partnership incurred while he was a partner, but subject to the prior payment
of his separate debts.
General Rule.
Dissolution does not discharge the partnership and/or the partners from existing
liabilities
Partner’s Liability is discharged when the following agrees.
1) The partner;
2) The other partners;
3) The creditors
Property of a deceased partner
● Shall be liable for all obligations of the partnership incurred while he was a partner
but subject to the prior payment of his separate debts.
ARTICLE 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving partner,
not insolvent, has the right to wind up the partnership affairs, provided, however,
that any partner, his legal representative or his assignee, upon cause shown, may
obtain winding up by the court.
Who can wind up partnership affairs
1. Extra Judicial- done without intervention of the court.
a. The liquidating partner or partners as agreed upon by all partners.
b. The partners who have not wrongfully dissolved the partnership.
c. The legal representative of the last surviving partner who is not insolvent.
2. Judicial- done under the control and direction of the court, upon proper cause that is
shown to the court.
a. The person appointed by the court.
ARTICLE 1837. When dissolution is caused in any way, except in contravention of

the partnership agreement, each partner, as against his co-partners and all
persons claiming through them in respect of their interests in the partnership,
unless otherwise agreed, may have the partnership property applied to discharge
its liabilities, and the surplus applied to pay in cash the net amount owing to the
respective partners. But if dissolution is caused by expulsion of a partner, bona
fide under the partnership agreement and if the expelled partner is discharged

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from all partnership liabilities, either by payment or agreement under the second
paragraph of article 1835, he shall receive in cash only the net amount due him
from the partnership.
When dissolution is caused in contravention of the partnership agreement the

rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully,
to damages breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire
to continue the business in the same name either by themselves or jointly with
others, may do so, during the agreed term for the partnership and for that
purpose may possess the partnership property, provided they secure the payment
by bond approved by the court, or pay any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1 (b) of this article, and
in like manner indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph,
No. 2, all the rights of a partner under the first paragraph, subject to liability for
damages in the second paragraph, No. 1 (b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article,
the right as against his co-partners and all claiming through them in respect of
their interests in the partnership, to have the value of his interest in the
partnership, less any damage caused to his co-partners by the dissolution,
ascertained and paid to him in cash, or the payment secured by a bond approved
by the court, and to be released from all existing liabilities of the partnership; but
in ascertaining the value of the partner's interest the value of the good-will of the
business shall not be considered.
If partnership is dissolved without violation of the agreement, naturally, the

liability will be cleared because the partnership assets are more than enough and
the surplus will be given to each of the partners in proportion to their interest in
the partnership as per agreement.
If the partnership is dissolved due to violation of agreements, then determine the Guilty
and Innocent parties.
Innocent Partners rights
A. Apply partnership assets to partnership liabilities and distribute the cash surplus
amongst themselves.
B. To be indemnified for the damages suffered.
C. To continue business
D. To possess partnership property
Guilty Partner’s rights
1. If business is not continued;

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A. Right to claim his share in the cash surplus, but only the net proceeds of such
meaning, the cash surplus less damages.
2.If business is continued;
A. Ascertain his interest in the business
B. Freedom from existing and future liabilities of the partnership.
ARTICLE 1838. Where a partnership contract is rescinded on the ground of the

fraud or misrepresentation of one of the parties thereto, the party entitled to
rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property
after satisfying the partnership liabilities to third persons for any sum of money
paid by him for the purchase of an interest in the partnership and for any capital
or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place
of the creditors of the partnership for any payments made by him in respect of
the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the

representation against all debts and liabilities of the partnership.
Considers a case wherein a partner was induced to join the partnership by means of fraud
or misrepresentation.
- The victim can ask for rescission or restitution of the contract of partnership or the
return of all his contribution
- He has the right to the surplus for certain purposes
- He has the rights of a third person or a subrogated creditor after liabilities have
already been paid to recollect what he paid or when he entered into the partnership.
- He is entitled to be indemnified for all debts and liabilities that he paid during his
time in the partnership.
ARTICLE 1839. In settling accounts between the partners after dissolution, the
following rules shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the
liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this
article to the satisfaction of the liabilities.

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(4) The partners shall contribute, as provided by article 1797, the amount
necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court
shall have the right to enforce the contributions specified in the preceding
number.
(6) Any partner or his legal representative shall have the right to enforce the
contributions specified in No. 4, to the extent of the amount which he has paid in
excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are
in possession of a court for distribution, partnership creditors shall have priority
on partnership property and separate creditors on individual property, saving the
rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims
against his separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
-Considers the case of liquidation and the distribution of PARTNERSHIP ASSETS.

-Liquidation is when all the assets of the partnership is converted to cash.
-Total assets will include goodwill as well as the original contributions of the partners.
-Order of payment during liquidation:
1. According to third persons
2. Partners creditors (partners who have claims)
3. Normal partners (all partners)
a. In accordance with the agreement.
b. In proportion to their contributions.
ARTICLE 1840. In the following cases creditors of the dissolved partnership are
also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner
assigns) his rights in partnership property to two or more of the partners, or to
one or more of the partners and one or more third persons, if the business is
continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the remaining
partner, who continues the business without liquidation of partnership affairs,
either alone or with others;
(3) When any partner retires or dies and the business of the dissolved partnership
is continued as set forth in Nos. 1 and 2 of this article, with the consent of the
retired partners or the representative of the deceased partner, but without any
assignment of his right in partnership property;

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(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the debts
and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining partners
continue the business under the provisions of article 1837, second paragraph, No.
2, either alone or with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business
either alone or with others without liquidation of the partnership affairs.
The liability of a third person becoming a partner in the partnership continuing
the business, under this article, to the creditors of the dissolved partnership shall
be satisfied out of the partnership property only, unless there is a stipulation to
the contrary.
When the business of a partnership after dissolution is continued under any

conditions set forth in this article the creditors of the dissolved partnership, as
against the separate creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to any claim of the
retired partner or the representative of the deceased partner against the person
or partnership continuing the business, on account of the retired or deceased
partner's interest in the dissolved partnership or on account of any consideration
promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set aside
any assignment on the ground of fraud.
The use by the person or partnership continuing the business of the partnership
name, or the name of a deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for any debts contracted by
such person or partnership.
This article explains the rights of the creditor in case of partnership dissolution because of
membership changes and the business is continued without liquidation.
The membership changes include RETIREMENT, EXPULSION, DEATH or ADDITION.
Note that the creditor of the old partnership will still be the creditor of the new partnership
if there is still an old partner/original partner with the new partnership. (debt will not be
cleared or discharged)
The creditor will continue to be the creditor of the remaining/new partnership in all cases
except:
1. Rights are assigned to other people (no old partners)
2. Unless there is a promise to pay debt from the new partners or if the creditor an set
aside asset the right of the new partners on the ground of fraud.
ARTICLE 1841. When any partner retires or dies, and the business is continued
under any of the conditions set forth in the preceding article, or in article 1837,
second paragraph, No. 2, without any settlement of accounts as between him or
his estate and the person or partnership continuing the business, unless
otherwise agreed, he or his legal representative as against such person or
partnership may have the value of his interest at the date of dissolution
ascertained, and shall receive as an ordinary creditor an amount equal to the
value of his interest in the dissolved partnership with interest, or, at his option
or at the option of his legal representative, in lieu of interest, the profits

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attributable to the use of his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership as against the separate
creditors, or the representative of the retired or deceased partner, shall have
priority on any claim arising under this article, as provided article 1840, third
paragraph.
The rights of a retiring partner when remaining partners decided to continue the business.
1. That his interest be ascertained as of dissolution date.
2. Collect his interest in the partnership plus interest or profits by the use of his right to
these as a creditor.
If a partner dies, and the same situation occurs (he did not retire). then his legal
representative have the same rights as mentionedssss above.
ARTICLE 1842. The right to an account of his interest shall accrue to any partner,
or his legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the contrary.
Who can demand to know how much his interest is in the partnership and from whom?
Answer: All involved parties can demand to know how much his interest is. He can demand
to know theses from the surviving, continuing and winding up partners.
LIMITED PARTNERSHIP
ARTICLE 1843. A limited partnership is one formed by two or more persons under
the provisions of the following article, having as members one or more general
partners and one or more limited partners. The limited partners as such shall not
be bound by the obligations of the partnership.
This article defines what a limited partnership is. It is sufficient that there is 1 general
partner and 1 limited partner in a limited partnership. The reason for the existence of a
limited partnership is to address the needs of all those who wish to join a partnership
without the risk of losing their personal properties.
Characteristics:
1. Comply with the statutory requirements of Article 1824,
2. General partners control the partnership and are personally liable for partnership dates.
3. Limited partners contribute capital and are not liable personally for partnership debts.
ARTICLE 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state —
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited
partners being respectively designated;
(e) The term for which the partnership is to exist;
51 | LAW 211 Business Laws and Regulations, RED

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( f ) The amount of cash and a description of and the agreed value of the other
property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each limited partner and
the times at which or events on the happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each limited partner is to
be returned;
(i) The share of the profits or the other compensation by way of income which
each limited partner shall receive by reason of his contribution;
( j) The right, if given, of a limited partner to substitute an assignee as contributor

in his place, and the terms and conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over other
limited partners, as to contributions or as to compensation by way of income, and
the nature of such priority;
(m) The right, if given, of the remaining general partner or partners to continue
the business on the death, retirement, civil interdiction, insanity or insolvency of
a general partner; and
(n) The right, if given, of a limited partner to demand and receive property other
than cash in return for his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange
Commission.
A limited partnership is formed if there has been substantial compliance in good faith with
the foregoing requirements.
Two requirements in a limited partnership:

1. Sign and swear to a certificate containing the data mentioned in this article.
2. Have the certificate recorded with the SEC.
Can a limited partnership be formed orally?

Answer: No. A limited partnership contract is not perfected by mere agreement as it
requires formal proceedings. Partnership must substantially comply with the requirements.
What if the partnership does not comply with the requirements? Will it be void?
Answer: No, it will only become a General Partnership.
Why is that the certificate must be registered?

Answer: Registration is the notice, to all third persons who will be dealing with or are
dealing with the partnership, that there are partners with limited liability.
The presumption is that when a partnership deals with third person, the partnership is a
general partnership.
ARTICLE 1845. The contributions of a limited partner may be cash or property,

but not services.
Limited partners can only contribute cash or other proper, not services because if he does,
then he shall become a general industrial partner. Contributions must be given

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immediately, if he has promised additional contribution, then it should be given on the date
promised or agreed upon.
ARTICLE 1846. The surname of a limited partner shall not appear in the
partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the business has
been carried on under a name in which his surname appeared.
A limited partner whose surname appears in a partnership name contrary to the

provisions of the first paragraph is liable as a general partner to partnership
creditors who extend credit to the partnership without actual knowledge that he
is not a general partner.
The surname of the limited partner should not appear except if it is also the surname of a
general partner or if at the time of his admission, it was already being used. If the limited
partner allows that his surname be used, then he shall be held liable as a general partner
as to third persons who extended credit not knowing he was a limited partner. If the
creditor has knowledge of his being a limited partner, than this rule shall not apply.
ARTICLE 1847. If the certificate contains a false statement, one who suffers loss
by reliance on such statement may hold liable any party to the certificate who
knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the statement was relied
upon to enable him to cancel or amend the certificate, or to file a petition for its
cancellation or amendment as provided in article 1865.
If there are false statements in the certification and third persons should suffer loss due to
these, then he can hold liable all those who had knowledge of the false statement at the
time certification was signed. The same shall apply if the partners concerned had sufficient
time to have the certificate cancelled but did not do so.
ARTICLE 1848. A limited partner shall not become liable as a general partner
unless, in addition to the exercise of his rights and powers as a limited partner,
he takes part in the control of the business.
The limited partner who, aside from his powers, participates in the management of the
partnership becomes liable as a general partner.
ARTICLE 1849. After the formation of a lifted partnership, additional limited

partners may be admitted upon filing an amendment to the original certificate in
accordance with the requirements of article 1865.
Can you add another limited partner and how?

Answer: Yes by amending the certificate following the requirements under Article 1865.

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ARTICLE 1850. A general partner shall have all the rights and powers and be
subject to all the restrictions and liabilities of a partner in a partnership without
limited partners. However, without the written consent or ratification of the
specific act by all the limited partners, a general partner or all of the general
partners have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the ordinary business
of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in specific partnership

property, for other than a partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to do is given in the
certificate;
(7) Continue the business with partnership property on the death, retirement,
insanity, civil interdiction or insolvency of a general partner, unless the right so
to do is given in the certificate.
This article provides the powers, liabilities, and limitations of general partners in a limited
partnership.
A general partner has the same rights, powers and limitations in a limited partnership as
when he would have been in a general partnership.
A general partner, without written consent from all limited partners, cannot:
1. Do any act in contravention of the certificate.
2. Do any act which would make it impossible to carry on the ordinary course of the
partnership.
3. Confess a judgment against the partnership.
4. Possess partnership property, or assign their rights in specific partnership property.
5. Admit a person as a general partner.
6. Admit a person as a limited partner, unless the right to do so is given the certificate.
7. Continue the business with partnership property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner, unless the right to do so is given in the
certificate.
If there are 100 general partners and 1 dies, the partnership will be dissolved. However,
this rule will not apply in the case of limited partners. If there are 5 limited partners and 1
dies, then the partnership will still continue.
A limited partnership will continue even in case of the death of a limited partner as long as
there is still one surviving limited partner in the partnership.
ARTICLE 1851. A limited partner shall have the same rights as a general partner
to:

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(1) Have the partnership books kept at the principal place of business of the
partnership, and at a reasonable hour to inspect and copy any of them;
(2) Have on demand true and full information of all things affecting the
partnership, and a formal account of partnership affairs whenever circumstances
render it just and reasonable; and
(3) Have dissolution and winding up by decree of court.

A limited partner shall have the right to receive a share of the profits or other
compensation by way of income, and to the return of his contribution as provided
in articles 1856 and 1857.
This article is important as far as the limited partner is concerned as it shows them what
rights they have.
A limited partner is given the same rights as the general partner, that is:
1. They can require that the partnership books be kept at the principal place of the
business.
2. Inspect and copy partnership books.
3. Demand true and full information regarding all matters concerning the partnership.
4. Demand for legal winding up or dissolution.
5. Share in profits, other compensation by way of income and the return of contributions.
ARTICLE 1852. Without prejudice to the provisions of article 1848, a person who
has contributed to the capital of a business conducted by a person or partnership
erroneously believing that he has become a limited partner in a limited
partnership, is not, by reason of his exercise of the rights of a limited partner, a
general partner with the person or in the partnership carrying on the business,
or bound by the obligations of such person or partnership, provided that on
ascertaining the mistake he promptly renounces his interest in the profits of the
business, or other compensation by way of income.
This article refers to a failure to create a limited partnership. The law anticipates a situation
where in the person is a limited partner but his name is not mentioned as such or not
mentioned at all in the certificate. In this case, he will not be considered a general partner
and that his liability will still be limited provided that on ascertaining the mistake, he
promptly renounces his interest in the profits of the business or any other income in the
partnership.
ARTICLE 1853. A person may be a general partner and a limited partner in the
same partnership at the same time, provided that this fact shall be stated in the
certificate provided for in article 1844.
A person who is a general, and also at the same time a limited partner, shall have
all the rights and powers and be 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 not also a general
partner.
A partner can be a limited and general partner at the same time provided that this fact is
stated in the certificate that he signs.
Who are they to third persons then?
Answer: They are general partners as to third persons but as amongst the partners
themselves, they are seen as limited partners with regards to their contribution.

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ARTICLE 1854. A limited partner also may loan money to and transact other
business with the partnership, and, unless he is also a general partner, receive
on account of resulting claims against the partnership, with general creditors, a
pro rata share of the assets. No limited partner shall in respect to any such claim:
(1) Receive or hold as collateral security any partnership property, or
(2) Receive from a general partner or the partnership any payment, conveyance,
or release from liability if at the time the assets of the partnership are not
sufficient to discharge partnership liabilities to persons not claiming as general
or limited partners.
The receiving of collateral security, or payment, conveyance, or release in
violation of the foregoing provisions is a fraud on the creditors of the partnership.
This article provides that a limited partner can extend credit or transact with partnerships
that he is part of. He is also entitled to partnership assets pro rata to creditors but it cannot
be used as collateral from the partnership.
ARTICLE 1855. Where there are several limited partners the members may agree
that one or more of the limited partners shall have a priority over other limited
partners as to the return of their contributions, as to their compensation by way
of income, or as to any other matter. If such an agreement is made it shall be
stated in the certificate, and in the absence of such a statement all the limited
partners shall stand upon equal footing.
Suppose that there are three limited partners. These partners can agree because there are
more than 1 that one of them can have priority over the others provided that such should
be stated in the certificate.
ARTICLE 1856. A limited partner may receive from the partnership the share of
the profits or the compensation by way of income stipulated for in the certificate;
provided, that after such payment is made, whether from property of the
partnership or that of a general partner, the partnership assets are in excess of
all liabilities of the partnership except liabilities to limited partners on account of
their contributions and to general partners.
The limited partner is entitled to share in the payment of income or by his share in profits
or other compensation by way of income provided that the partnership assets are sufficient
to meet such.
To determine total liability, do not deduct contributed capital.
Liabilities owed to general partners are not considered part of the partnership’s total
liabilities.
The ability of the limited partner to share is based on the total liability, who must be known.
ARTICLE 1857. A limited partner shall not receive from a general partner or out
of partnership property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general partners and to
limited partners on account of their contributions, have been paid or there
remains property of the partnership sufficient to pay them;

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(2) The consent of all members is had, unless the return of the contribution may
be rightfully demanded under the provisions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the withdrawal or

reduction.
Subject to the provisions of the first paragraph, a limited partner may rightfully
demand the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its return has arrived, or
(3) After he has six months' notice in writing to all other members, if no time is
specified in the certificate, either for the return of the contribution or for the
dissolution of the partnership.
In the absence of any statement in the certificate to the contrary or the consent
of all members, a limited partner, irrespective of the nature of his contribution,
has only the right to demand and receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its affairs wound up
when:
(1) He rightfully but unsuccessfully demands the return of his contribution, or
(2) The other liabilities of the partnership have not been paid, or the partnership
property is insufficient for their payment as required by the first paragraph, No.
1, and the limited partner would otherwise be entitled to the return of his
contribution.
What are the requisites for the limited partner to be entitled to the return of his
contribution?
1. When, after deducting partnership liabilities, partnership assets are sufficient to do so.
2. If he has the consent of all partners unless the right can be demanded.
3. The certificate must be amended to reflect the return of the contribution.
When may a limited partner rightfully demand the return of his contribution?
1. During dissolution
2. Upon arrival of the date of return of his contribution.
3. After he has given 6 months’ notice, written, and there was no date of return nor
dissolution.
The limited partner is only entitled to the return of his contribution, in cash, except:
1. If it was agreed upon
2. He has the consent of all the partners.
When can a limited partner ask for dissolution?

1. He rightfully but unsuccessfully demanded the return
2. If he was entitled to receive his contribution and the certificate was already amended
but partnership assets are not sufficient to pay off partnership creditors.

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ARTICLE 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that stated
in the certificate as having been made, and
(2) For any unpaid contribution which he agreed in the certificate to make in the
future at the time and on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but which
was not contributed or which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed to him on account of his
contribution.
The liabilities of a limited partner as set forth in this article can be waived or
compromised only by the consent of all members; but a waiver or compromise
shall not affect the right of a creditor of a partnership who extended credit or
whose claim arose after the filing and before a cancellation or amendment of the
certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the
capital of his contribution, he is nevertheless liable to the partnership for any
sum, not in excess of such return with interest, necessary to discharge its
liabilities to all creditors who extended credit or whose claims arose before such
return.
Suppose A promised to contribute P20,000.00 but only pays P15,000.00. What is his
obligation to the partnership?
Then A must pay P5,000.00 difference now.
Suppose C, a limited partner, promises to contribute P20,000.00 more. What should be
done?
It should be paid on the date he promised to pay it.
When can a limited partner be held as trustee?
1. When he promises specific things but does not follow through with the promise of
delivery.
2. In circumstances of wrongful returns.
3. In case of money and/or property that is wrongfully conveyed.
Can the partnership waive the difference of contributions?

Yes. As long as it will not affect creditors who had extended credit before the waiver
of such.
Can the partnership reclaim the returns if it is needed?
Yes. As long as the claim came into existence before the return of contribution.
ARTICLE 1859. A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited

partner who has died or has assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right to
require any information or account of the partnership transactions or to inspect
the partnership books; he is only entitled to receive the share of the profits or

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other compensation by way of income, or the return of his contribution, to which
his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all the
members consent thereto or if the assignor, being thereunto empowered by the
certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is

appropriately amended in accordance with article 1865.
The substituted limited partner has all the rights and powers, and is subject to all
the restrictions and liabilities of his assignor, except those liabilities of which he
was ignorant at the time he became a limited partner and which could not be
ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the assignor
from liability to the partnership under articles 1847 and 1858.
The interest of a limited partner can be assigned. His interest is his share in profits, other
compensations by way of income or his return.
A substituted limited partner is the person admitted and has all the rights of a limited
partner who dues or has assigned his interest.
What if the person is not qualified to be a substituted limited partner?

Then he shall remain an assignee with the following rights and limitations:
1. Receive share in profits, other compensation by way of income or return of contribution.
2. Cannot demand information on partnership activities nor inspect partnership books.
When will the assignee become a substituted limited partner?

1. If consent from all other partners was given.
2. If the limited partner is empowered by the certificate to constitute a substituted limited
partner, and the certificate is amended under Article 1865.
What are the rights of a substituted limited partner?

He has all the powers, limitations and liabilities as his assignor except those which
he was ignorant of all the time he became a limited partner and those that could not be
ascertained from the certificate.
What about the assignor?

The assignor is still liable for false statements and claims before the admittance of
a substituted limited partner, as in Articles 1847 and 1858.
ARTICLE 1860. The retirement, death, insolvency, insanity or civil interdiction of

a general partner dissolves the partnership, unless the business is continued by
the remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
Again, this does not apply to limited partners because as long as there is one limited partner
still living then the partnership continued.

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General partners can only continue the business if:
1. The right was stated in the certificate.
2. All partners consent to such.
ARTICLE 1861. On the death of a limited partner his executor or administrator

shall have all the rights of a limited partner for the purpose of setting his estate,
and such power as the deceased had to constitute his assignee a substituted
limited partner.
The estate of a deceased limited partner shall be liable for all his liabilities as a
limited partner.
The executor/administrator has the power to settle the dead partner’s estate and those to
constitute his assignee as a substituted limited partner, if the limited partner originally had
the power to do so, or was allowed such.
The estate of a limited partner will pay for all his liabilities as a limited partner.
ARTICLE 1862. On due application to a court of competent jurisdiction by any

creditor of a limited partner, the court may charge the interest of the indebted
limited partner with payment of the unsatisfied amount of such claim, and may
appoint a receiver, and make all other orders, directions and inquiries which the
circumstances of the case may require.
The interest may be redeemed with the separate property of any general partner,
but may not be redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive of
others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of his statutory
exemption.
Similar to Article 1814 for general partnerships.
If a 3rd person files a case against the limited partners for non-payment or non-compliance
with their contract, he can ask for the partner’s interests to be attached.
The attached interest may be redeemed using separate general partner’s property but not
partnership property unless all partners have consented to such.
ARTICLE 1863. In settling accounts after dissolution the liabilities of the

partnership shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except those to
limited partners on account of their contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits and other
compensation by way of income on their contributions;
(3) Those to limited partners in respect to the capital of their contributions;
(4) Those to general partners other than for capital and profits;

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(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent agreement, limited

partners share in the partnership assets in respect to their claims for capital, and
in respect to their claims for profits or for compensation by way of income on
their contribution respectively, in proportion to the respective amounts of such
claims.
Who has priority over distribution of assets in a limited partnership?

1. Creditors, including limited partners who have a claim against the partnership.
2. Limited partners share in profits.
3. Limited partners return of capital contribution.
4. General partners who have claims against the partnership.
5. General partners share in profits.
6. General partners return of capital contribution.
ARTICLE 1864. The certificate shall be cancelled when the partnership is

dissolved or all limited partners cease to be such.
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in the amount or character
of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced

to civil interdiction and the business is continued under article 1860;
(6) There is a change in the character of the business of the partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the dissolution of
the partnership or for the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of a
contribution, no time having been specified in the certificate, or
(10) The members desire to make a change in any other statement in the
certificate in order that it shall accurately represent the agreement among them.
When should a certificate be cancelled?

1. Upon dissolution
2. When all limited partners cease to be such.
When should the certificate be amended?

Answer: In all cases other than those that will cause the certificate to be cancelled.

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ARTICLE 1865. The writing to amend a certificate shall:
(1) Conform to the requirements of article 1844 as far as necessary to set forth
clearly the change in the certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an amendment substituting a

limited partner or adding a limited or general partner shall be signed also by the
member to be substituted or added, and when a limited partner is to be
substituted, the amendment shall also be signed by the assigning limited partner.
The writing to cancel a certificate shall be signed by all members.
A person desiring the cancellation or amendment of a certificate, if any person

designated in the first and second paragraphs as a person who must execute the
writing refuses to do so, may petition the court to order a cancellation or
amendment thereof.
If the court finds that the petitioner has a right to have the writing executed by
a person who refuses to do so, it shall order the Office of the Securities and
Exchange Commission where the certificate is recorded, to record the
cancellation or amendment of the certificate; and when the certificate is to be
amended, the court shall also cause to be filed for record in said office a certified
copy of its decree setting forth the amendment.
A certificate is amended or cancelled when there is filed for record in the Office
of the Securities and Exchange Commission, where the certificate is recorded:
(1) A writing in accordance with the provisions of the first or second paragraph,
or
(2) A certified copy of the order of the court in accordance with the provisions of
the fourth paragraph;
(3) After the certificate is duly amended in accordance with this article, the
amended certified shall thereafter be for all purposes the certificate provided for
in this Chapter.
What are the requested for certificates to be amended or cancelled?

1. It must be in writing.
2. It must be signed and sworn by all concerned parties.
3. It must be registered with the SEC.
ARTICLE 1866. A contributor, unless he is a general partner, is not a proper party

to proceedings by or against a partnership, except where the object is to enforce
a limited partner's right against or liability to the partnership.
A limited partner is a mere contributor, meaning, he is practically a stranger. This is

because he has no participation in management and control and is only liable to the
partnership, not to third persons and if he is filed against as a general partner, he can file
a counterclaim for wrongful inclusion.
Two exceptions to this rule:

1. To enforce his right against the partnership.
2. If he refuses to restore his contribution when the partnership assets are not sufficient
to pay creditors.

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ARTICLE 1867. A limited partnership formed under the law prior to the effectivity
of this Code, may become a limited partnership under this Chapter by complying
with the provisions of article 1844, provided the certificate sets forth:
(1) The amount of the original contribution of each limited partner, and the time
when the contribution was made; and
(2) That the property of the partnership exceeds the amount sufficient to
discharge its liabilities to persons not claiming as general or limited partners by
an amount greater than the sum of the contributions of its limited partners.
A limited partnership formed under the law prior to the effectivity of this Code,
until or unless it becomes a limited partnership under this Chapter, shall continue
to be governed by the provisions of the old law.
This is a transitory law.

Article 145-150 of the Code of Commerce used to govern limited partnerships.
What happens to a limited partnership existing before the Civil Code?
The partnership must first comply with the following requirements before they can become
a limited partnership under the Civil Code:
1. State the amount of contribution and the time it was contributed.
2. After paying of all the liabilities, the total assets of the partnership must be greater than
the contribution of all limited partners, otherwise, it will continue to be governed by the
Code of Commerce.
Learning Activity:
Formation of Partnership
2. Find a partner whom you can work with in registering your own partnership online using
the online SEC Registration Portal. Download the system generated documents and
document the entire process of the online registration. Observe correct grammar and

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Module 2
Revised Corporation Code of the Philippines, RA
11232
Learning Outcomes:

1. Describe the nature and classes of Corporation
2. Define the different relevant terms under the Revised Corporation Code of the Philippines
3. Describe the incorporation and organization of Private Corporation
4. Enumerate the Powers of Corporation
5. Identify the Board of Directors, Trustees, Corporate Officers
6. Distinguish the majority and minority control
7. Distinguish the classes of stocks
8. Describe the powers, duties, rights and obligations of stockholders
9. Explain the Meetings
10. Explain the kinds and availability of books
11. Explain Corporate Reorganization, Merger and Consolidation
12. Explain Appraisal Right
13. Describe Non-stock Corporation, Close Corporation, Educational Corporation, Religious
Corporation, One Person Corporation
14. Explain the Modes of Dissolution and liquidation
15. Identify foreign corporations
16. Explain the rights of foreign corporations
17. Explain the suspension and revocation of license including the investigation, offenses
and penalties under the Code
18. Determine the jurisdiction of the Securities and Exchange Commission and its powers
under the Code and Explain other Miscellaneous Provisions under the Code

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MODULE 2
Subtopic 1
General Provisions, Definitions and Classifications, Incorporation

and Organization of Private Corporations, Board of
Directors/Trustees and Officers, Powers of Corporations, By Laws,
Meetings, Stocks and Stockholders (Sec. 1 – 72, RA 11232)
Learning Outcome:
1. Describe the nature and classes of Corporation

2. Define the different relevant terms under the Revised Corporation Code of the
Philippines
3. Describe the incorporation and organization of Private Corporation
4. Enumerate the Powers of Corporation
5. Identify the Board of Directors, Trustees, Corporate Officers
6. Distinguish the majority and minority control
7. Distinguish the classes of stocks
8. Describe the powers, duties, rights and obligations of stockholders
9. Explain the Meetings
Learning Contents:
Elements of Corporation
1. It is an artificial being
2. Created by operation of law
3. Having the right of succession
4. The powers, attributes and properties expressly authorized by law or incident to its
existence ( Sec 2, R.A. 11232)
• Doctrine of separate juridical personality

Corporation has juridical personality separate and distinct from the stockholders
composing the corporation.
• Piercing the veil of corporate entity
When the veil of corporate fiction is used as a shield to perpetuate fraud, to defeat
public convenience, justify wrong or defend crime, this fiction shall be disregarded
and the individuals composing it will be treated identically.
• Doctrine of limited capacity
Corporation may exercise only powers expressly authorized by law or incident to its
existence.

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Theory of corporation
1. Theory of concession – Exist by grant of the state ( Philippine setting ).

2. Gennosenshaft theory – It exist because the parties want it to exist.
Private Corporation can only be created by Corporation Code (B.P. 68)
Under Art. XII, Sec 16 of the 1987 Constitution which provides as follows:
“The Congress shall not except by general law, provide for the formation, organization,
or regulation of Private Corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the common good and
subject to the test of economic viability.”
Special law can create only
1. Public corporation
2. Government owned or controlled corporations provided:
a. In the interest of common goods
b. Subject to test of economic viability
Corporation not entitled to moral damages
A corporation, being an artificial person and having existence only in legal contemplation,
has no feeling, no emotions, no senses; therefore, it cannot experience physical suffering,
mental anguish, fright, serious anxiety, wounded feelings, etc.
Distinction between Partnership and Corporation
1. Manner of creation
2. Number of incorporators
3. Commencement of juridical personality
4. Powers
5. Management
6. Effect of mismanagement
7. Right of succession
8. Transferability of interest
9. Term of existence
10. Firm name
11. Dissolution
12. Laws which govern

Ver 1
Partnership Corporation
Manner of Mere agreement of the parties By law or operation of law

creation
Number of May be organized by only 2 Requires at least 5

incorporators persons incorporators
Commencement From the moment of the From the date of issuance of

of juridical execution of the contract of the certificate of incorporation
personality partnership by the SEC
Powers May exercise any power Can exercise only the powers
authorized by the partners expressly granted by law or
provided it is not contrary to implied from those granted or
law, morals, good customs, incident to its existence
public order or public policy
Management Every partner is an agent of Power to do business and

the partnership unless the manage its affairs is vested in
management is agreed upon the board of directors
to the contrary
Effect of A partner as such can sue a The suit against a member of

mismanagement co-partner who mismanages the board of directors who
mismanages must be in the
name of the corporation
Right of None since when a partner Has so that even if the

succession dies, the partnership will be stockholder will die, the
dissolved corporation will not be
dissolved but the
stockholdings of the deceased
stockholder will be
transmitted to his heirs
Extent of Partners (except limited Stockholders are only liable to

liability to third partners) are liable personally the extent of the shares
persons (may be severally liable) for subscribed by them
partnership debts to third
persons
Transferability Partner cannot transfer his Generally, stockholder has the

of interest interest in the partnership so right to transfer his shares
as to make the transferee a without the prior consent of
the other stockholders

Ver 1
partner without the consent of
all the other partners
Term of Any period of time as May not be formed for a term

existence stipulated by the partners in excess of 50 years
extendible to not more than
50 years in any one instance
Firm name Limited partnership is required May adopt any firm name
by the law to add the word provided it is not the same as
“Ltd.” to its name or similar to any registered
firm name.
Dissolution At any time by the will of any Can only be dissolved with the
or all of the partners consent of the State
Governing law Civil Code Corporation Code
Classification of Corporation
1. Stock Corporation – Corporation which have capital stock divided into shares and
are authorized to distribute to the holders of such shares dividends or allotments of
the surplus profits on the basis of the shares held. ( Sec 4, BP 68)
2. Non-stock corporation – all other corporations are non-stock corporations.
Other Classification of Corporation
1. Number of persons
a. Corporation aggregate – more than one member
b. Corporation sole – one member or corporator
c. One-person corporation (OPC)
2. Religious purpose or not
a. Ecclesiastical corporation – religious
b. Lay corporation – other than religious purpose. ( Either eleemosynary or civil )
3. Charitable or not
a. Eleemosynary corporation – charitable
b. Civic corporation – Business of profit
4. Country of creation
a. Domestic corporation – incorporated under Philippine law
b. Foreign Corporation – incorporated under foreign law
5. Legal right to corporate existence
a. De jure corporation – exist in fact and in law
b. De facto corporation – exist in fact but not in law
6. Public or not
a. Close corporation – limited to selected persons
b. Open corporation – open to any person

Ver 1
7. Relation to others corporation
a. Parent corporation – owner of more than 50% of another corporation
b. Subsidiary corporation – acquire of parent company
8. True or limited sense
a. True corporation
b. Quasi corporation
1. Corporation by prescription – exercise power for indefinite period without
interference from sovereign power. (Roman Catholic Church)
2. Corporation by estoppels
9. Public or private purpose
a. Public corporation
b. Private corporation
10. Going public or not
a. Going public – Decide to list its share in the stock exchanges
b. Going to private – Restrict the share to certain group
Classes of share
1. Par value share

2. No par value share
Limitation:
a. Cannot be issued by the following corporation: (BPI-TB)
1. Bank
2. Public utilities
3. Insurance company
4. Trust company
5. Building and loan association
b. Preferred shares not allowed
c. Cannot be issued for a consideration less than five pesos (P5)
d. Deemed fully paid and non-assessable
e. Entire consideration received shall be treated as capital and not available for
dividend distribution.
3. Voting share
• That there shall always be a class or series of shares which have complete voting
rights.
• That no share may be deprived of voting rights except those classified and issued
as “preferred” or “Redeemable” shares.
4. Non-voting share – shares without right to vote
Non-voting shares classified as such may still vote under the following circumstances:
a. Amendment of the articles of incorporation;
b. Adoption and amendment of by laws;

Ver 1
c. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
d. Incurring, creating, or increasing bonded indebtedness;
e. Increasing or decrease of capital stock;
f. Merger or consolidation
g. Investment of corporate funds in another corporation or business except where the
investment by the corporation is reasonably necessary to accomplish its primary
purpose stated in the articles of incorporation
h. Dissolution of the corporation
5. Common stock – equal right. Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, each share shall be equal in all
respects to every other share.
6. Preferred stock – preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case of liquidation and
in the distribution of dividends, such other preferences as may be stated in the articles
of incorporation.
7. Promotion stock – issued to promoter.
8. Share in escrow – subject to agreement where the stock is deposited to third and kept
by the depositary until the condition contained in agreement happened.
9. Convertible stock – convertible to other shares.
10. Founder share – founder’s shares may be given certain rights and privileges not
enjoyed by the owners of other stocks. Where the exclusive right to vote and be voted
for in election of directors is granted, it must be for a limited period not to exceed five
(5) years from the date of incorporation: Provided, that such exclusive right shall not
be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as
the “Anti-Dummy Law”; Republic Act No. 7042, otherwise as known as the “Foreign
Investment Act of 1991”; and other pertinent laws. (Sec 7)
11. Redeemable share (Sec 8) –
a. Must be expressly so provided in the articles of incorporation.
b. Purchased or take up by the corporation upon the expiration of a fixed period,
regardless of the existence of unrestricted retained earnings.
c. Terms and conditions must be stated in the articles of incorporation and certificate
of stock.
12. Treasury stock – treasury shares are shares of stock which have been issued and fully
paid for, but through purchase, redemption, donation, or some other lawful means.
Such shares may again be disposed of for a reasonable price fixed by the board of
directors. (Sec 9)

Ver 1
Terms of Corporation
1. No fixed term indicated in the article of incorporation

A corporation shall have perpetual existence unless its articles of incorporation
provides otherwise.
Corporation with certificates of incorporation issued prior to the effectively of this
Code, and which continue to exist, shall have perpetual existence, unless the
corporation, upon a vote of its stockholders representing a majority of its
outstanding capital stock notifies the commission that it elects to retain its specific
corporate term pursuant to its articles of incorporation. Provided, that any change
in the corporate term is without prejudice to the appraisal right of dissenting
stockholders.
2. A fixed term indicated in the article of incorporation
A corporate term for a specific period may be extended or shorted by amending the
articles of incorporation: Provided, That no extension may be made earlier than
three (3) years prior to the original or subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as may be determined by the
Commission: Provided, further, That such extension of the corporate term shall take
effect only on the day following the original or subsequent expiry date(s).
A corporation whose term has expired may apply for a revival of its
corporate existence together with all the rights and privileges under its
certificate of incorporation and subject to all of its duties, debts and
liabilities existing prior to its revival. Upon approval by the Commission,
the corporation shall be deemed revived and a certificate of revival of
Corporate existence shall be issued, giving it perpetual existence. Unless
its application for revival provides otherwise.
No application for revival of certificate of incorporation of banks, banking
and quasi-banking institutions, preneed, insurance and trust companies,
non-stock savings and loan associations (NSSLAs), pawnshops,
corporations engaged in money services business, and other financial
intermediaries shall be approved by the Commission unless accompanied
by a favorable recommendation of the appropriate government agency.
Contents of the articles of Incorporation
All corporations shall file with the Commission articles of incorporation in any of the
official languages, duly signed and acknowledge or authenticated, in such form and
manner as may be allowed by the Commission, containing substantially the
following matters, except as otherwise prescribed by this Code or by special law:
(a) Name of the corporation
(b) The specific purpose or purposes for which the corporation is being formed.
Where a Corporation has more than one stated purpose, the articles of

Ver 1
incorporation shall indicate the primary purpose and the secondary purpose or
purposes: Provided, That a non-stock corporation may not include a purpose
which would change or contradict its nature as such;
(c) The place where the principal office of the corporation is to be located, which
must be within the Philippines;
(d) The term for which corporation is to exist, if the corporation has not
elected perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators;
(f) The number of directors, which shall not be more than fifteen(15) or
the number of trustees which may be more than fifteen(15);
(g) the names, nationalities, and residence addresses of persons who shall act as
directors or trustees until the first regular directors or trustees are duly elected
and qualified in accordance with this code;
(h) if it be a stock corporation, the amount of its authorized capital stock, number
of shares into which it is divided, the par value of each, names, nationalities,
and residence addresses of the original subscribers, amount subscribed and paid
by each on the subscription, and a statement that some or all of the shares are
without par value if applicable;
(i) If it be a non-stock corporation, the amount of its capital, the names,
nationalities, and residence addresses of the contributors, and amount
contributed by each; and
(j) Such other matters consistent with law and which the incorporators may deem
necessary and convenient.
An arbitration agreement may be provided in the articles of incorporation

pursuant to Section 181 of this Code. The articles of incorporation and
applications for amendments thereto may be filed with the Commission in
the form of an electronic document, in accordance with the Commission’s
rules and regulations on electronic filing. (Sec 13, R.A. 11232)
Minimum capital requirement
Stock corporations shall not be required to have a minimum capital stock, except as
otherwise specifically provided by special law. (Sec 12, R.A. 11232) The 25% minimum
subscription and paid up is removed under R.A. 11232.
Percentage of Filipino Ownership (Nationalize Corporation)
1. 100% Filipino
a. Mass media
b. Practice of professions
c. Retail trade enterprises with paid-up capital of less than US$2,500,000

Ver 1
d. Private security Agencies
e. Small-scale mining
f. Utilization of marine resources in archipelagic waters, territorial sea, exclusive
economic zone as well as small-scale utilization of natural resources in rivers,
lakes, bays, and lagoons
g. Ownership, operation and management of cockpits
h. Manufacture of firecrackers and other pyrotechnic device
2. 80% Filipino
a. Private radio communications network
3. 75%
a. Private radio communications network
b. Private recruitment whether for local of overseas recruitment
c. Contract for the construction and repair of locally funded public works
d. Contracts for the construction of defense related structures
4. 70%
a. Pawnshop Business
b. Business activity of advertising
5. 60%
a. Exploration, development and utilization of natural resources
b. Ownership of private lands
c. Operation of public utilities
d. Educational institutions other than those established by religious groups and
mission boards
e. Culturing production, milling, processing, trading except retailing of rice and
corn and acquiring by barter purchase or otherwise, rice and corn and the by-
products thereof
f. Contracts for the supply of materials, goods and commodities to government-
owned or controlled corporation, company, agency or municipality
g. Facility operator of an infrastructure or development facility requiring a public
utility franchise
h. Operation of deep-sea commercial fishing vessel
i. Adjustment companies
j. Ownership of condominium units
k. Manufacture, repair, storage, and/or distribution of products and/or ingredients
requiring Philippines National Police (PNP) Clearance
l. Manufacture, repair, storage, and/or distribution of products and/or ingredients
requiring Department of National Defense (DND) Clearance
m. Manufacture and distribution of dangerous drugs
n. Sauna and steam bathhouse, massage clinics and like other activities regulated
by law because of risks posed to public health and morals

Ver 1
o. Domestic market enterprises, with paid-in equity capital of less than the
equivalent of US$200,000
p. Domestic market enterprises, which involved advanced technology or employ at
least fifty direct employ at least fifty direct employees with paid-in equity capital
or less than the equivalent of US$100,000
6. 40%
a. Financing Companies
b. Investment house
Business activities wherein foreigner’s ownership could be more than forty (40)
percent up to one hundred percent
1. Export enterprises and

2. Domestic market enterprises with paid-in equity capital of at least the equivalent of
US$200,000.
3. Domestic market enterprises, which involved advanced technology or employ at
least fifty direct employees with paid-in equity capital of at least the equivalent of
US$100,000.
Corporate Name not allowed (Sec 17, R.A. 11232)
No corporate name shall be allowed by the Commission if it is not distinguishable from that
already reserved or registered for the use of another corporation, or if such name is already
protected by law, or when its use is contrary to existing law, rules and regulations.
A name is not distinguishable even if it contains one or more of the following:
(a) The word “corporation”, “company”, “incorporated”, “limited”, “Limited
liability”, or an abbreviation of one such word; and

(b) Punctuations, articles, conjunction, contractions, prepositions,
abbreviations, different tenses, spacing, or number of the same word or
phrase.
The Commission, upon determination that the corporate name is:
(1) Not distinguishable from a name already reserved or registered for the
use of another corporation;

(2) Already protected by law; or
(3) Contrary to law, rules and regulations, may summarily order the
corporation to immediately cease and desist from using such name and
require the corporation to register a new one.
The Commission shall also cause the removal of all visible signage’s, marks,
advertisements, labels, prints and other effects bearing such corporate name.

Ver 1
Upon the approval of the new corporate name, the Commission shall issue a
certificate of incorporation under the amended name. If the corporation fails to
comply with the commission’s order, the Commission may hold the corporation
and its responsible directors or officers in contempt and/or hold them
administratively, civilly and/or criminally liable under this Code and other
applicable laws and/or revoke the registration of the corporation.
Reservation of corporate name
A person or group of persons of desiring to incorporate shall submit the intended corporate
name to the Commission for verification. If the Commission finds that the name is
distinguishable from a name already reserved or registered for the use of another
corporation not protected by law and is not contrary to law rules and regulations, the name
shall be reserved in favor of the incorporators. The incorporators shall then submit their
articles of Incorporation and bylaws to the Commission.
If the Commission finds that the submitted documents and information are fully compliant
with the requirements of this Code, other relevant laws, rules and regulation, the
Commission shall issue the certificate of incorporation. (18)
Commission of corporate existence
A private corporation organized under this code commences its corporate existence and
juridical personality from the date the Commission issue the certificate of incorporation
under its official seal and thereupon the incorporators, stockholders/members and their
successors shall constitute a body corporate under the name stated in the articles of
incorporation for the period of time mentioned therein, unless said period is extended or
the corporation is sooner dissolved in accordance with law. (Sec. 18)
De facto corporation
The due incorporation of any corporation claiming in good faith to be a corporation under
this Code, and its right to exercise corporate powers, shall not be inquired into collaterally
in any private suit to which such corporation may be a party. Such inquiry may be the
Solicitor General in a quo warranto proceeding. (Sec 20)
Requisites of de facto corporation
1. Valid law
2. Bonafide intent to incorporate under such valid law
3. Actual exercise in good faith of such corporate power.
i.e. Majority of incorporators are not resident of the Philippines; defect in
form; acknowledged before a person without authority. Only direct

Ver 1
proceeding of quo warranto is allowed. Collateral attack not allowed.
Initiated by the Solicitor General.
Corporation by estoppel (Sec 20)
All persons who assume to act a corporation knowing it to be without authority do so shall
be liable as general partner for all debts, liabilities, and damages incurred or arising as a
result thereof: Provided, however, That when any such ostensible corporation is sued. On
any transaction entered by it as a corporation or on any tort committed by it as such, it
shall not be allowed to use its lack of corporate personality as a defense. Anyone who
assumes an obligation to an ostensible corporation as such cannot resist performance
thereof on the ground that there was in fact no corporation.
Effects on non-use of corporate charter charter and continuous inoperation of a

corporation (Sec 21)
BP 68 R.A. 11232
Failure to formally organize and commence its 2 years 5 years
business
Effects Corporation powers Corporation
cease and the powers cease
corporation shall be and the
deemed dissolved corporation
shall be
deemed
dissolved
Formally organized but subsequently 5 years 5 years
becomes inoperative
Effects Ground for the Ground for the
suspension or suspension or
revocation of its revocation of
corporate franchise or its corporate
certificate of franchise or
incorporation certificate of
incorporation
A delinquent corporation shall have a period of two (2) years to resume operations and
comply with all requirements that the Commission shall prescribe. Upon compliance by the
corporation, the Commission shall issue an order lifting the delinquent status. Failure to
comply with the requirements and resume operations within the period given by the
Commission shall cause the revocation of the corporation’s certificate of incorporation.

Ver 1
The Commission shall give reasonable notice to, and coordinate with the appropriate
regulatory agency prior to the suspension or revocation of the certificate of incorporation
of companies under their special regulatory jurisdiction.
Distinction between corporators and incorporators
Corporators (Sec 5) Incorporators ( Sec 10)

Limited depending on the available Limit only to not more than 15.
authorized capital
Stock
Not signatories in the article of Originally formed and signatories of the

incorporation article of incorporation.
They cease to be corporators when they are Remain as incorporators even no longer a
no longer a holder of shares of stock. holder of shares of stock.
Corporator
a. Stock Corporation- Stockholder or shareholder
b. Non-stock corporation-member
Number and Qualifications of Incorporation
BP 68 R.A. 11232
1. Not less than 5 but not more than Not more than 15
15
2. Must be a natural person Any person, partnership, association
3. All must be legal age Legal age is not required except for natural
persons
4. Majority must be resident of the Residency not required
Philippines
5. Must be an owner or subscriber at same
least one (1) share of capital stock
Number and Qualifications of Director

1. Not more than 15 directors and may be more than fifteen (15) trustees.
2. Owner of at least one share
3. The ownership (legal not beneficial ownership, e.g. pledger, mortgagor) must be
stand in the name of the director in the book of the corporation.
4. Possess all the qualification and none of the disqualification. (Sec 26)23

Ver 1
5. If the corporation is vested with public interest, the Board shall also elect a
compliance officer.
Qualification of Corporate Officer (Sec 24)25
1. President- Must be a director
2. Secretary-Resident and citizen of the Philippines
3. Treasurer-Must be resident
4. Other officers as may be provided in the bylaws
Apply to all:
Possess all the qualification and none of the disqualification. (Sec 26)23
Disqualification of Directors, Trustees or Officers
A person shall be disqualified from being a director, trustee or officer of any corporation if,
within five (5) years prior to the election or appointment as such, the person was:
a. Convicted by final judgment:

(1) Of an offense punishable by imprisonment for a period exceeding six (6)
years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799, otherwise known as “The
Securities Regulation Code”;
b. Found administratively liable for any offense involving fraudulent acts
and
c. By a foreign court or equivalent regulatory authority for acts, violations
or misconduct similar to those enumerated in paragraphs (a) and (b)
above.
The foregoing is without prejudice to qualifications or other disqualifications,

which the Commission, the primary regulatory agency, or the Philippine
Competition Commission may impose in its promotion of good corporate
governance or as a sanction in its administrative proceedings. (Sec 26, R.A.
11232)
Concurrent Position of Corporate officer

1. President + Secretary- Not allowed
2. President + Treasurer- Not allowed
3. Secretary + Treasurer- Allowed
*Chairman and Vice Chairman Not Allowed (SEC Opinion)
By Laws
➢ May provide for the qualification of the director
a. At least 25 years of age
b. Have some experience in business, finance or law
c. Disqualify anyone who is competing with the corporation

Ver 1
As long as the qualification imposed are reasonable and not meant to unjustly
or unfairly deprive the minority of their rightful representation in the Board of
Directors, it is valid.
Requirement of Independent Director for Corporation Vested with

Public Interest
The board of the following corporations vested with public interest shall
have independent directors constituting atleast twenty percent (20%) of
such board:
(a) Corporations covered The Securities Regulation Code (R.A. 8799)
namely
a. Whose securities are registered with the Commission.
b. Corporations listed with an exchange or
c. With assets of at least fifty million pesos (P50,000,000)
and having two hundred (200) or more holders of shares,
each holding atleast one hundred (100) shares of a class
of its equity shares:
(b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged
in money service business, preneed, trust and insurance

companies, and other financial intermediaries and
(c) Other corporations engaged in businesses vested with public
interest similar to the above, as may be determined by the

Commission, after taking into account relevant factors which are
germane to the objective and purpose requiring the election of an
independent director, such as the extent of minority ownership,
type of financial products or securities issued or offered to
investors, public interest involved in the nature of business
operations, and other analogous factors.
Independent director defined
An independent director is a person who, apart from shareholdings and fees

received from the corporation is independent of management and free from any
business or other relationship which could, or could reasonably be perceived to
materially interfere with the exercise of independent judgment in carrying out
the responsibilities as a director.
Independent directors must be elected by the shareholders present or entitled

to vote in absentia during the election of directors. Independent directors shall
be subject to rules and regulations governing their qualifications,
disqualifications, voting requirements, duration of term and term limit maximum

Ver 1
number of board memberships and other requirements that the Commission will
prescribe to strengthen their independence and align with international best
practices. (Sec 22, R.A. 11232)
Report of the election of directors , trustees and officers, non-withholding of

election and cessation from Office.
Within thirty days after the election of the directors, trustees and officers of the
corporation, the secretary or any other office of the corporation, shall submit to the
commission the name, nationalities, shareholdings, and residents addresses of the director,
trustees and officers elected.
The non-holding of elections and the reasons therefor shall be reported to the commission
within thirty days from the date of the scheduled election. The report shall specify a new
date for the election, which shall not be later than sixty days from the scheduled date.
If no new date has been designated or if the rescheduled election is likewise held the
commission may upon the application of a stockholder, member , director or trustee
And after verification of the unsatisfied non-holding of the election summarily order than
an election be held. He commission should have power to issue such orders as maybe
appropriate including order directing the issuance of a notice stating the time and place of
the election, designated presiding officer and the record date or dates for the determination
of stockholders of members entitled to vote. Notwithstanding any provision of the articles
of incorporation or bylaws to the contrary the shares of stock or membership represented
at such meeting and entitled to vote shall constitute a quorum for purposes of conducting
the election under this section.
Should a director, trustee or officer die, resign or in any manual cease to hold office , the
secretary, or the director, trustee officer of the corporation shall within seven days from
the knowledge thereof, report in writing such fact to the commission.
Removal of Director or Trustees ( Sec. 27, R.A. 11232)
1. Voting requirement for removal
A. Stock corporation- by a vote of the stockholders holding or representing at least

two-thirds of the outstanding capital stock.
B. Non-stock corporation- by a vote of at least two thirds of the members entitled to

vote.
2. The removal shall take place either at a regular meeting of the corporation on at a special
meeting called for a purpose. a special meeting of the stockholders or members for the
purpose of removing any director or trustee must be called by the secretary on order of

Ver 1
the president, or upon written demand, of the stockholders representing or holding at least
a majority of the outstanding capital stock, or majority of the members entitled to vote.
3. There must be previous notice to stockholders or members of the corporation of the

intention to propose such removal at the meeting.
4. There must be a notice of the time and place of such meeting, as week as of the intention
to propose such removal, must be given by publication or by written notice.
5. The removal may be with or without cause however, the removal without the cause may
not be used to deprived minority stockholders or members of the right of representation.
6. The commission shall, proprio or upon verified complaint and after due notice and
hearing order the removal of a director or trustee elected despite the disqualification, or
whose disqualification arose or is discovered director shall be without prejudice to other
sanctions that the commissions may impose on the board of the directors or trustees who
with knowledge of the disqualification failed to remove such director or trustee.
Vacancies in the office of the director Sec. 28. 29
1. Other than the removal by the stockholders or members or expiration of term- majority
of the remaining directors or trustees if still constituting quorum.
2. Removal by stockholders or members or expiration of term or increase in the number of

directors or other than but was referred by the BDO to the stockholders.- stockholders or
members in a regular or special meeting called that purpose. SEC.28
When the vacancies is due term expiration, the election shall be held no later than of such
expiration at a meeting called for a purpose. When the vacancy arises a s a result of
removal by the stockholders or members the election may be held on the same day of the
meeting authorizing the removal an this fact must be so stated in the agenda and b\notice
of said meeting. On all other cases, the election must be held no later than forty five days
from the time the vacancy arose. A director or trustee elected to fill a vacancy shall be
referred to as replacement director or trustee and shall serve only for the unexpired term
of the predecessor in office.however, when the vacancy prevents the remaining directors
from constituting a quorum and emergency action is need to prevent grave, substantial,and
irreparable loss or damage to the corporation, the vacancy may be temporarily filled from
among the others officers or trustee. The action by the designated director or trustee shall
be limited to the emergency action ,necessary and the term shall ceaase within a
reasonable time from the termination of the emergency or upon election of the replacement
director or trustee, whichever comes earlier. The corporation must motify the commissions
within the three days from the creation of the emergency board, stating therein the reason
for its creation.

Ver 1
Compensation of director Sec. 29. 30
Gen. Rule: no compensation except for reasonable per diems
Exemptions: provided fir in bylaws
1. Vote of the stockholders representing at least a majority of the outstanding capital

stock at regular or special meetings.
2. Total yearly compensation shall not exceed 10% of the net income before income
tax of the preceding year.
Liability of corporate officers
Liability, jointly and severally for all damages suffered by the corporation, stockholders or
members and other person when such director or trustee.
1. Knowingly vote for or assessment to patently unlawful acts of the corporation, duty
of obedience.
2. Guilty of gross negligence or bad faith in directing the affair of the corporation
3. Acquire any personal or pecuniary interest in conflict with their duty as director or
trustee in conflict with their duty as director or trustee.
Liable as trustee for the corporation + account for the profit when the director, trustee or
officer attempts to acquire in violation of his duty.
1. Any interest adverse to the corporation which has reposed to him in confidence
2. Where equity imposes a disability upon him to deal I his own behalf.
Dealings of directors, trustees or officers with the corporation
Rule: a contact of the corporation with one or more of its directors or trustees or officers
is voidable at the option of such corporation.
Exemption: valid when all the requisites are present
A. The presence of such director or trustee in the board meeting in which the contract a
quorum for such meeting.
B. The vote of such director or trustee was not necessary for the approval of the contract.
C. The contract is fair and reasonable under the circumstances
D. In case of corporations vested with public interest, material contracts are approved by
at least two thirds of the entire membership of the board, with at least a majority of the
independent

Ver 1
Directors voting to approved the material contract; and
E. In case of an officer, the contract has been previously authorized by the board of
directors.
Where any of the first three conditions set fourth in the preceeding paragraph is absent, in
the case of a contract may be satisfied by the vote of the stockholders representing at least
two-thirds of the outstanding capital stock or of at least two -thirds of the members in a
meeting called for the purpose: provided, that full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting and the contract is fair and
reasonable under the circumstances.
Interlocking director
Rule : except in cases of fraud, and provided the contract is fair and reasonable under the
circumstances, a contract between two or more corporations having interlocking directors
shall not be invalidated on that ground alone.
Disloyalty of a director (Sec 33) (34)
Where a director, by virtue of his office, acquires for himself a business opportunity which
should belong to the corporation, thereby obtaining profits to the prejudice of such
corporation, he must account to the latter for all such profits by refunding the same, unless
his act has been ratified by a vote of the stockholders owning or representing at least two-
thirds (2/3) of the outstanding capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked his own funds in the venture.
Executive, Management, and Other Special Committees (Sec 34) (35)
1. Executive committee (Sec 35)
a. The by-laws of a corporation may create an executive committee, composed of

not less than three members of the board, to be appointed by the board.
b. Said committee may act, by majority vote of all its members, on such specific
matters within the competence of the board, ass may be delegated to it in the by-
laws or on a majority vote of the board.
Executive committees have no power to:
a. Approval of any action for which shareholders approval is also required;
b. The filing of vacancies in the board;
c. The amendment or repeal of by-laws or the adoption of new by-laws;

Ver 1
d. The amendment or repeal of any resolution of the board which by its express
terms is not so amendable or repealable;
e. Distribution of cash dividends to the shareholders.
2. The board of directors may create special committees of temporary or permanent nature
and determine the members’ term, composition, compensation, powers, and
responsibilities.
Corporate powers and capacity (Sec 35) (36)
Every corporation incorporated under this Code has the power and capacity:
Express Power Stockholders vote
1. To sue and be sued in its corporate name; No
2. To have perpetual existence unless the certificate of No

incorporation provides otherwise;
3. To adopt and use a corporate seal; No
4. To amend its articles of incorporation in accordance with the Yes

provision of this Code;
5. To adopt by-laws, not contrary to law, morals, or public Yes

policy, and to amend or repeal the same in accordance with
this Code;
6. In case of stock corporations, to issue or sell stocks to

subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the No
corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell,

lease, pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject Yes
to the limitations prescribed by law and the Constitution;

Ver 1
8. To enter into a partnership, joint venture, merger or Yes
consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the

public welfare or for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, that no corporation,
domestic or foreign, shall give donations in aid of any political No
party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement and other plans for the

benefit of its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or No

necessary to carry out its purpose or purposes as stated in the
articles of incorporation. (Implied power)
No
Implied power – Reasonably necessary to exercise the express power to accomplish or

carry out the purpose for which the corporation was formed.
Incidental power – Indispensably necessary to carry out the purpose.
Note: Corporation can exercise only power conferred corporation code or by its article of
incorporation except such are, necessary or incidental to the exercise of the powers
conferred (Intra vires act) Otherwise the act of the corporation ultra vires act (Sec 45).
Power to extend or shorten corporate term (Sec 36) (37)
1. Majority vote of the board of directors or trustees, ratified at a meeting by the

stockholders or members representing at least two-thirds (2/3) of the outstanding capital
stock or of its members.
2. Written notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence ass shown on the books
of the corporation and deposited to the addressee in the post office with postage prepaid,
or served personally, or when it is allowed in the bylaws or done with the consent
of the stockholder, sent electronically in accordance with the rules and
regulations of the Commission on the use electronic data messages.
3. Extension of corporate term (sec 37) or shortening the term of corporate existence (Sec
81), any dissenting stockholder may exercise his appraisal right.

Ver 1
Power to increase/decrease capital stock; Increase bond indebtedness (Sec 37)
(38)
1. Approved by a majority vote of the board of directors and two-thirds (2/3) of the
outstanding capital stock at stockholder’s meeting duly called for the purpose.
2. Written notice of the time and place of the stockholders’ meeting and the purpose for
said meeting must be sent to the books of the corporation and served on the stockholder
personally, or through electronic means recognized in the corporation’s bylaws and/ or the
Commission’s rules as a valid mode for service of notices.
3. Certificate in Duplicate signed by majority of the director and countersigned by the

chairperson and secretary of the stpckholder’s meeting stating the following:
(a) That the requirements of this section have been complied with;
(b) The amount of the increase or decrease of the capital stock;
(c) In case of an increase of the capital stock, the amount of capital stock or number
of shares of no-par stock thereof actually subscribed, the names, nationalities and
addresses of the persons subscribing, the amount of capital stock or number of no-
par stock subscribed by each, and the amount paid by each on the subscription in
cash or property, or the amount of capital stock or number of shares of no-par stock
allotted to each stockholder if such increase is for the purpose of making effective
stock dividend therefor authorized;
(d) Any bonded indebtedness to be incurred, created or increased;
(e) The amount of stock represented at the meeting; and
(f) The value authorizing the increase or decrease of the capital stock, or the
incurring, creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any
bonded indebtedness shall require prior approval of the Commission, and where
appropriate, of the Philippine Competition Commission. The application with the
Commission shall be made within six (6) months from the date of approval of the board of
directors and stockholders, which period may be extended for justifiable reasons.
Copies of the certificate shall be kept on file in the office of the corporation and filed with
the Commission and attached to the original articles of incorporation. After approval by the
Commission and the issuance by the Commission of its certificate of filing, the capital stock
shall be deemed increased or decreased and the incurring, creating or increasing of any
bonded indebtedness authorized, as the certificate of filing may declare; Provided, that the
Commission shall not accept for filing any certificate of increase of capital stock unless

Ver 1
accompanied by a sworn statement of the treasurer of the corporation lawfully holding
office at the time of the filing of the certificate, showing that at least twenty-five percent
(25%) of the increase in capital stock has been transferred to the corporation: Provided,
further. That no decrease in capital stock shall be approved by the Commission if its effect
shall prejudice the rights of corporate creditors.
Nonstock corporations may incur, create or increase bonded indebtedness when approved
by a majority of the board of trustees and of at least two-thirds (2/3) of the members in a
meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Commission, which shall have
the authority to determine the sufficiency of the terms thereof.
Types of Bond
1. Mortgage bonds – Bonds secured by mortgage on real properties.
2. Collateral trust bonds – Bonds secured by stocks and bonds of another corporation.
3. Debenture bonds – Bonds without collateral security.
4. Registered bonds – Requires the registration of the name of the bondholders on the
books of the corporation.
5. Coupon or bearer bonds – are unregistered bonds in the sense that the name of the
bondholder is not recorded on the company books.
6. Convertible bonds – are those which give the holders thereof the right to convert their
bondholding into share capital of other securities of the issuing company within a specific
period of time.
7. Callable bonds – are bonds issued whereby another party promises to make payment if
the borrowing company fails to do so.
8. Junk bonds – are high risk, high yield bonds issued by enterprises that are heavily
indebted or otherwise in wealth financial condition.
9. Treasury bonds - are company’s own bonds originally issued and required but not
cancelled.
10. Term bonds – are bonds with a single date of maturity.
11. Serial bonds – are those with a series of maturity dates.

Ver 1
Power to deny pre-emptive right (Sec 38) (39)
Rule: All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to
all issues or disposition of shares of any class, in proportion to their respective
shareholdings.
Exception:
1. Denied in the articles of incorporation or an amendment thereto.
2. Shares to be issued in compliance with laws requiring stock offerings or minimum stock
ownership by the public;
3. Shares to be issued in good faith with the approval of the stockholders representing
two-thirds (2/3) of the outstanding capital stock, in exchange for property needed for
corporate purposes or in payment of a previously contracted debt.
Sale or other disposition of assets (Sec 39) (40)
1. Sell, lease, exchange, mortgage, pledge, or otherwise dispose of its property and assets
(not all or substantially all)
• majority vote of its board of directors or trustees
2. A sale of all or substantially all of the corporation’s properties and assets, including its
goodwill
A sale or other disposition shall be deemed to cover substantially all the corporate property
and assets if thereby the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was incorporated.
The determination of whether or not the sale involves all or substantially all of the
corporation’s properties and assets must be computed based on its net asset value, as
shown in its latest financial statements.
1. Subject to the provisions off Republic Act No. 10667, otherwise known as the
“Philippine Competition Act”, and other related laws
2. Majority vote of its board of directors or trustees and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the members, in a
stockholders’ or members’ meeting duly called for the purpose
3. Written notice of the proposed action and of the time and place of the meeting shall
be addressed to each stockholder or member at his place of residence ass shown
on the books of the corporation and deposited to the addressee in the post office
with postage prepaid, or served personally.
4. Exercise of appraisal right

Ver 1
5. After approval of the stockholder – BOD may abandon such sale subject to the right
of 3rd person without further approval by the stockholder or member.
Note:
No vote of stockholders is required
1. Sale of assets which is necessary in the usual and regular course of business, or
2. If the proceeds of the sale or other disposition of such property and assets be
appropriated for the conduct of its remaining business.
Power to acquire own shares (Sec 40) (41)
1. Power to purchase or acquire its own shares for a legitimate corporate purpose or
purposes, including the following cases:
a. To eliminate fractional shares arising out of stock dividends

b. To collect or compromise an indebtedness to the corporation, arising out of
unpaid subscription, in a delinquency sale, and to purchase delinquent shares
sold during said sale; and
c. To pay dissenting or withdrawing stockholders entitled to payment for their
shares under the provisions of this Code.
2. Corporation has unrestricted retained earnings in its books to cover the shares to be
purchased or acquired.
Investment of Fund in another corporation (Sec 41) (42)
Other than primary purpose
1. Majority of the board of directors or trustees and ratified by the stockholders

representing at least two-thirds (2/3) of the outstanding capital stock or members
stockholder’s or member’s meeting duly called for the purpose.
2. Notice of the proposed investment and the time and place of the meeting shall
be addressed to each stockholder or member at the place of residence as shown in
the books of the corporation and deposited to the addressee in the post office with
postage prepaid, served personally, or sent electronically in accordance with the
rules and regulations of the Commission on the use of electronic data message,
when allowed by the bylaws or done with the consent of the stockholders;
3. Any dissenting stockholder shall have appraisal right investment by the corporation
is reasonably necessary to accomplish its primary purpose as stated in the articles of
incorporation, the approval of the stockholders or members shall not be necessary.

Ver 1
Power to declare dividend (Sec 42) (43)
Rule: BOD can declare only dividend out of the unrestricted retained earnings
Cash/property dividend Stock dividend

1st applied to unpaid
Withheld until his unpaid
Delinquent balance on the subscription
subscription is fully paid.
plus cost and expense
Approval of 2/3 of the
Approval of the Without approval of outstanding capital stock
stockholder stockholders. (Regular/special meeting
called for the purpose)
Prohibited from retaining surplus profits
Corporation prohibited to retain surplus profit (unappropriated retained earnings) in

excess of 100% of their paid in capital
Exception:
1. Definite corporate expansion projects or programs (appropriation for expansion

project)
2. Prohibition under any loan agreement with any financial institution or creditor without
its/his consent, and such consent has not yet been secured; or (Appropriation for bond
redemption)
3. Retention is necessary under special circumstances obtaining in the corporation, such

as when there is need for special reserve for probable contingencies. (Appropriation for
contingency)
4. Addition: provided by law. (appropriation for treasury stock)
Power to enter into management contract (Sec 43) (44)
No corporation shall conclude a management contract with another corporation (also

apply to any contract whereby a corporation undertakes to manage or operate all or
substantially all of the business of another corporation, whether such contracts are
called service contracts, operating agreements or otherwise) unless such contract shall
have been approved by the board of directors and by stockholders owning at least the
majority of the members in the case of a non-stock corporation, at the meeting duly
called for the purpose:

Ver 1
Exception: Then the management contract must be approved by the stockholders of
the managed corporation owning at least two-thirds (2/3) of the total outstanding
capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case
of a non-stock corporation under the following:
(1) Where a stockholder or stockholders representing the same interest of both the
managing and the managed corporations own or control more than one-third (1/3)
of the total outstanding capital stock entitled to vote of the managing corporation;
or
(2) Where a majority of the members of the board of directors of the managing
corporation also constitute a majority of the managed corporation
These shall apply to any contract whereby a corporation undertakes to manage or operate
all or substantially all of the business of another corporation, whether such contracts are
called service contracts, operating agreements or otherwise: Provided, however, That such
service contracts or operating agreements which relate to the exploration,development,
exploitation or utilization of natural resources may be entered into for such periods as
maybe provided by pertinent laws or regulations.
Term of management contract
No management contract shall be entered into for a period longer than five years for any
one term.
Exception: that such service contracts or operating agreements which relate to the
exploration, development, exploitation or utilization of natural resources may be entered
into for such periods as may be provided by the pertinent laws or regulations.
Ultra vires acts of corporations.
No corporation under this Code shall possess or exercise any corporate powers except
those conferred by this Code or by its articles of incorporation and except such as are
necessary or incidental to the exercise of the powers so conferred. (Sec. 44) (45)
Outstanding
Majority of capital Stock
Summary of vote required for Majority of
the Quorom
corporate act BOD
of the BOD Majorit
y
2/3

Ver 1
Retain its specific corporate term as
stated in the article of incorporation √
(Sec 11)
Amendment of Article of
√ √
Incorporation (Sec 15) 16
Election of Directors or trustees (Sec

√
23 & 29) 24
Authority for the stockholders or

members to vote through remote
√
communication or in absentia (Sec
23)
Removal of Director or trustees (Sex

√
27) 28
Calling, for special meetings for

removal of director or trustee (Sec √
27) 28
Filing of vacancy other than removal

or expiration of term provided the
√
remaining director constitute quorom
(Sec 28) 29
Compensation of directors (Sec 29)

√
30
Ratification of Self-dealing director

√
(Sec 32) 33
Ratification of interlocking director

√
(Sec 32) 33
Disloyalty of a director (Sec 33) 34 √
Delegation of power to executive

√
committee (Sec 34) 35
Extension or shortening of
√ 1√
corporate term (Sec 36)

Ver 1
Increase or decrease capital
√ 2√
stock (Sec 37)
Incur, create or increase bond

√ 2√
indebtedness (Sec 37)
Denial for pre-emptive right thru

amendment of article of *√
incorporation (Sec 38)
Denial of pre-emptive right in

exchange for property needed for
corporate purposes or in payment of 2√
a previously contracted debt. (Sec
38)
Sale or disposition of all or

substantially all of corporate 3√
property (Sec 39)
Investment of corporate fund in

another corporation other than √ 1√
for primary purpose (Sec 41)
Declaration of stock dividend

√ 2√
(Sec 42)
Power to enter Management

√ 2√
contract (Sec 43)* 44
Adoption of by-laws after

√
incorporation (Sec 45)
Amendment to by-laws (Sec 47) √ √
Delegation of power to the Board to

√
amend the by-laws (Sec 47)
To revoke the delegated power given

to the Board to amend the by-laws √
(Sec 47)

Ver 1
Choosing presiding officer among
stockholders upon petition to call 4√
meeting by the stockholders (Sec 49)
Quorom of stockholders meeting

√
(Sec 51)
Quorom of board of director (Sec 52) √
Authority for the stockholders or

members of Corporations to vote
√
through remote communication or in
absentia (Sec 57)
Fixing the issuance price of no-par

value share by the BOD when
√
authorized by the Article of
Incorporation (Sec 61) 62
Fixing the issuance price of no-par

value share in the absence of price
fixed in the articles of incorporation √
or authority given to the BOD to fixed
the issuance price (Sec 61) 62
Merger or consolidation (Sec 76) √ √
Adopt a plan of distribution of

assets of a non-stock corporation √ √
(Sec 94) 95
Corporate dissolutions thru

voluntary dissolution where no
√ √
creditors or creditors are
affected, (Sec 134, 135) 118, 119
Adoption of by-laws prior to

approved and signed by all the incorporators
incorporation (Sec 45) 46
*√ - Stockholder meeting not required except those amendment of articles of corporation

wherein the corporation code require a regular or special stockholders meeting.

Ver 1
*√ - Remaining director provided they constitute quorum
1√ - Ratified
2√ - Approved
3√ - Authorized
4√ - Stockholders present
Nota Bene: Letter in bold letter are required to be approved by both the BOD and
stockholders or members.
* However, in case (1) where a stockholder or stockholder representing the same interest
of both the managing and the managed corporations own or control more than one-third
(1/3) of the total outstanding capital stock entitled to vote of the managing corporation;
or (2) where a majority of the members of the board of directors of the managing
corporation also constitute a majority of the members of the board of directors of the
managed corporation then the management contract must be approved by the
stockholders of the managed corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members
in the case of a non-stock corporation. (Sec 43) 44
Adoption of by-laws (Sec. 45) (46)
1. Adoption of by-laws before incorporation
Approved and signed by all the incorporators and submitted to the Commission, together
with the articles of incorporation.
2. Adoption of by-laws after incorporation

1. Affirmative vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the members in case of non-
stock corporations.
2. Th bylaws shall be signed by the stockholders or members voting for them and shall
be kept in the principal office of the corporation, subject to the inspection of the
stockholders or members during office hours. A copy thereof, duly certified by a
majority of the directors or trustees and countersigned by the secretary of the
corporation, shall be filed with the Commission and attached to the original articles
of incorporation.
The Commission shall not accept for filing the bylaws or any amendment thereto of any
bank, banking institution, building and loan association, trust company, insurance
company, public utility, educational institution, or other special corporations governed by

Ver 1
special laws, unless accompanied by a certificate of the appropriate government agency to
the effect that such bylaws or amendments are in accordance with law
Amendments to bylaws (Sec. 48)
Whenever any amendment or new by-laws are adopted, such amendment or new by -laws
shall be attached to the original by-laws in the office of the corporation, and a copy thereof,
duly certified under oath by the corporate secretary and a majority of the directors or
trustees, shall be filed with the Securities and Exchange Commission the same to be
attached to the original articles of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the issuance by the Securities
and Exchange Commission of a certification that the same are not inconsistent with this
code
Contents of by-laws (Sec. 48) (47)
Private Corporation may provide the following in its by-laws:
a. The time, place and manner of calling and conducting regular or special meetings
of the directors or trustees;
b. The time and manner of calling and conducting regular or special meetings and
mode of notifying the stockholders or members thereof;
c. The required quorum in meetings of stockholders or members and the manner of
voting therein;
d. The modes by which a stockholder, member, director or trustee may attend
meetings and cast their votes;
e. The form for proxies of stockholders and members and the manner of voting them
f. The directors or trustees qualifications, duties and responsibilities, the guidelines
for setting the compensation of directors or trustees and officers, and the
maximum number of other board representations that an independent
director or trustee may have which shall, in no case, be more than the
number prescribed by the Commission;
g. The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof;
h. The manner of election or appointment and the term of office of all officers other
than directors or trustees;
i. The penalties for the violation of the bylaws;
j. In case of stock corporations, the manner of issuing stock certificates; and
k. Such other matters as may be necessary for the proper or convenient transaction
of its corporate affairs for the promotion of good governance and anti-graft
and corruption measures.

Ver 1
An arbitration agreement may be provided in the bylaws.
Distinction between Directors and Stockholders Meeting
Director Meeting Stockholder Meeting

Proxy ➢ Proxy vote not allowed ➢ Proxy vote allowed
(Sec. 25)
Manner of Voting ➢ The directors must vote ➢ Right to vote of
in person. However, a stockholders or
director or trustees who members may be
cannot physically attend exercised in person,
or vote at board through a proxy, or
meetings, can when so authorized
participate and vote in the bylaws,
through remote through remote
communication such as communication or
videoconferencing, in absentia. (Sec.
teleconferencing, or 49,57 )
other alternative modes When so authorized
of communication that in the by laws or by
allow them reasonable a majority of the
opportunities to board of directors,
participate (Sec. 52) the stockholders or
members of
corporations may
also vote through
remote
communication or in
absentia : Provided
that the votes are
received before the
corporation finishes
the tally of votes
➢ A stockholder or
member who
participates through
remote
communication or in
absentia shall be
deemed present for

Ver 1
purposes of quorum
(Sec. 57)
Date of meeting ➢ Regular meeting- monthly ➢ Regular meeting-
unless the bylaw provide annually as fixed by
otherwise (Sec. 52,53) the bylaw if not any
➢ Special Meeting- at date after April 15 +
anytime upon call of the written notice 21
president or provided in the days prior to
by-laws (Sec. 52) (53) meeting (Sec. 49)
➢ Regular and special ➢ Special meeting- at
meeting required a notice any time deemed
of at least two days prior to necessary or as
scheduled meeting unless a provided in the
longer time is provided in bylaws and written
the bylaws notice 1 week prior
➢ Notice can be waived to meeting or state
express or implied in bylaw.
Place of meeting ➢ Anywhere in or outside of ➢ Principal office of
the Philippines unless the the corporation as
by law provide otherwise. set forth in the
(Sec. 52) (53) articles of
incorporation, or if
not practicable, in
the city or
municipality where
the principal office
of the corporation is
located. (Sec. 50)
➢ That any city or
municipality in
Metro Manila, Metro
Cebu, Metro Davao
and other
Metropolitan areas
shall, for purposes
of this section, be
considered a city or
municipality.

Ver 1
➢ Improperly or
called- valid if within
the power or
authority of the
corporation and
provided all
stockholders or
members are
present or duly
presented.
Quorum ➢ Majority of ➢ Stockholders
the BOD/ representing
trustees as a majority of
fixed in the the
article of outstanding
incorporation capital stock
unless the or majority
article or by of the
laws members in
provides a the case of
greater nonstock
majority. corporations.
(Sec 25) (Sec 51)
Preside the ➢ The chairman or, in his
meeting absence, the president
unless the bylaws
provide otherwise. (Sec
53)
Regular meeting
At each regular meeting of stockholders or members, the board of directors or trustees

shall endeavor to present to stockholders or members the following:
(a) The minutes of the most recent regular meeting which shall including, among
others:
(1) A description of the voting and vote tabulation procedures used in the previous
meeting;

Ver 1
(2) A description of the opportunity given to stockholders or members to ask
questions and a record of the questions asked and answers given;
(3) The matters discussed and resolutions reached
(4) A record of the voting results for each agenda;
(5) A list of the directors or trustees, officers and stockholders or members who
attended meeting, and
(6) Such other items that the Commission may require in the interest of good
corporate governance and the protection of minority stockholders.
(b) A members’ list for nonstock corporation and, for stock corporation, material
information on the current stockholders, and their voting rights;
(c) A detailed, descriptive, balance and comprehensible assessment of the corporation’s
performance, which shall include information on any material change in the
corporation’s business, strategy and other affairs;
(d) A financial report for the preceding year, which shall include financial statements
duly signed and certified in accordance with this Code and the rules the commission
may prescribe, a statement on the adequacy of the corporation internal controls or
risk management systems, a statement of all external audit and non-audit fees;
(e) An explanation of the dividend policy and the fact of payment of dividends or the
reasons for nonpayment thereof;
(f) Directors or trustee profiles which shall include, among others, their qualifications
and relevant experience, length of services in the corporation, trainings and
continuing education attended, and their board representations in other
corporations;
(g) A director or trustee attendance of each director or trustee at each of the meeting
of the board and its committees and in regular or special stockholder meetings;
(h) Appraisals and performance reports for the board and the criteria and procedure for
assessment;
(i) A director or trustee compensation report prepared it accordance with this code and
rules the commission may prescribe;
(j) Director disclosures on self-dealings and related party transactions and/or
(k) The profiles of directors nominates or seeking election or reelection.
A director, trustee, stockholders or members may propose any other matter for inclusion
in the agenda at any regular meeting of stockholders or members.
Closing of stock and transfer book prior to meeting
Unless the bylaws provide for a longer period, the stock and transfer book or membership
books shall be closed at least twenty (20) days for regular meetings and seven (7) days
for special meetings before the scheduled date of the meeting.
Notice of Postponement of stockholder’s meeting

Ver 1
In case of postponement of stockholders’ or members’ regular meetings, written notice
thereof and the reason thereof shall be sent to all stockholders or members of record at
least two (2) weeks prior to the date of the meeting, unless a different period is required
under the bylaws, law or regulation.
Content of notice of meeting
Notice shall state the time, place and purpose of the meetings. Each notice of meeting shall
further be accompanied by the following:
a. The agenda for the meeting

b. A proxy form which shall be submitted to the corporate secretary within a
reasonable time prior to the meeting
c. When attendance, participation, and voting are allowed by remote communication
or in absentia, the requirements and procedures to be followed when a stockholder
or member elects either option; and
d. When the meeting is for the election of directors or trustees, the requirements, and
procedure for nomination and election.
Effect of improperly held or called meeting
All proceedings and any business transacted meeting at a meeting of the stockholders or
members are valid even if the meeting is improperly held or called provided the following
are present
1. The business transacted in the meeting is within the powers or authority of the
corporation
2. All the stockholders or members of the corporation are present or duly represented
at the meeting and not one of them expressly states at the beginning of the meeting
that the purpose of their attendance is to object to the transaction of any business
because the meeting is not lawfully called or convened.
Proper person to call meeting
1. Person designated in the bylaws have authority to call stockholder’s or members

meetings
2. In the absence of such provision in the by-laws, the meeting may be called by a
director or trustee or by officer entrusted with the management of the corporation.
3. When there is no person authorized to call a meeting, the Secretaries and Exchange
Commission, upon petition of a stockholder or member on a showing of a good
cause therefor, may issue an order to the petitioning stockholder or member
directing him to call a meeting of the corporation by giving proper notice required
by this Code or by the by-laws. (Sec. 50 )

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4. A special meeting of the stockholders or members of a corporation for the purpose
of removal of directors or trustees, or any of them, must be called by the secretary
on order of the president or on the written demand of the stockholders representing
or holding at least a majority of the outstanding capital stock, or, if it be a non-
stock corporation, on the written demand of a majority of the members entitled to
vote. ( Sec. 28 )
5. Special meetings of the board of directors or trustees may be held at any time upon
the call of the president or as provided in the by-laws. (Sec. 53 )
Voting power
1. Secured Creditors – In case a stockholder grants security interest in his or her

shares in stock corporation, the stockholder-grantor shall have the right to attend
and vote at meetings of stockholders, unless the secured creditor is expressly given
by the stockholder-grantor such right in writing which is recorded in the appropriate
corporate books ( Sec. 54) (Sec. 55)
2. Administrator – Executor/administrator/receiver and other legal representative
appointed by the court may attend and vote in behalf of the stockholders or
members without any written proxy. (Sec. 54) (Sec. 56 )
3. Voting in case of joint ownership of stock – the consent of all the co-owners
shall be necessary in voting shares of stock owned by two (2) or more persons,
unless there is a written proxy, signed by all the co-owners, authorizing one (1) or
some of them or nay other person to vote such share or shares. Provided, that when
the shares are owned in an “and/or” capacity by the holders thereof, any one of the
joint owners can vote said shares or appoint proxy therefor ( SEC 55 )
4. Treasury shares – treasury shares no right to vote as long as remain in treasury
( Sec 56 ) (57)
5. Proxies ( Sec. 57) ( Sec. 58)
a. In writing
b. Signed by stockholder or member
c. Filed before the scheduled meeting with the corporate secretary.
d. Valid only for the meeting which it is intended
e. If provided a period, it has a limit for a period of 5 years
6. Voting trusts ( Sec 57 ) ( 58 )
a. Must be in writing and notarized
b. Specify the term and condition
c. A certified copy of such agreement shall be filed with the corporation and
with the Commission; otherwise, the agreement is ineffective and
unenforceable

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d. Period of agreement not to exceed 5 years except voting trust specifically
required as a condition in a loan agreement ( automatically expire upon
payment of the loan )
e. Certificate pf stock covered by voting trust agreement shall be cancelled and
a new one shall be issued in the name of the trustee.
f. The books of the corporation shall state that the transfer in the name of the
trustee or trustees is made pursuant in the voting trust agreement
g. No voting trust agreement shall entered into for purposes of circumventing
the laws against competitive agreements, abuse of dominant position , anti-
competitive mergers and acquisitions, violations of nationality and capital
requirements , or of the perpetuation of fraud
h. Automatically expire at the end of the agreed period unless renewed.
i. The voting trust certificates as well as the certificates of stock in the name
of the trustee or trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the trustors.
j. The voting trustee or trustees ma vote by proxy or any manner authorized
under the bylaws unless the agreement provides otherwise.
STOCK AND STOCKHOLDERS
• Any contract for the acquisition of unissued stock in an existing corporation still to
be formed shall be deemed a subscription notwithstanding the fact that the parties
refer to it as a purchase or some other contract. ( Sec. 59) (60) Holders of
subscribed shares not fully paid which are not delinquent shall have all the rights of
a stockholder ( Sec. 71 ) (72)
• A subscription for shares of stock of a corporation still to be formed ( Sec. 60 ) (61)
BEFORE submission of articles of incorporation to the SEC
a. Irrevocable for a period of at least six (6) months from the date of subscription
Exception.
1. All of the other subscribers’ consent to the revocation
2. The incorporation f said corporation fails materialize within said period or within
a long period as may be stipulated in the contract subscription:
AFTER submission of articles of incorporation to the SEC
No pre-incorporation subscription may be revoked
Consideration for stocks
Stocks shall not be issued for a consideration less than the par issued price thereof
otherwise it is watered stock. (Sec. 61) (62)

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Consideration for the issuance of stock may be:
(a) Actual cash paid to the corporation

(b) Property, tangible or intangible, actually received by the corporation and necessary
or convenient for its use and lawful purposes at a fair valuation equal to the par or
issue vale of the stock issued;
(c) Labor performed for or services actually rendered to the corporation
(d) Previously incurred indebtedness of the corporation
(e) Amounts transferred from unrestricted retained earnings stated capital;
(f) Outstanding shares exchanged for stocks in the event reclassification or
conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.
➢ Where the consideration is other than actual cash, or consists of intangible property
such as patents or copyrights, the valuation thereof shall initially be determined by
the stockholders or the board of directors, subject to the approval of the
Commission.
➢ Shares of stock shall not be issued in exchange for promissory notes or future
service.
Determination of issued price of no-par value share
1. Fixed in the article of incorporation

2. Board of directors pursuant to authority conferred upon it by the articles of
incorporation or the by-laws
3. Stockholders representing at least a majority of the outstanding capital stock at a
meeting duly called for the purpose. (Sec. 61)
• Shares of stock so issued are personal property and may be transferred by delivery
of the certificate or certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. (Sec. 62) (63)
• No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation, showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred. (Ibid)
• No certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest and expenses ( in case of delinquent shares ), if
any is due, has been paid. (Sec. 63) (64)
Liability of directors for watered stocks ( Sec 64) (65)
A director or officer of a corporation who :

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(a) Consents to the issuance of stocks for “ a consideration less than its par or issued
value;
(b) Consents to the issuance of stocks for a consideration other than cash, valued in
excess of its fair value; or,
(c) Having knowledge of the insufficient consideration does not file a written objection
with the corporate secretary
Liable to the corporation or its creditors, solidarily with the stockholder concerned for the
difference between the value received at the time of issuance of the stock and the par or
issued value of the same.
• Subscribers to stocks shall be liable to the corporation for interest on all unpaid
subscriptions from the date of subscription, if so required by and at the rate of
interest fixed in the subscription contract, the prevailing legal rate shall apply. ( Sec
65 ) (66)
Rights of stockholders to bring suits
1. Derivative suit – one brought by one or more stockholders or members in the

name and on behalf of the corporation to redress wrongs committed against it or to
protect or vindicate corporate rights , whenever the officials of the corporation
refuse to sue, or are the ones to be sued or hold control of the corporation.
2. Individual suit – action brought by a stockholder against the corporation for direct
violation of his contractual rights as individual stockholders. Any recovery by the
stockholder belongs to him.
3. Representative suit – when a wrong is committed against a group of stockholders,
a stockholder may bring suit in behalf of himself and all other stockholders who are
similarly situated.
Remedies for payment of stock subscription
2. Extra judicial sale at public auction ( Sec. 66-68 )

1. Payment of any unpaid subscription or any percentage thereof, together with the
interest accrued, if any, shall be made on the date specified in the contract of
subscription or on the date stated in the call made by the board. (Sec. 66, R.A
11232 )
2. Failure to pay on such date shall render the entire balance due and payable and
shall make the stockholder liable for interest at the legal rate on such balance,
unless a different rate of interest is provided in the by-laws, computed from such
date until full payment. The interest shall be computed from the date specified, until
full payment of the subscription

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3. If within thirty (30) days from the said date no payment is made all stocks covered
by said subscription shall thereupon become delinquent and shall be subject to
sale as unless the board of directors’ orders otherwise
4. Board resolution ordering the sale of delinquent stock and shall specifically state
the amount due on each subscription plus all accrued interest, and the date, time
and place of sale which shall not be less than thirty (30) days nor more than sixty
(60) days from the date the stocks become delinquent.
5. Copy of the resolution, shall be sent to every delinquent stockholder either
personally or by registered mail.
6. Published once a week for two (2) consecutive weeks in a newspaper of general
circulation in the province or city where the principal office of the corporation is
located
7. Delinquent stocks shall be sold at public auction to such bidder who shall offer to
pay the full amount of the balance on the subscription together with accrued
interest, costs of advertisement and expenses of sale, for the smallest number of
shares or fraction of a share.
8. Stock purchased shall be transferred to such purchaser in the books of the
corporation and a certificate for such stock shall be issued in his favor.
9. Should there be no bidder at the public auction the corporation may bid for the
same, and the total amount due shall be credited as paid in full in the books of the
corporation. The shares acquired by the corporation shall be held as treasury
shares.
3. Judicial action – collecting by action in a court of proper jurisdiction the amount due
on any unpaid subscription, with accrued interest, costs and expenses. ( Sec. 69)
(70)
4. Collection from cash dividends and withholding of stock dividends- any cash
dividends due on delinquent stock shall first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be withheld from
the delinquent stockholder until his unpaid subscription is fully paid. (Sec. 43)
5. To deny delinquent shares the right to vote – no delinquent stock shall be voted for
the entitled to vote or to representation at any stockholders’ meeting nor shall the
holder thereof be entitled to any of the rights of a stockholder except the right to
dividends in accordance with the provisions of this Code, until and unless he pays
the amount due on his subscription with accrued interest, and the costs and
expenses of advertisement , if any. (Sec. 70) ( 71)
• Lost or destroyed Certificates
The following procedure shall be followed by a corporation in issuing new certificates
of stock in lieu of those which have been lost, stolen, or destroyed:
(a) The registered owner of a certificate of stock in a corporation or such
person’s legal representative shall file with the corporation an affidavit in

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triplicate setting forth, it possible, the circumstances as to how the certificate
was lost, stolen or destroyed, the number of shares represented by such
certificate, the serial number of the certificate and the name of the
corporation which issued the same. The owner of such certificate of stock
shall also submit such other information and evidence as may be deemed
necessary; and
(b) After verifying the affidavit and other information and evidence with the
books of the corporation, the corporation shall publish a notice in newspaper
of general circulation in the place where the corporation has its principal
office, once a week for three (3) consecutive weeks at the expense of the
registered owner of the certificate of stock which has been lost, stolen or
destroyed. The notice shall state the name of the corporation, the name of
registered owner, the serial number of the certificate, the number of shares
represented by such certificate, and shall state the after the expiration of
one (1) year from the date of the last publication, if no contest has been
presented to the corporation regarding the certificate of stock, the right to
make contest shall be barred and the corporation shall cancel the lost,
destroyed or stolen certificate of stock in its books. In lieu thereof, the
corporation shall issue a new certificate of stock, unless the registered
owners files a bond or other security as may be required, effective for a
period of one (1) year, for such amount and in such form and with such
sureties as may be satisfactory to the board of directors, in which case a
new certificate may be issued even before the expiration of the one (1) year
period provided herein. If a contest has been presented to the corporation
or if an action is pending in court regarding the ownership of the certificates
of stock which has been lost, stolen or destroyed, the issuance of the new
certificate of stock in lieu thereof shall be suspended until the court renders
a final decision regarding the ownership of the certificate of stock which has
been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence in the part of the corporation and its
officers, no action may be brought against any corporation which shall have issued
certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure
above-described.

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Learning Activity:
Formation of Corporation
2. Find a group pf 5 persons whom you can work with in registering your own corporation
online using the online SEC Registration Portal. Download the system generated documents
and document the entire process of the online registration. Observe correct grammar and

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MODULE 2
Subtopic 2
Books and Records, Merger and Consolidation, Appraisal Right, Nonstock
Corporation, Close Corporation, Educational Corporation, Religious Corporation,
One Person Corporation, Foreign Corporation, Dissolution, Investigation,
Offenses, Penalties (Sec. 73 – 188, RA 11232)
Learning Outcome:
1. What are the different kinds of books and when are they available for reproduction and
examination to the Stockholders?
2. What is the meaning of Corporate Reorganization, Merger and Consolidation?
3. What is the meaning of Appraisal Right?
4. What are the differences and the laws and rules that govern Non-stock Corporation,
Close Corporation, Educational Corporation, Religious Corporation, One Person
Corporation
5. What are the Modes of Dissolution and liquidation
6. What is the meaning of foreign corporation and what are the laws and rules that
govern them.
7. What are the rights of foreign corporations
8. What are the instances that will warrant the suspension and revocation of license
including the investigation, offenses and penalties under the Code?
9. What is the jurisdiction of the Securities and Exchange Commission and its powers
under the Code?
10. What are other relevant Miscellaneous Provisions under the Code?
Course Contents:
CORPORATE BOOKS AND RECORDS
Books to be kept
Every corporation shall keep and carefully preserve at its principal office all information
relating to the corporation including but not limited to: The articles of incorporation and
bylaws of the corporation and all amendments;
(a) The current ownership structure and voting rights of the corporation, including list of
stockholders of members, group structures, intra-group relations, ownership data, and
beneficial ownership;
(b) The names and addresses of all the members of the board of directors or trustees and
the executive officers;
(c) A record of all business transactions;
(d) A record of all the resolutions of the board of directors or trustees and of the

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stockholders or members;
(e) Copies of the latest reportorial requirements submitted to the commission; and
(f) The minutes of all meetings of stockholders or members, or of the board of directors
or trustees.
⚫ Corporate records, regardless of the form in which they are stored, shall be open to
inspection by any director, trustee, stockholder or member of the corporation in person
or by a representative at reasonable hours on business days, and a demand in writing
may be made by such director, trustee or stockholder at their expense, for copies of
such records or excerpts from said record.
Confidentiality of Books/documents inspected
The inspecting or reproducing party shall remain bound by confidentiality rules under
prevailing laws, such as:
1. Rules on trade secret or processes I=under “Intellectual Property Code of the Philippines
(R.A. 8293)
2. Data Privacy Act of 2012 (R.A. 10173)
3. The securities Regulation Code (R.A. 8799)
4. Rules of Court.
⚫ A requesting party who is not a stockholder or member of records, or is a competitor,

director, officer, controlling stockholder or otherwise represents the interest of a
competitor shall have no right to inspect or demand reproduction of corporate records.
Liability of stockholders for abuse of rights of inspection
Any stockholder who shall abuse rights granted under this section shall be penalized under
Section 158 of this Code without prejudice to the provisions of Republic Act No. 8293
otherwise known as the “Intellectual Property Code of Philippines”, as amended, and
Republic Act No. 10 173, otherwise known as the “Data Privacy Act of 2012”.
Liability of officer or agent of corporation
Liability of the officer or agent of the corporation for refusing any director, trustees,
stockholder or member of the corporation to examine and copy excerpts from its records
or minutes
a. Shall be liable to such director, trustee, stockholder or member for damages, and in
addition, shall be guilty of an offense which shall be punishable under Section 161 of this
Code:
b. That if such refusal is made pursuant to a resolution or order of the board of directors
or trustees, the liability under this section for such action shall be imposed upon the
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directors or trustees who voted foe such refusal:
Defenses available to offer or agent of corporation
Defenses under the code in refusing the person demanding to examine and copy excerpts
from the corporation’s records and minutes:
a. Improperly used any information secure through any prior examination of the records
or minutes of such corporation or of any other corporation,
b. Was not acting in good faith or
c. Not for a legitimate purpose in making his demand to examine or reproduce corporate
records,
d. A competitor, director, officer, controlling stockholder or otherwise represents the
interest of a competitor.
Denial of stockholder right to inspect book
If the corporation denies or does not act on a demand for inspection and/or reproduction,
the aggrieved party may report such denial or inaction to the Commission. Within five (5)
days from receipt of such report, th4e Commission shall conduct a summary investigation
and issue an order directing the inspection of reproduction of the requested records.
⚫ Stock corporations must also keep a stock and transfer book, which shall contain a
record of all stocks in the names of the stockholders alphabetically arranged; the
installments paid and unpaid on all stocks for which subscription has been made, and
the date of payment of any installment: a statement of every alienation, sale or
transfer of stock made, the date thereof , by and to whom made; and such other
entries as the bylaws may prescribe. The stock and transfer book shall be kept in the
principal office of the corporation or in the office of its stock transfer agent and shall
be open for inspection by any director or stockholder of the corporation at reasonable

hours on business days.
⚫ A stock transfer agent or one engaged principally in the business of registering transfer
of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines
upon securing a license form the Commission and the payment of a fee to be fixed by
the Commission, which shall be renewable annually: Provided, That a stock corporation
is not precluded from performing or making transfers of its own stocks, in which case
all the rules and regulations imposed on stock transfer agents, except the payment of
a license fee herein provided, shall be applicable: Provided, further, That the
Commission may require stock corporations which transfer and/or trade stocks in
secondary markets to have an independent transfer agent.

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Right to Financial Statements
A corporation shall furnish a stockholder or member , within ten (10) days from receipt of
their written request, its most recent financial statement, in the form and substance of the
financial reporting required by the Commission.
At the regular meeting of stockholders or members the board of directors or trustees shall
present to such stockholders or members a financial report of the operations of the
corporation for the preceding year, which shall include financial statements, duly signed
and certified in accordance with this Code, and the rules the Commission may prescribe.
However, if the total assets or total liabilities of the corporation are less than Six hundred
thousands pesos (P600,000), or such other amount as may be determined appropraite by
the Department of Finance, the financial statements may be certified under oath by the
treasurer and the president.
MERGER AND CONSOLIDATION
Plan of Merger or Consolidation
Two or more corporations may merge into a single corporation which shall be one of
constituent corporations or may consolidate into a new single corporation which shall be
the consolidated corporation. (Sec 75) (76)
Effect of merger or consolidation
The merger or consolidation shall have the following effects:
1. The constituent corporation shall become a single corporation which, in case of merger,
shall be the surviving corporation designated in the plan of merger; and, in case of
consolidation, shall be the consolidated corporation designated in the plan of consolidation;
2. The separate existence of the constituent corporation shall cease, except that of the
surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights privileges,
immunities or powers and shall be subject to all duties and liabilities of a corporation
organized under this code;
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all
the rights, privileges, immunities and franchises of each of the constituent corporations;
and all property real or personal, and all receivables due on whatever account, including
subscription to shares and other choses in action, and all and every other interest of, or
belonging to, or die to each constituent corporation, shall be deemed transferred to and
vested in such surviving or consolidated corporation without further act or deed; and
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5. The surviving or consolidated corporation shall be responsible and liable foe all the
liabilities and obligations of each of the of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself incurred such liabilities or
obligations and any pending claim, action or proceeding brought by or against any of such
constituent corporations may be prosecuted by or against the surviving or consolidated
corporation. The rights of creditors or lien upon the property of any of such constituent
corporations shall not be impaired by such merger or consolidation. (Sec 79) (80)
Appraisal Right
Any stockholder of a corporation shall have the right to dissent and demand payment of
the fair value of his shares in the following instances: (Sec 80) (81)
1. In case any amendment to the articles of incorporation has the effect of

a. Changing or restricting the rights of any stockholder on class of shares;
b. Authorizing preferences in any respect superior to those of outstanding shares of
any class;
c. Extending or shortening the term of corporate existence;
2. Sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all pf the corporate property and assets.
3. Merger or consolidation.
4. Investment of corporate funds in another corporation in business or for any other
purpose. (Sec 42)
Exercise of the appraisal right (Sec 82)
1. Any stockholder who shall have voted against the proposed corporate action. Written demand on
the corporation within thirty (30) days after the date on which the vote was taken for payment of
the fair value of his shares, failure to make the demand within such period shall be deemed a
waiver of the appraisal right.
2. Surrender of the certificate or certificate of stock representing his shares.
3. If within 60 days from the date the corporate action was approved by the stockholders,
the withdrawing stockholder and the corporation cannot agree on the fair value of the
shares, the fair value of the shares shall be determined and appraised by three (3)
disinterested persons, one of whom shall be named by the stockholder, another by the
corporation, and third by the two thus chosen and the same shall bi paid within 30 days
after such awards.
4. The corporation has unrestricted retained earnings in its books to cover such payment.
5. Upon payment by the corporation of the agreed or awarded price, the stockholder shall
forthwith transfer his shares to the corporation.

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⚫ From the time of demand for payment of the fair value of a stockholder’s share until
either the abandonment of the corporate action involved or the purchase of the said
shares by the corporation, all rights accruing to such shares including voting and
dividends rights shall be suspended except the right of such stockholder to receive
payment of the fair value thereof: Provided, That if the dissenting stockholder is not
paid the value of his shares within 30 days after the award, his voting and dividend
rights shall immediately be restored. (Sec 82) (83)
⚫ No demand for payment may be withdrawn unless the corporation consents thereto.
If, however, such demand for payment is withdrawn with the consent of the
corporation, or of the proposed corporate action is abandoned or rescinded by the
corporation or dissaproved by the Securities and Exchange Commission where such
approval is necessary, or if the securities and Exchange Commission determines that
such stockholder is not entitled to the appraisal right, then the right of said stockholder
to be paid the fair value of his shares shall cease, his status as a stockholder shall
thereupon be restored, and shall dividend distributions which would have accrued on
his shares shall be paid to him. (Sec 83) (84)
⚫ The costs and expenses of appraisal shall be borne by the corporation, unless the fair
value ascertained by the appraiser is approximately the same as the price which the
corporation may have offered to pay the stockholder, in which case they shall be borne
by the latter. (Sec 84) (85)

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NON-STOCK CORPORATION
Distinction between Stock Corporation and Non Stock Corporation
Stock Corporation Non Stock Corporation
Number of Directors Not less than 5 but not May or may not be more
more than 15 than fifteen (15) in
numbers as may be fixed
in their articles of
incorporation of bylaws.
(Sec 91)
Term of office of the One (1) year until their Not more than three (3)
director/trustees successors are elected years until their
and qualified. (Sec 23) successors are elected
and qualified. (Sec 91)
Purpose For profit. Organized for charitable,

religious, educational,
professional, cultural,
fraternal, literary,
scientific, social civic
services, or similar
purposes, like trade,
industry, agricultural and
like chambers, or any
combination thereof. (Sec
87)
Voting Cumulative Unless so limited,

broadened, or denied by
the articles of
incorporation or the
bylaws, each member,
regardless of class, shall
be entitled to one (1)
vote. (Sec 88)

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Manner of voting The right to vote of Unless otherwise provided
stockholders or members in the articles of
may be exercised in incorporation or the
person, through a proxy, bylaws, a member may
or when so authorized in vote by proxy, in
the bylaws, through accordance with the
remote communication or provisions of this code.
in absentia. The bylaws may likewise
authorize voting through
remote communication
and/or in absentia. (Sec
89)
Distribution of Authorized to distribute Not authorized to

dividends dividends to stockholders distribute dividends to its
members, trustees or
officers. (Sec 86) (87)
Transfer ability of Transferrable Membership in non-stock

interest corporation and all rights
arising therefrom are
personal and non-
transferable, unless the
articles of incorporation or
the bylaws otherwise
provide. (Sec 89) (90)
Ownership of director At least owner of one Except with respect to

share of stock independent trustees of
non-stock corporations
vested with public
interest, only a member of
the corporation shall be
elected as trustee. (Sec
91)
Stockholder/member Principal office of the Any place in the

place of meeting corporation as set forth in Philippines even outside
(Regular and Special) the articles of the place where the
incorporation, or, if not principal office of the
practicable, in the city or

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municipality where the corporation is located.
principal office of the (Sec 93)
corporation is located:
Provided, That any city or
municipality in Metro
Manila, Metro Cebu, Metro
Davao, and other
Metropolitan areas shall,
for purposes of this
section, be considered a
city or municipality. (Sec
50)
Persons who elect Officers are elected by the Unless otherwise provided
officers Board of Directors in the articles of
incorporation or the
bylaws, the members may
directly elect officers of a
non-stock corporation.
(Sec 91)
Definition of Non-stock Corporation
Is one where no part of its income is distributable as dividends its members, trustees, or
officers. Provided that any profit which a non-stock corporation may obtain as an incident
to its operation shall, whenever necessary or proper , be used for the furtherance of the
purpose or purposes for which the corporation was organized. (Sec 86) (87) It may be
formed or organized for:
1. Charitable
2. Religious
3. Educational
4. Professional
5. Cultural
6. Fraternal
7. Literary
8. Scientific
9. Social
10. Civic Service

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11. Similar purpose like trade, industry, agricultural, and like chambers, or any
combination thereof. (Sec 87)
⚫ The right of the members of any class or classes to vote may be limited, broadened or
denied to the extent specified in the article of incorporation or the bylaws. Unless so
limited broadened or denied, each member, regardless of class, shall be entitled to one
vote.
Rules of Distribution of Asset of Non-Stock Corporation
The assets of a non-stock corporation undergoing the process dissolution for shall be
applied and distributed as follows:
(a) All liabilities and obligations of the corporation shall be p0aid satisfied and discharged,
oe adequate provision shall be made thereof;
(b) Asset held by the corporation upon a condition requiring return, transfer or conveyance,
and which condition occur by reason of the dissolution, shall be returned, transferred
conveyed in accordance with such requirements;
(c) Assets received and help by the corporation subject limitations permitting their use only
for charitable, religious, benevolent, educational or similar purposes, but not held upon a
condition requiring return, transfer or conveyance by reason of dissolution, shall be
transferred or conveyed one (1) or more corporations, societies or organizations engaged
on activities in the Philippines substantially similar to those of the dissolving corporation
according to a plan of distribution adopted pursuant to this chapter;
(d) Asset other than those mentioned in the preceding paragraph, if any, shall distributed.
In accordance with the provisions of the articles of incorporation or the bylaws, to the
extent that the articles of incorporation or the bylaws determine the distributive rights of
members, or any class or classes of members, or provide for distribution; and
(e) In any other case, assets may be distributed to such persons, societies, organizations
or corporations whether or not organized for profit, as may be specified in a plan of
distribution adopted.
CLOSE CORPORATION
Definition of Close Corporation
A close corporation is one whose article of incorporation provides that:
(a) All corporation’s issued stock of all classes, exclusive of treasury shares, shall be held
of record by not more than a specified number of persons not exceeding twenty (20);
(b) All the issued stock of all classes shall be subject to one (1) or more specified
restrictions on transfer permitted by this Title; and

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(c) The corporation shall not list in any stock exchange or make any public offering of its
stock of any class
A corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation which is not a
close corporation. All corporation’s issued shares are not owned by not more than twenty
(20) person
⚫ Issued stock are subject to specified restriction on transfer

⚫ Cannot be listed in any stock exchange or make any public offering of any of its stock
of any class
⚫ A corporation is not a close corporation when at least two-third (2/3) of its voting or
voting rights is owned or controlled by another corporation which is not a close
corporation.
Corporation prohibited to organized as close corporation (BPI MOSEC)
a. Banks
b. Public Utilities
c. Insurance Companies
d. Mining or Oil Companies
e. Stock Exchange
f. Educational Institutions
g. Corporation vested with public interest
⚫ The article of incorporation of a close corporation my provide that the business of the
corporation shall be managed by the stockholders of the corporation rather than by a
board of directors. So long as this provision continues in effect, no meeting of
stockholders need be called to elect directors:
1. Unless the context clearly requires otherwise, the stockholders of the
corporation shall
be deemed to be directors for the purpose of applying the provisions of this code,
2. That the stockholders of the corporation shall be subject to all liabilities of

directors.
The articles of incorporation may likewise provide that all officers or employees or that
specified officers or employees shall be elected or appointed by the stockholders instead
of by the board of directors.

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Requisites on the restriction to transfer to bind third person. Restrictions on the right to
transfer shares must appear in
1. The article of incorporation

2. In the bylaws
3. In the certificate of stock
Otherwise, the same shall not be binding on any purchaser in good faith. Said restrictions
shall not be more onerous than granting the existing stockholders or the corporation the
option to purchase the shares of the transferring stockholder with such reasonable terms,
conditions or period stated. If, upon the expiration of said period, the existing stockholders
or the corporation fails to exercise the option to purchase the transferring stockholder may
sell their shares to any third person. (Sec 97)
Preemptive Right in Close Corporations
The preemptive right of stockholders in close corporations shall extend to all stock to be
issued, including re-issuance of treasury shares, whether for money property pr personal
services, or in payment of corporate debts, unless the articles of incorporation provide
otherwise. (Sec 101)
Withdrawal of Stockholder or Dissolution of Corporation
In addition and without prejudice to other rights and remedies available under this Title,
any stockholder of a close corporation may, for any reason compel the corporation to
purchase shares field at fair value, which shall not be less than the par or issued value,
when the corporation has sufficient assets in its books to cover its debts ans liabilities
exclusive of capital stock: Provided, That any stockholder of fa close corporation may, by
written petition to the Commission, compel the dissolution of such corporation whenever
any acts of the directors, officers, or those in control of the corporation are illegal,
fraudulent, dishonest, oppressive or unfairly prejudicial to the corporation or any
stockholder, or whenever corporate assets are being misapplied or wasted. (Sec 104)
SPECIAL CORPORATIONS
EDUCATIONAL CORPORATIONS
⚫ Trustees of educational institutions organized as non-stock corporations shall not be

less than five (5) nor more than fifteen (15): Provided, however, That the number of
trustees shall be in multiplies of (5) (Sec 106) (108)
⚫ Unless otherwise provided inn the articles of incorporation on the bylaws, the board of
trustees of incorporated schools, colleges, or other institutions of learning shall, as
soon as organized, so classify themselves that the term of office of one-fifth (1/5) of
their number shall expire every year. Trustees thereafter elected to fill vacancies,

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occurring before the expiration of a particular term, shall hold office only for the
unexpired period. Trustees elected thereafter to fill vacancies caused by expiration of
term shall hold office for five (5) years. A majority of the trustees shall constitute a
quorum for the transaction of business. The powers and authority of trustees shall be
defined in the bylaws. (Sec 106)
⚫ For institutions organized as stock corporations, the number and term of directors shall
be governed by the provision on stock corporations.
RELIGIOUS CORPORATIONS
⚫ Religious corporations may be incorporated by one or more persons. Such corporations

may be classified into: (Sec 109)
Corporation sole - as trustee, the affairs, properly and temporalities of any religious
denomination, sect or church, a corporation sole may be formed by the chief archbishop,
bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect
or church (sec 108)(110)
1. From and after filing with the Commission of the said articles of incorporation, verified
by affidavit or affirmation, and accompanied by the document such chief archbishop,
bishop, priest, minister, rabbi, presiding elder shall become a corporation sole and all
temporalities, estate and properties of the religious denomination, sec or church therefore
administered manage as such chief archbishop, bishop, priest, minister. rabbi, or presiding
elder shall be personally held in trust as a corporation sole. for the use purpose, exclusive
benefit and on behalf of the religious denomination sect or church including hospitals,
schools, colleges, orphan asylums, parsonages, and cemeteries thereof. (Sec 110)
2. Any corporation sole may purchase and hold real estate ad personal property for its
church, charitable, benevolent or educational purpose, and may receive bequests or gifts
for such purpose, (sec111)(113)
B. Religious societies.- Any religious society or religious order, or any diocese, synod, or
district organization of any religious denomination, sect or church, unless forbidden by the
constitution, rules, regulation, or discipline of the religious denomination, sect or church of
which it is part, or by competent authority, may, upon written consent and/or by an
affirmative vote at a meeting called for the purpose of at least two-third (2/3) of its
membership, incorporate for the administration of its temporalities or for the management
of its affairs, properties and estate by filling with the securities and Exchange Commission,
articles of incorporation verified by the by the affidavit of the presiding, elder, society, or
clerk or other member of such religious society or religious order or diocese, synod, or
district organization of the religious denomination , sect or church.(sec 114)(116).

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ONE PERSON CORPORATION
Definition of One- person corporation
A One Person Corporation is a corporation with a single stockholder. That only a natural
person, trust, or an estate may form a One Person Corporation.(Sec 116)
Corporation prohibited to organize as one- person corporation
1. Banks and quasi- banks,
2. Preneed
3. Trust
4. Insurance
5. Public and publicly listed companies
6. Non- chartered government owned and controlled corporations
7. Natural person who is licensed to exercise a profession for the purpose of exercising
such profession except as otherwise provided under special laws. (Sec 116)
Minimum Capita Stock Not Required for One Person Corporation
A One Person Corporation shall not be required to have a minimum authorized capital stock
except as otherwise provided by special law. Sec(117)
Articles of Incorporation
A One Person Corporation shall file article of incorporation in accordance with the
requirements under Section 14 of this Code. It shall likewise substantially contain the
following:
(a) If the single stockholder is a trust or an estate , the name, nationality and residence of
the trustee, administrator, executor, guardian, conservator, custodian or other person
exercising fiduciary duties together with the proof of such authority to act on behalf of the
trust or estate; and
(b) Name, nationality, residence of the nominee and alternate nominee, and the extent,
coverage and limitation of the authority.
Characteristics of One Person Corporation

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1. Corporation with a single stockholder.
2. That only a natural person, trust or an estate may Form a One Person Corporation.
3. Not required to submit and file corporate by laws. (Sec 119)
4. Shall indicate the letters ”OPC” either below or at the end of its corporate name. (Sec
120)
5. The single stockholder shall be the sole director and president of the One Person
Corporation.(Sec 121)
6. The single stockholder may not be appointed as the corporate secretary. (Sec 122)
7. Maybe self- appointed treasurer of the corporation by posting a bond to the commission
in such a sum as may be required.(Sec 122)
Treasurer Functions of the Corporate Secretary (Sec 123)
In addition to the functions designated by the One Person Corporation, the corporate
secretary shall:
(a) Be responsible for maintaining the minutes book and/ or records of the corporation.
(b) Notify the nominee or alternate nominee of the death or incapacity of the single
stockholder, which notice shall be given no later than five (5) days from such occurrence.
(c) Notify the Commission of the Death of the single stockholder within five (5) days from
such occurrence and stating in such notice the names, residence addresses, and contact
details of all known legal heirs: and
(d) Call the nominee or alternate nominee and the known legal heirs to a meeting and
advise the legal heirs with regard to, among others, the election of a new director,
amendment of the articles of incorporation, and other ancillary ad/ or consequential
matters.
Nominee and Alternate Nominee
The single stockholder shall designate a nominee who shall, in the event of the single
stockholder’s death or incapacity, take the place of the single stockholder as director and
shall manage the corporation’s affairs.ss
The article of incorporation shall state the names, residence address and contact details of
the nominee and alternative nominee, as well as the extent and limitations of their
authority in managing affairs of the One Person Corporation. The written consent of the
nominee and alternate nominee shall be attached to the application for incorporation. Such

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consent may be with draw in writing any time before the death or incapacity of the single
stockholder. (Sec 124)
Term of Nominee and Alternate Nominee
When the incapacity of the single stockholder is temporary, the nominee shall sit as director
and manage the affairs of the One Person Corporation until the stockholder by self
determination, regains the capacity to assume such duties. In case of death or permanent
incapacity of the single stockholder, the nominee shall sit director and manage the affairs
of the One Person Corporation until the legal heirs of the single stockholder have been
lawfully determined, and the heirs have designated one of them or have agreed that the
estate shall be the single stockholder of the One Person Corporation. The alternate nominee
shall sit s director and manage the One Person Corporation in case of the nominee’s
inability, incapacity ,death or refusal to discharge the functions as director and manager of
the corporation and only for the same term and under the same conditions applicable to
the nominee. (125)
Change of Nominee or Alternate Nominee
The single stockholder my, at any time, change its nominee and alternate nominee by
submitting to the Commission the names of the new nominees and their corresponding
written consent For this purpose, the articles of incorporation need not be amended
Minute Book
A one person corporation shall maintain a minutes book which shall contain all action,
decisions, and resolutions taken by the One person corporation ( Sec127)
Records in Lieu of Meetings
When action is needed on any matter, it shall be sufficient to prepare a written resolution,
signed and date by the single stockholder, and recorded in the minutes book of the One
Person Corporation. The date of recording in the minutes book shall be deemed to be the
date of the meeting for all purposes under this code. (SEC 128)
Reportorial Requirements
The One Person Corporation shall submit the following within such period as the
Commission may prescribe:
(a) Annual financial statements audited by an independent certified public accountant:

Provided, That if the total assets or total liabilities of the corporation are less than Six

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hundred thousand pesos (P600,000.00), the financial statements shall be certified under
oath by the corporation’s treasure and president.
(b) A report containing explanation or comments by the president on every qualification,

reservation, or adverse remark or disclaimer made by the auditor in the latter’s report.
(c) A disclosure of all self-dealings and related party transactions entered into between the
One Person Corporation and the single stockholder; and
(d) Other reports as the Commission may require.
For purposes of this provision, the fiscal year of One Person Corporation shall be that set
forth in its articles of incorporation or, in the absence thereof, the calendar year.
The Commission may place the corporation under delinquent status should the corporation
faill to submit the reportorial requirements three (3) times, consecutively or intermittently,
within a period of (5) years.
Liability of Single Shareholder
A sole shareholder claiming limited liability has the burden of affirmatively showing that
the corporation was adequately financed.
Where the single stockholder cannot prove that the property of the One Person Corporation
is independent of the stockholder’s personal property, the stockholder shall be jointly and
severally liable for the debts other liabilities of the One Person Corporation.
The piercing the corporate veil applies with equal force to One Person Corporations as with
other corporations. (Sec 130)
Conversion from an Ordinary corporation to a One Person Corporation
When a single stockholder acquires all the stocks of an ordinary stock corporation, the
latter may apply for conversation into a One Person Corporation, subject to the submission
of such documents as the commission may require. If the application for conversation is
approved, the commission shall issue a certificate of filing of amended articles of
incorporation reflecting the conversation. The One Person Corporation converted from an
ordinary stock corporation shall succeed the latter and be legally responsible all the latter’s
outstanding liabilities as of the date of conversation.(Sec 131)
Conversation from a One Person Corporation to a Ordinary Stock Corporation
A One Person Corporation may be converted into an ordinary stock Corporation after due
to notice to the commission of such fact and of the circumstances leading to the
conversation, and after compliance with all other requirements for stock corporations under
this Code and applicable rules Such notice shall be filed with the omission within sixty 60

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days from the occurrence of the circumstances leading to the conversation into an ordinary
stock corporation. If all requirements have been complied with the Commission shall issue
certificate of filing of amended articles of incorporation reflecting the conversion.
In case of death of the single stockholder, the nominee or alternate nominee shall transfer
the shares to the duly designated legal heir or estate within seven (7) days from receipt of
either an affidavit of heirship or self-adjudication executed by a sole heir, or any other legal
document declaring the legal heirs of the single stock holder and notify the commission of
the transfer. Within sixty (60) days from the transfer of the shares, the legal heirs shall
notify the Commission of their decision to either wind up and dissolve the One Person
Corporation or convert it into an ordinary stock corporation.
The ordinary stock corporation converted from a One Person Corporation shall succeed the
latter and be legally responsible for all the latter’s outstanding liabilities as of the date of
conversation
DISSOLUTION
Methods of dissolution (sec 11)
a. Voluntary dissolution where no creditors are affected (sec234)(118)
1. Majority vote of the board of directors or trustees, and by resolution adopted by the
affirmative vote of the stockholders owning at least two-third (2/3) of the outstanding
capital stock of members
2. Notice of meeting at least (20) days prior to the meeting shall e given to each
shareholder or member of record personally, by registered mail, or by any means
authorized under its bylaws, whether or not by any means authorized under its bylaws,
whether or not entitled to vote at the meeting,
3. Notice of the time, place, and object of the meeting shall be published once, prior to the
date if the meeting in a newspaper published in the place where the principal office of said
corporation is located, or if no newspaper is published in such place, in a newspaper of
general circulation in the Philippines.
4. A verified request for dissolution shall be filed with the commission stating:
a. The reason for the dissolution;
b. The form, manner, and time when the notices were given;
c. Names of the stockholders, directors or members and trustees who approved the
dissolution;
d. The date, place, and time of the meeting in which the vote was made; and

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e. The details of publication
5. The corporation shall submit the following to the Commission: (1) a copy of the
dissolution authorizing the dissolution, certified by a majority of the board of directors or
trustees and countersigned by the secretary of the corporation; (2) proof of publication;
and (3) favorable recommendation from the appropriate regulatory agency, when
necessary.
6. Within fifteen (15) days from receipt of the verified request for dissolution, and in the
absence of any withdrawal within said period the Commission shall aprove the request and
issue the certificate of dissolution. The dissolution shall take effect only upon the issuance
by the Commission of a certificate of Dissolution.
No application for dissolution of banks, banking and quasi-banking institutions, preneed,

insurance and trust companies, NSSLA's, pawnshops, and other financial intermediaries
shall be approved by the Commission unless accompanied by a favorable recommendation
of the appropriate government agency
B. Voluntary Dissolution where creditors are affected
1. Petition shall be signed by a majority of the corporation's board of directors or trustees,

verified by its president or secretary or one of uts directors or trustees, and shall set forth
all claims and demands against it, and that its dissolution was resolved upon by the
affirmative vote if tue stockholders representing at least two-thirds (2/3) of the outstanding
capital stock or at least two-thirds (2/3) of the members at a meeting of its stockholders
or members called for that purpose.
Content of the Petition
The petition shall likewise state:
a. The reason for the dissolution;
b. The form, manner, and time when the notices were given;
c. The date, place, and time of the meeting in which the vote was made;
2. The corporation shall submit to the Commission the following;
a. A copy of the resolution authorizing the dissolution. Certified by a majority of the board
of directors or trustees and countersigned by the secretary of the corporation; and
b. a list of all its creditors
3. If the petition is sufficient in form and substance, the Commission shall, by an order
reciting the purpose of the petition, fix a deadline for filling objections to the petition which

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date shall not be less than thirty (30) day nor more sixty (60) days after the entry of the
order.
4. Before such date, a copy of the order shall be published at least once a week for three
(3) consecutive weeks in newspaper of general circulation published in the municipality or
city where the principal office of the corporation is situated, or if there be no such
newspaper then in a newspaper of general circulation in the Philippines, and a similar copy
shall be posted for three (3) consecutive weeks in three (3) public places in such
municipality or city.
5. Upon five (5) days' notice, given after the date on which the right to file objections as
fixed in the order has expired, the Commission shall proceed to hear the petition and try
any issue raised in the objections filed and if no such objections is sufficient, and the
material allegations of the petition are true, it shall render judgment dissolving the
corporation and directing such disposition of its assets as justice requires and may appoint
a receiver to collect such assets and pay the debts of the corporation.
6. The dissolution shall take effect only upon the issuance by the Commission of a
certificate of dissolution.
Dissolution by shortening corporate term
1. Amending the Articles of incorporation to shorten the corporate term to the provisions
of this code. A copy of the amended articles of incorporation shall be submitted to the
Commission.
2. Upon the expiration of the shortened term, as stated the approved amended article of
incorporation, the corporation shall be deemed dissolved without a further proceedings,
subject to the provisions of the code on a liquidation.
3. In the case of expiration of corporate term, dissolution shall be automatically take effect
on the day following the last day of the corporate termstated in the articles of incorporation
without the need for the issuance by the Commission if a certificate of dissolution.
C. Involuntary Dissolution
A corporate may be dissolved by the Commission Moto propio ir join filling of a verified
complaint by and interested party.
The following may be grounds for dissolution of the corporation:
a. Non-use if corporate charter within five (5) years from the date of its incorporation.
b. Continuous inoperation of a corporation for a period at least five (5) consecutive years
b. Upon receipt of a lawful court dissolving corporation

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c. Upon finding by final judgment that the corporation procures its incorporation through
fraud;
d. Upon finding the final judgment that the corporation:
a. Was created for the purpose of committing, concealing or aiding the commission if
securities violations, smuggling , tax evasion and money laundering orbgraft and corrupt
practices;
b. Committed or aided in the Commission of securities violation, smuggling, tax evasions

money laundering, or flgraft and corrupt practices; and the stockholders knew of the same;
c. Repeatedly and Knowingly tolerated the Commission of graft and corrupt practices or
other fraudulent illegal act by its directors, trustees officers , employees
Definition of a Foreign Corporation
A foreign corporation is one formed, organized, or existing under laws other than those of
the Philippines' and who laws allow Filipino Citizens and corporations to do business in its
own country or state. It shall have the right to transact business in the Philippines after
obtaining a license for that purpose in accordance with this Code and a certificate of
authority from the appropriate government agency.
Resident Agent of foreign corporation
A resident agent may be either an individual residing in the Philippines or a domestic

corporation lawfully transacting business in the Philippines:
1. Individual-resident agent must be good moral character and of sound financial standing.
2. Domestic Corporation- must be of sound financial standing and must show proof that it
is in good srandingbas certufued by the Commission.
Law Applicable
A foreign corporation lawfully doing business in the Philippines shall be bound by all laws,
rules and regulations applicable to domestuc corporations of the same class.
EXCEPTION:
Those which provide for the:
1. Creation
2. Formation
3. Organization or

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4. Dissolution of corporations ot
5. Those which fix relations, liabilities, responsibilities or duties of stockholders, members,

or officers of corporations to each other or to the corporation.
Doing business without license
No foreign corporation transacting business in the Philippines without license or its

successors orbassigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or admniistratue agency of the Philippines; but such corporation
may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause if action recognized under Philippine Laws.
Grounds for the revocation of license
The license of a foreign corporation to transact business in the Philippines may be revoked
or suspended by the Commission upon any of the following grounds:
a. Failure to file its annual report or pay any fees as required by this code.
b. Failure to appoint and maintains resident agent in the Philippines as required by thus
Title;
c. Failure, after change of its resident agent or address, to submit to the Commission a
statement of such change as required by this title.
d. Failure to submit to the Commission an unauthenticated copy of any amendment to the

articles of incorporation or bylaws or if any articles of merger or consolidation within the
time prescribed by this Title;
e. A misrepresentation of any material matter in any application, report, affidavit or other

document submitted by such corporation pursuant to this Title;
f. Failure to pay any and all taxes, imposts, assessments or penalties if any, lawfully due
to the Philippines Government or any of its agencies or political subdivisions;
g. Transacting business in the Philippines outside of the purpose or purposes for which
such corporation is authorized under its license;
h. Transacting business in the Philippines as agent if or acting on behalf if any foreign

corporation or entity not duly licensed to do business in the Philippines; or
i. Any other grounds as would render it unfit to transact business in the Philippines.
Reportorial Requirements of Corporation

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Except as otherwise provided in this code or in the rules issued by the Commission, every
corporation domestic or foreign, doing business in the Philippines shall submit to the
Commission:
a. Annual financial statements audited by an independent certified public accountant:

Provided, That if the total assets or total liabilities of the corporation are less than Six
Hundred Thousand pesos (P600, 000.00) , the financial statements shall be certified under
oath by the corporation's treasurer or chief financial officer; and
b. A general information sheet.
Corporations yested with public interest must also submit the following:
1. A director, trustee compensation report; and
2. A director or trustee appraisal or performance report and the standards or criteria used
to assess each director or trustee. The reportorial requirements shall be submitted annually
and within such period as may be prescribed by the Commission. The commission may
take place the corporation under delinquent status in case of failure to submit reportorial
requirements three (3) times, consecutively or intermittently, within a period if five (5)
years. The commasion shall give reasonable notice to and coordinate with the appropriate
regulatory agency prior to placing on delinquent status companies under their special
regulatory jurisdiction.
Any person required to file a report with the commission may redact confidential
information from such required report: Provided: That such confidential information shall
be filed in a supplemental report prominently labelled "confidential", together with a
request for confidential treatment of the report and the specific grounds for the grant
thereof

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Learning Activity:
Formation of Corporation
2. Find a group pf 5 persons whom you can work with in registering your own corporation
online using the online SEC Registration Portal. Download the system generated documents
and document the entire process of the online registration. Observe correct grammar and

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Module 3
The Philippine Cooperative Code of 2008 (RA No. 9520) Financial
Rehabilitation and Insolvency Act of 2010 (RA No. 10142) Ease of
Doing Business and Efficient Government Service Delivery Act of
2018 (RA No. 11032)
Learning Outcomes:

1. Describe Organization and Registration of Cooperatives
2. Explain Administration
3. Describe the Responsibilities, Rights and Privileges of Cooperatives
4. Explain Membership, Rights and Obligations
5. Explain Capital Property of Funds
6. Explain Audit, Inquiry and Member’s Right to Examine
7. Describe Allocation and Distribution of Funds
8. Enumerate the Types and Categories of Cooperatives
9. Explain Merger and Consolidation of Cooperatives
10. Explain Dissolution of Cooperatives

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MODULE 4
Subtopic 1
Learning Outcome:
1. Describe Organization and Registration of Cooperatives
2. Explain Administration
3. Describe the Responsibilities, Rights and Privileges of Cooperatives
4. Explain Membership, Rights and Obligations
5. Explain Capital Property of Funds
6. Explain Audit, Inquiry and Member’s Right to Examine
7. Describe Allocation and Distribution of Funds
8. Enumerate the Types and Categories of Cooperatives
9. Explain Merger and Consolidation of Cooperatives
10. Explain Dissolution of Cooperatives
Learning Contents:
Cooperative
➢ is an autonomous and duly registered association of persons, with a common bond

of interest, who have voluntarily joined together to achieve their social, economic,
and cultural needs and aspirations by making equitable contributions to the capital
required, patronizing their products and services and accepting a fair share of the
risks and benefits of the undertaking in accordance with universally accepted
cooperative principles.

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Principles
o Voluntary and open membership

o Democratic member control
o Member economic participation
o Autonomy and independence
o Education, training, and information
o Cooperation among cooperatives
o Concern for community
Organization and Registration
1. Purpose
2. Objectives and Goals – to help improve the quality of life of its members
3. Cooperatives not in restraint on trade
4. Cooperative Powers and Capacities
✓ To the exclusive use of its registered name, to sue and be sued;
✓ Of succession
✓ To amend its articles of cooperation
✓ To adopt bylaws not contrary to law, morals or public policy, and to amend
and repeal the same in accordance with this Code;
✓ To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage, and otherwise deal with such real and personal property as the
transaction of the lawful affairs of the cooperative may reasonably and
necessarily require, subject to the limitations prescribed by law and the
Constitution;
✓ To enter into division, merger or consolidation
✓ To form subsidiary cooperatives and join federations or unions
✓ To avail of loans, be entitled to credit and to accept and receive grants,
donations and assistance from foreign and domestic sources, subject to the
conditions of said loans, credits, grants, donations or assistance that will not
undermine the autonomy of the cooperative
✓ To avail of preferential rights granted to cooperatives under Republic Act
No. 7160, otherwise known as the Local Government Code, and other laws,
particularly those in the grant of franchises to establish, construct, operate
and maintain ferries, wharves, markets or slaughterhouses and to lease
public utilities, including access to extension and on-site research services
and facilities related to agriculture and fishery activities
✓ To organize and operate schools in accordance with Republic Act No. 9155,
Governance of Basic Education Act of 2001 and other pertinent laws; and

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✓ To exercise such other powers granted by this Code or necessary to carry
out its purpose or purposes as stated in its articles of cooperation
5. Organizing a primary cooperative
✓ There must be 15 or more natural persons
✓ All Filipinos of legal age
✓ Actually residing or working in the intended area of operation
✓ They must have completed a Pre-membership Education Seminar (PMES)
Primary objective may be registered as multi-purpose cooperative only after compliance

with the minimum requirements set by CDA
Single-purpose cooperative may transform into a multi-purpose or may create subsidiaries

only after 2 years of operations
6. Economic survey - Every group of individuals or cooperatives intending to form a

cooperative under this Code
➢ shall submit to CDA a general statement describing, among others the structure
and purposes of the proposed cooperative
➢ the structure and actual staffing pattern of the cooperative shall include a
bookkeeper That they shall not be allowed to operate without the necessary
personnel And shall also submit an economic survey, indicating therein:
o the area of operation
o the size of membership, and
o other pertinent data in a format provided by the Authority
7. Limited Liability only for cooperative registered under this Code
8. Term
▪ 50 years from the date of registration
▪ Extension of term shall not exceed 50 years for any single amendment of
cooperation and no extension shall be made 5 years prior to its original
expiry date, unless:
o There are justifiable reasons determined by CDA
9. Articles of Cooperation - signed by each of the organizers and acknowledged by
them if natural persons, and by the chairpersons or secretaries, if juridical persons,
before a notary public.
It shall set forth the following:
a. Name of the cooperative which shall include the word “ Cooperative”
b. Purposes and scope of business
c. Term of existence

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d. Area of operation and the postal address of its principal office
e. Names, nationality, and the postal addresses of the registrants
f. Common bond of membership
g. list of names of the directors who
h. Amount of its share capital, the names and residences of its contributors
and a statement of whether the cooperative is primary, secondary or tertiary
in accordance with Article 23 hereof.
Additional Requirements
✓ 4 copies of Articles of Cooperation, bylaws, and the general statement shall be

submitted to the CDA
✓ NO cooperative shall be registered without, except for Cooperative Union under
article 25
o Sworn statement of the treasurer that 25% share capital subscribed – 25%
total subscription paid
o paid-up capital shall not be less that P15,000, and bonds of the accountable
officers
CDA shall periodically assess the required paid-up share capital and may increase it every
five (5) years when necessary upon consultation with the cooperative sector and the
National Economic and Development Authority (NEDA)
10. Bylaws – shall adopt bylaws not inconsistent with the provisions of this Code and
shall be filed at the same time as the articles of cooperation
11.Registration
✓ Cooperative’s juridical personality commences upon the issuance of
certificate of registration
✓ 60 days no action – if the CDA failed to act on registration, it is deemed
approved
Exception – if the CDA denied the registration, which if appealed by the
registrant,
▪ shall be in the office of the president for approval within 90 days,
and failure to act
▪ on it is deemed approved
12.Amendment of A of C and bylaws
✓ 2/3 vote of the members
✓ File the amendment to the CDA for approval within 30 days and is deemed
approved if not acted upon
13. Contracts entered by cooperative prior to registration – still valid

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14. Division of Cooperative
General rule: any cooperative may divide itself to 2 or more cooperatives by 3/4
vote of the members constituting a quorum may be approved by the CDA
Exception: when it is constituted in fraud of cooperative creditors
15. Merger & consolidation of cooperatives
3/4 vote of the member constituting quorum of

each constituent File for approval to CDA
Effective upon issuance of certificate of merger & consolidation
Effect of merger & consolidation
. Constituent cooperative become a single cooperative:
▪ Surviving cooperative – in case of merger

▪ Consolidated cooperative – in case of consolidation
Types of Cooperatives
a. As to its purpose
❖ Credit cooperative
❖ Consumers Cooperative
❖ Producers Cooperative
❖ Marketing Cooperative
❖ Service Cooperative
❖ Multipurpose Cooperative
❖ Advocacy Cooperative
❖ Agrarian Reform Cooperative
❖ Cooperative Bank
❖ Dairy Cooperative
❖ Education Cooperative
❖ Electric Cooperative
❖ Financial Service Cooperative
❖ Fishermen Cooperative
❖ Health Services Cooperative
❖ Housing Cooperative
❖ Insurance Cooperative
❖ Transport Cooperative
❖ Water Service Cooperative
❖ Workers Cooperative
b. As to its membership term
❖ Primary – members are natural persons

❖ Secondary – members are primary cooperatives
❖ Tertiary – members are secondary cooperatives
c. As to its territory according to its areas of operations which may or may not coincide
with the political subdivisions of the country

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Cooperatives also may organize a Federation of Cooperatives , Cooperative Union,
and Laboratory Cooperative (one organized by minors but must be affiliated to a
registered cooperative)
Membership
1. Kinds of Members
⚫ Regular - one who has complied with all the membership requirements and
entitled to all the rights and privileges of membership
⚫ Associate
✓ one who has no right to vote nor be voted upon and shall be entitled
only to such rights and privileges as the bylaws may provide
✓ but shall be considered regular when he continues to patronize the
cooperative for 2 years and signifies his intention to remain a member
2. Disqualification
General rule: any natural or juridical person can be a member
Exception:
a. Any officer or employee of the Authority, unless the cooperative is

organized by the officers or employees of the Authority
b. All elective officials of the Government, unless he is a party list
representative being an officer of a cooperative he or she represents
3. Membership commencement
By BOD’s approval of application or
a. By general assembly’s decision upon appeal to denial by BOD to the
application or
b. By Grievance committee established by general assembly
i. 30 days upon receipt of appeal
4. Member’s liability – limited up to his contribution to the share capital
5. Membership termination
By member’s withdrawal for a valid reason and 60 days notice to BOD
✓ He shall be entitled to his capital contribution, provided that the assets of
the cooperative would suffice its liabilities after refund of contribution
By death or insanity, except for agrarian reform beneficiary-member for which
the next of kin may assume membership of the deceased or insane
By insolvency or dissolution of the member of secondary and tertiary
cooperative

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By majority vote of BOD under the following cause:
a. member has not patronized any of the services of the cooperative for an
unreasonable period of time
b. member has continuously failed to comply with his obligations
c. member has acted in violation of the bylaws and the rules of the
cooperative
d. For any act or omission injurious or prejudicial to the interest or the
welfare of the cooperative
The member wished to be terminated by BOD shall be informed in writing and shall has
the right to appeal within 30 days upon receipt of notice to the general assembly or
grievance committee who shall decide within 30 days
Membership remains in force pending decision
Member terminated shall be entitled to a refund of his interest computed according to the
bylaws
Administration
General Assembly Composition – only those members entitled to vote

Power of General Assembly
▪ Highest policy-making body
▪ Powers stated in this Code, AOC, & bylaws, such as
o To act on appeal of denial in membership application
o To act on appeal on membership termination
o To establish a grievance committee
▪ Exclusive powers that cannot be delegated, unless by 3/4 vote of all its
members representing quorum the general assembly may delegate the powers
below:
o To determine and approve amendments to the articles of cooperation
and bylaws
o To elect or appoint the members of the board of directors, and to remove
them for cause, except for electric cooperative where election of BOD
shall be done in accordance with the bylaws or election guidelines
o To approve developmental plans of the cooperative
Meetings
Regular Meeting
o held annually at the date fixed in the bylaws or
o on any date within 90 days from the end of the fiscal year, if not
state in bylaws

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o there must be a notice in writing, posting or publication, or through
other electronic means to all members of record
Special Meeting
o Anytime by a majority vote of the BOD or as provided in the bylaws
or
o Within (1) month after receipt of a request in writing from at least
(10%) of the total members who are entitled to vote to transact
specific business covered by the call There must be notice in writing
(1) week prior to the meeting to all members who are entitled to
vote
Notice of any meeting may be waived, expressly or impliedly, by any member
In case of failure by general assembly to call for a special meeting or regular meeting, the
CDA upon petition of at least (10%) of the total members who are entitled to vote and for
a good cause, may compel the general assembly to conduct a meeting
In the case of a newly approved cooperative, a special general assembly shall be called,
as far as practicable, within ninety (90) days from such approval
CDA may call a special meeting of the cooperative for the purpose of reporting to the
members the result of any examination, or other investigation of the cooperative affairs
Quorum
General Rule: 25% of all the members entitled to vote
Exception:
Cooperative banks - one-half plus one of the number of voting shares of al1,the
members/BOD in good standing
▪ Member voting rights - proportionate to the number of their paid-up shares
▪ BOD – one vote each
Electric cooperatives - 5% of all the members entitled to vote, unless otherwise
stated in the bylaws
Voting system
✓ Primary cooperatives – one member one vote
✓ Secondary & tertiary cooperatives - (1) basic vote and as many incentive
votes as provided for in the bylaws but not to exceed (5) votes
Voting Manners:
Primary – only in person
Secondary & Tertiary – in person or by proxy
Board of Directors

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Qualification: any member who has the right to vote and possesses all the
qualifications and none of the disqualification can be elected as a director
Composition:
Not less than 5 but not more than 15
Or unless otherwise stated in the bylaws
Terms: 2 years until a successor is elected or until duly removed from the office
Powers: responsible for the strategic planning, direction-setting and policy-
formulation activities of the cooperatives
Restrictions:
▪ members of the board of directors shall not hold any other position directly
involved in the day to day operation and management of the cooperative
▪ members of the board of directors cannot engage in business similar to that
of the corporation
Meeting: majority constitutes quorum and the board cannot attend or vote by
proxy
Regular – at least once a month for primary cooperatives

Special – anytime upon the call of the chairperson or majority of the board, written
notice must be sent (1) week prior to the scheduled meeting
Vacancy:
By expiration of the term – majority vote of the members

a. By other causes – majority vote of the remaining quorum if they still
constitute quorum
Election of Officers: the board has the power to elect among themselves:
Chairperson and vice-chairperson

All the officers
No (2) or more persons with relationships up to the third civil degree of
consanguinity or affinity norany person engaged in a business similar to that of the
cooperative nor who in any other manner has interests in conflict with the cooperative
shall serve as an appointive officer
Executive committee, if stated in the bylaws

They may have the powers and duties delegated to them in the:
✓ Bylaws or
✓ By majority vote of the board
Liability of BOD, Officers, & Committee members:
a. Solidarily liable - for all damages or profits resulting from

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✓ Wilful and knowingly voting for or assents to patently unlawful acts
✓ or those guilty of gross negligence or bad faith in directing the affairs of the
cooperative or acquire any personal or pecuniary interest in conflict with
their duty
b. Liable for damages and double the profit – for attempts to acquire or acquires,
in violation of his duty, any interest or equity adverse to the cooperative in respect
to any matter which has been reposed in him in confidence
Compensation:
a. BOD
General Rule: no compensation, only per diems (i.e allowance)
Exceptions:
a. It is stated otherwise in the bylaws or

b. It is granted by majority vote of the members
Exceptions to the exceptions:
✓ no additional compensation other than per diems shall be paid during the
first year of existence of any cooperative
✓ no per diems, when in the preceding calendar year, the cooperative reported
a net loss or had a dividend rate less than the official inflation rate for the
same year
b. Officers & committee – compensation may be fixed in the bylaws
c. Employees - determined by the board of directors
Dealings of Directors, Officers or Committee Members with the
cooperative:
General Rule: contract is voidable
Exception: when all the following conditions are met:
▪ the presence of such director in the board meeting wherein the contract was
approved was not necessary to constitute a quorum for such meeting
▪ the vote of such director was not necessary for the approval of the contract
▪ the contract is fair and reasonable under the circumstances
In case in the absence of the first 2 conditions, the contract can be ratified by (3/4) vote
of all the members with voting rights, present and constituting a quorum
Disloyalty: an act by a director acquiring for himself an opportunity which should

belong to the cooperative

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General Rule: such act will render the BOD even if he uses his personal funds:
• Liable for damages and

• Refund to the cooperative double the profits acquired
Exception: The act was ratified by 3/4 vote of all members
Liabilities for illegal use of confidential information: a BOD or officer or their

associates who takes advantage for his own benefit using information that will
adversely affect the cooperative shall be liable for:
➢ Damages suffered by the cooperative

➢ Account to the cooperative the benefits or advantages he received or will be
received from such use
Removal of Officers: complaints shall be filed with the BOD and the officer shall
be given the opportunity to be heard and may be suspended pending investigation
▪ 3/4 votes of the members constituting quorum in a regular or special meeting

Responsibilities, rights and privileges of cooperatives
1. Responsibilities
▪ to provide surety bonds from officers handling funds of the cooperative upon
registration of the such entity which must be renewed annually
▪ Keep the books open for access to members and CDA at reasonable office hours
at its principal office, that which consists of:
a. A copy of this Code and all other laws pertaining to cooperatives
b. A copy of the regulations of the CDA
c. A copy of the articles of cooperation and bylaws of the cooperative
d. A register of members
e. The books of the minutes of the meetings of the general assembly, board
of directors and committees
f. Share books, where applicable
g. Financial statements
h. Probative value of certified true copies of entries
i. Such other documents as may be prescribed by laws or the bylaws
▪ Not to destroy records relating to transactions subjects to civil, criminal and
administrative proceedings, but other documents may be destroyed if more
than 5 year already
▪ File reports to the CDA within 120 days from the end of the period, showing:
a. Program of activities, including socio-civic undertakings
b. Progress and achievements during the year

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2. Rights
✓ To have an official postal address
✓ To register members to the CDA
✓ A primary lien on property or interest on property which due from the member
or his capital, deposits or interest in the cooperative, including reasonable
salary deductions for the satisfaction of his debt to the cooperative
✓ Not subjected to any taxes or fees from internal revenue laws from transactions
made with the members
✓ Not subjected to local taxes and taxes on transactions with banks and
insurance, provided:
o Sales or services to non-members are subjected to applicable
percentage tax, except:
▪ Sales made by producers, marketing or service cooperatives
o Accounting records is examined by the duly authorized internal revenue
officer
✓ Free of charge from:
a. notary public for oath or acknowledgement of Articles of Cooperation
and instrument of loan from cooperative not exceeding P500k
b. registering:
a. a loan made by the cooperative not
exceeding P250K deeds of title of any
property
b. any document for actions in the court
taken or court judgment in favor
instrument relative to surety bond
from accountable officers
c. payments to court and sheriffs for actions brought under this Code or by
the CDA to enforce obligations in favor of the cooperative
✓ security issued by cooperatives shall be exempt from the provisions of the
Securities Act, provided it is not speculative
3. Privileges
✓ depositing their sealed cash boxes or containers, documents or any valuable
papers in the safes of the municipal or city treasurers and other government
offices free of charge
✓ free use of any available space in their agency, whether owned or rented by the
Government, for cooperatives among government employees

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✓ preferential right to supply government institutions and agencies rice, corn and
other grains, fish and other marine products, meat, eggs, milk, vegetables,
tobacco and other agricultural commodities produced by their members
✓ Preferential treatment in the allocation of fertilizers, including seeds and other
agricultural inputs and implements, and in rice distribution
✓ Preferential and equitable treatment in the allocation or control of bottomries
of commercial shipping vessels in connection with the shipment of goods and
products
✓ preferential rights in the management of public markets and/or lease of public
market facilities, stalls or spaces for the primary purpose of the cooperative,
provided, such cooperative does not form any joint venture, partnerships or
any similar arrangement
✓ entitled to loans, credit lines, rediscounting of their loan notes, and other
eligible papers with the Development Bank of the Philippines, the Land Bank of
the Philippines and other financial institutions for credit services cooperative,
except the BSP
✓ preferential right to the management and operation of public terminals and
ports whether land or sea transport where the cooperative operates and on
securing a franchise for active or potential routes for the public transport for
public transport cooperatives
✓ exempt from prequalification bidding requirements for cooperatives transacting
with the government or its instrumentalities, including GOCCs
✓ represented by the provincial or city fiscal or the Office of the Solicitor General,
free of charge, except when the adverse party is the Republic of the Philippines
✓ preferential right in the management of the canteen and other services in the
school for cooperatives organized by employees of the educational institution
concerned
✓ special window for financing housing projects undertaken by cooperatives,
with interest rates and terms equal to, or better than those given for socialized
housing projects
Insolvency
➢ Any cooperative whose unable to fulfil its obligations to creditors due to insolvency,
may for remedies under the Insolvency Law RA 1956

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Dissolution
Extrajudicial Dissolution Voting Requirement Notice

BOD Members To members To public
3 consecutive
1. Voluntary dissolution 30 days prior to
Majority 3/4 in quorum weeks published
with no creditors affected meeting
in a newspaper
Majority 3/4 in quorum A copy of the

petition must be
Petition must be sent to CDA posted and
2. Voluntary with creditors 30 days prior to
and upon the expiry of 5-days published in a
affected meeting
notice to file an objectio, the newspaper for 3
hearing shall commenc e consecutive
weeks
Involuntary Dissolution Grounds
Violation of any law, regulation or provisions of its own bylaws or
1. Involuntary Dissolution
insolvency
ordered by the court
Registration by Fraud (Illegal, purpose, willful violation of the code
or its own bylaws, willful failure to operate on a cooperative basis,
2. Involuntary Dissolution failure to meet the required number of members, failure to start
ordered by the CDA business operations within 2 years from issuance of certificate of
registration or has commenc ed business but is inactive for 2
consecutive years
Liquidation:
a. dissolved cooperatives shall nevertheless continue to exist for 3 years for

the winding up of its affairs
b. during 3 years, the cooperative is authorized and empowered to convey all
of its properties to a trustee for the settlement of its affairs, but such conveyance will
terminate the cooperative’s interest on the properties
c. assets distributable to unknown creditor or member shall be given
to the federation or union which the dissolved cooperative is affiliated
Distribution of assets –allowed only by:
a. Lawful dissolution
b. After payment of all debts and
c. Decrease of share capital
Capital, Property and Funds
▪ Capital – may be derived from:

o Member’s share capital
o Loans, borrowings and deposits Revolving capital –consisting of:
• Deferred payment of patronage
• refunds and Interest on share capital

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o Subsidies, donations, legacies, grants, aids and any other assistance from
local or foreign institutions, whether public or private. Provided, such
donated fund shall not be divided into individual share capital
Donated capital is escheated (i.e. forfeited to the government) in case of dissolution.
▪ Investment of capital – only in any of the following:

o shares or debentures or securities of any other cooperative
o any reputable bank in the locality, or any cooperative
o securities issued or guaranteed by the Government
o real estate primarily for the use of the cooperative or its members or
o In any other manner authorized in the bylaws
▪ Shares – refers to a unit of capital in a primary cooperative with par value may be
fixed at any figure not more than P1,000
o Share capital holdings limit – 10% of the total share capital of the
cooperative per member
o Inheritance of share capital – heirs of the decedent-member shall be
entitled to the shares, provided:
▪ Total share of the decedent do not exceed 10% of the total share
capital
▪ The heir qualifies and admitted as member of the cooperative
Failure to meet either of the requisites will make the excess from 10% reverted back to
the cooperative.
o Assignment of shares or interest – generally prohibited by this Code, unless:

▪ The member holds such share or interest for at least 1 year or
▪ The assignee is the cooperative or another member
Audit, Inquiry and Member’s Right to Examine
1. Audit – required annually and must be conducted by an external auditor

with the following qualifications:
Independent to the cooperative or to any subsidiaries and
A member in good standing of PICPA and he/she is accredited by
BOA and CDA
Auditors are not liable for defamation for actions made by him in good faith in relation to
the audit.
2. Right to examine records – at a reasonable hour of a business day and

demand, in writing, for a copy of excerpts from said records without charge
except the cost of reproduction and shall be entitled to indemnification for
damages in case of refusal by any officer or BOD

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✓ Instances when right to examine may be denied
o As a defense to a member who has improperly used any previous
information secured
o The member was not acting in good faith or for a legitimate purpose
in making the demand
Allocation and Distribution of Net Surplus
▪ Net surplus – it shall be determined according to the bylaws and it refers to the
excess of:
o Payments made by members over the amount due to them from patronizing
the products or services of the cooperative or
o The rightful amount payable to the members for the goods sold or services
rendered to the cooperative
▪ Net surplus order of distribution
1. Reserve fund : at least 10% x net surplus or in case the distribution is made
within the first 5 years of operation this fund must be at least 50% of the net
surplus
a. It shall be used for the stability and to meet net losses of the cooperative
b. It shall only be utilized for investments allowed in this Code, but the excess
of reserve fund over the share capital may be used anytime for any project
that would expand the operations of the cooperative
c. Upon dissolution, it shall not be distributed among members, instead by
resolution of the general assembly it may be:
a. Established a usufructuary trust fund for the benefit of any federation
or union affiliated with the cooperative or
b. Donated to the community where the cooperative operates
2. Education and training fund : not more than 10% x net surplus
a. 50% of the fund shall be designated for education and training geared
towards the development of the cooperative
b. 50% of the fund may be remitted to a union or federation which the
cooperative is a member and such union or federation chosen shall
submit to the CDA the
a. List of cooperatives which have given them education and
training fund Business consultancy assistance to include the
nature and cost and Other training activities undertaken
specifying therein the nature, participants and cost of each
activity
c. Upon dissolution, any balance in the fund shall be donated to the
education and training fund of the chosen federation or union

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3. Community development fund : not less than 3% x net surplus
- Shall be used for projects or activities that benefits the
community where the cooperative operates
4. Optional fund : not more than 7% x net surplus
- A land, building or any other necessary fund
5. Excess net surplus fund
a. it shall be made available to members as interest in share capital but such
must not exceed the nominal rate of return on investments and patronage
refunds and distributed in the following rule:
▪ Member patron with paid-up share capital – equal to his
proportionate amount of patronage refund paid to him or credited to
his share capital
▪ Member patron with unpaid share capital – equal to his
proportionate amount of patronage refund credited to his share
capital until it is fully paid
▪ Non-member patron – equal to his proportionate amount of
patronage refund set aside in a general fund for such patrons and
shall be allocated to individual non-member patrons only upon
request and presentation of evidence of the amount of his patronage
and shall be credited to the minimum capital contribution and shall
be deemed member if he so agrees or request
Any member who failed to fully pay his subscribed capital or any non-member patron who
has accumulated the necessary amount for membership who did not agree, requested or
failed to comply to become a member, the amount credited to their account shall be
credited to the reserve fund or education and training fund.
b. any excess after deduction (a) above shall be credited back to the reserve
fund
Special Types of Cooperatives
Agrarian reform cooperative – one organized by marginal farmers, majority of

which are agrarian reform beneficiaries, for the purpose of developing an
appropriate system of land tenure, land development, land consolidation or land
management in areas covered by agrarian reform
Purpose
a. To develop an appropriate system of land tenure, land development, land

consolidation or land management in areas covered by agrarian reform
b. To coordinate and facilitate the dissemination of scientific methods of
production, and provide assistance in the storage, transport, and marketing

Ver 1
of farm products for agrarian reform beneficiaries and their immediate
family, hereinafter referred to as ‘beneficiaries’
c. To provide financial facilities to beneficiaries for provident or productive
purposes at reasonable costs
d. To arrange and facilitate the expeditious transfer of appropriate and suitable
technology to beneficiaries and marginal farmers at the lowest possible cost
e. To provide social security benefits, health, medical and social insurance
benefits and other social and economic benefits that promote the general
welfare of the agrarian reform beneficiaries and marginal farmers
f. To provide non-formal education, vocational/technical training, and
livelihood programs to beneficiaries and marginal farmers;
g. To act as conduits for external assistance and services to the beneficiaries
and marginal farmers
h. To undertake a comprehensive and integrated development program in
agrarian reform and resettlement areas with special concern for the
development of agro-based, marine-based, and cottage-based industries
i. To represent the beneficiaries on any or all matters that affect their interest
and
j. To undertake such other economic or social activities as may be necessary
or incidental in the pursuit of the foregoing purposes
Organization and registration requirements
a. written verification by the Department of Agrarian Reform (DAR) to the effect that
the same is needed and desired by the beneficiaries
b. there is results of a study that has been conducted fairly indicate the economic
feasibility of organizing and
c. that it will be economically viable in its operations
Rights
a. Cooperative estates – refers to landholdings acquired by the Government for the

benefit and which shall be collectively-owned by the worker-beneficiaries in
accordance with Comprehensive Agrarian Reform Program (CARP)
b. To have preferential treatment with infrastructures and be provided by the
Government of technical assistance, facilities and equipment
c. To lease a public land for a period not exceeding 25 years subject for renewal,
provided:
d. Preferential right in the grant of franchise and certificate of public convenience and
necessity for the operation of public utilities and services, provided:

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▪ It meets the requirements and conditions of the appropriate government
agency
e. To be provided the necessary financial and technical assistance by the Government
to effectively discharge its purpose
Privileges
▪ exclusive right to do the following subject to reasonable terms and conditions of
DAR
a. Supply and distribution of consumer, agricultural, aqua-cultural, and industrial
goods, production inputs, and raw materials and supplies, machinery, equipment,
facilities and other services and requirements of the beneficiaries and marginal
farmers at reasonable prices
b. Marketing of the products and services of the beneficiaries in local and foreign
markets
c. Processing of the members’ products into finished consumer or industrial goods for
domestic consumption or for export
d. Provision of essential public services at cost such as power, irrigation, potable
water, passenger and/or cargo transportation by land or sea, communication
services, and public health and medical care services
e. Management, conservation, and commercial development of marine, forestry,
mineral, water and other natural resources subject to compliance with the laws and
regulations on environmental and ecological controls and
f. Provision of financial, technological, and other services and facilities required by
the beneficiaries in their daily lives and livelihood
Cooperative banks – supervised by the BSP

Organization
Articles of Cooperation and bylaws and any amendment, shall be registered to CDA only
upon recommendation accompanied with certificate of authority from the BSP, under its
official seal
Establishment
General rule: each province shall have only 1 cooperative bank
Exception : additional cooperative in a province may be established as may be prescribed

by the BSP considering locality economic conditions, provided:
▪ Additional cooperative bank shall not be located in the same city or municipality
where the 1st cooperative bank is located

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Membership either:
a. Regular – for persons holding common shares of the bank

b. Associate – for members subscribing preference shares of the bank, such as:
a. Personal members of the bank’s member-primary cooperative and
b. Samahang Nayon and Municipal Katipunan ng mga Samahang Nayon
(MKSN) which hold common shares of bank prior to the effectivity of this
Code, but such member can apply to become a regular member, provided:
i. Notify the bank within 90 days from the effectivity of this Code and
ii. The conversion must be completed within 1 year within the effectivity
of this Code, and in case of failure, the bank shall convert the
common shares held to preferred shares
Administration
✓ the BSP shall prescribe the fit and proper qualifications of bank directors
and officers
Quorum
General assembly meeting and BOD meeting = 1/2 + 1 of the number of voting shares of
all the members and members of the BOD, respectively
▪ Amendments of AOC or bylaws = 3/4 vote of the members constituting quorum

▪ All other voting requirements – may be prescribed by the BSP
Voting rights
a. BOD – each director shall have only 1 vote

b. Member – proportionate to the number of their paid-up share capital
Primary function
▪ to provide financial, banking and credit services to cooperative organizations and

their own members subject to the guidelines, ceilings and conditions of the BSP
Capital requirements
a. Minimum paid-up capital as may be prescribed by the BSP

b. They may only issue par value shares
c. They shall have the collections or deductions by various banks throughout the
country from the loan proceeds of farmer-borrowers in Bario Savings Fund and
Barrio Guarantee Fund
Privilege
▪ they shall have the same privileges granted to other kinds of banks to rediscount
notes to BSP, Landbank and other government banks

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Responsibilities
a. To publish in a newspaper its statement of financial condition at least once every

quarter of a period subject to approval of the BSP
b. To publish within 60 days prior to the public auction or execution of judgment in
conspicuous areas, such foreclosure of mortgages covering loans granted by the
cooperative bank exceeding P250,000 or such amount prescribed by the BSP
Banking laws and regulations
▪ it shall prevail with respect to provisions and governance of cooperative banks
Insurance cooperative
Types of insurance provided – it shall provide its members:
a. Life insurance with special group coverage

b. Loan protection
c. Retirement plans
d. Endowment with health and accident coverage
e. Fire insurance
f. Motor vehicle coverage
g. Bonding
h. Crops and livestock protection and
i. Equipment insurance
Insurance laws
▪ it shall apply to insurance cooperatives, but requirements on capitalization,

investments and reserves of insurance firms may be liberally modified upon
consultation with the CDA and the cooperative sector, but in no case may the
requirements be reduced to less than half of those provided for under the
Insurance Code and other related laws
Public service cooperative one organized to render public services as

authorized under a franchise or certificate of public convenience and necessity
duly issued by the appropriate government agency
Examples of services
a. Power generation, transmission, and/or distribution

b. Ice plants and cold storage services
c. Communication services including telephone, telegraph, and telecommunications
d. Land and sea transportation cooperatives for passenger and/or cargo
e. Public markets, slaughterhouses and other similar services and

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f. Allied businesses by transportation service cooperatives
g. Such other types of public service as may be engaged in by any cooperative
Registration requirements
a. Articles of Cooperation and bylaws provide for the membership of the users and/or
producers of the service of such cooperatives and
b. Such other requirements as may be imposed by the other pertinent government
agencies concerned
Privilege
▪ in case there are (2) or more applicants for the same public service franchise or
certificate of public convenience and necessity, all things being equal, preference
shall be given to a public service cooperative
Regulation
a. Internal affairs – governed by this Code

b. Matters relating to the franchise or certificate of public convenience and necessity
– governed by the appropriate agency concerned
c. For transport service cooperatives – monitored by a Monitoring Committee
composed of representatives from:
✓ CDA
✓ LTO
✓ LTFRB
✓ Office of the Transport Cooperative (OTC)
✓ National Federation of Transportation Cooperative and
✓ Other Concerned agencies
Renewal of franchise and vehicle registration
▪ It shall be granted to Transportation Service Cooperatives with a certificate of good

standing issued by the CDA, OTC and the local government unit concerned
Credit cooperative a financial organization owned and operated by its members

with the following objectives:
a. To encourage savings among its members
b. To create a pool of such savings for which loans for productive or provident
purposes may be granted to its members and
c. To provide related services to enable its members to maximize the benefit
from such loans
Organizational linkage may organize chapters or subsidiaries, or join leagues and
federations for the purpose of providing the following commonly needed essential services:

Ver 1
a. Interlending of surplus fund
b. Mutual benefits
c. Deposit guarantee
d. Bonding
e. Education and training
f. Professional and technical assistance
g. Research and development
h. Representation and
i. Other services needed to improve their performance
Conversion of Credit to Financial service cooperatives and vice versa
▪ it shall formally notify the CDA for the said purpose and comply the prescribed
requirements
Financial service cooperative a financial organization owned and operated by its

members and authorized to provide the following services, exclusively to its
members:
a. the functions of credit cooperatives and other cooperatives, including multipurpose
cooperatives, that provide savings and credit to their members and
b. Other financial services subject to regulation by the BSP
Registration
▪ Articles of cooperation and bylaws of any financial service cooperative, or any

amendment thereto, shall be registered with the Authority only if accompanied by
a certificate of authority issued by the BSP, under its official seal
Membership and affiliation
a. Regular members – must be natural persons
b. Associate members – they are:
a. natural persons who did not immediately qualify under the requirements of
the cooperative concerned
i. They are given 2 years to qualify as a regular member
ii. Failure to qualify as a regular member within 2 years shall mean
automatic withdrawal of their associate membership, but may re-
apply after 2 years
b. Minors who are dependent of the regular members
i. If within 2 years from acceptance as an associate member they reach
the age of majority (i.e. 18 yrs. old), they have the option to convert
into a regular member

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Regulation and supervision
a. shall be governed primarily by the rules and regulations set forth by the CDA, in
coordination with the BSP
b. suppletory by the banking laws, rules and regulations, except:
▪ provisions on access to borrowings and financial assistance to be extended
by the BSP and PDIC, however, deposits to financial service cooperatives
are not insured by the PDIC
c. financial service cooperatives may be organized as a federation
d. no person, group of persons, or organizations shall use the names credit
cooperative, financial service cooperative, or financial service cooperative
federation if not duly authorized and registered with the CDA
Electric cooperative one that undertakes power generation utilizing renewable

energy sources, including hybrid systems, acquisition and operation of sub-
transmission or distribution as its primary purposes
Registration
▪ it shall register with the CDA subject to the approval of the members through a
referendum (i.e. voting)
a. Voting requirement – 20% of all members in good standing
b. Documents required
▪ Copy of the board resolution certifying to the result of the vote approved through
a referendum approving the registration of the cooperative with the Authority
▪ Certified copy of the articles of incorporation/cooperation and bylaws as required
by the Authority
▪ Duly audited financial statements for the past two (2) years
▪ List of names of incumbent board of directors and their addresses certified by the
board secretary and attested to by the chairperson
▪ Within six (6) months from the registration, the treasurer shall submit a sworn
statement of the authorized share capital, the subscribed share capital of members,
and the amount of paid-up share capital of members and the amount of paid-up
share capital received by the treasurer and
▪ Surety bonds of accountable officers
c. Effect of registration under the CDA
▪ Shall no longer be covered by Presidential decree no. 269 as amended by
Presidential decree no. 1645
▪ existing loans obtained from the NEA after June 26, 2001 shall continue to
observe the terms of such loans until full payment or settlement thereof

Ver 1
▪ NEA shall no longer exercise regulatory or supervisory powers on electric
cooperatives duly registered with the Authority, except existing loans above
▪ entitled to congressional allocations, grants, subsidies and other financial
assistance for rural electrification which can be coursed through the
Department of Energy, the Authority and/or local government units
▪ All condoned loans, subsidies, grants and other assistance:
o shall form part of the donated capital and funds of the electric
cooperatives and as such, it shall not be sold, traded nor be divided
into shareholdings at any time
o these donated capital/fund shall be valued for the sole purpose of
determining the equity participation of the members and
o In the case of dissolution of the cooperative, said donated capital
shall be subject to escheat
d. Registration option – organizations may opt to register as an Electric cooperative
to the National Electrification Administration and shall retain to use the word
“cooperative” in its firm name but shall not be entitled to the benefits and privileges
under this Code
Role of Energy Regulatory Commission
- they shall approve all the rates and tariffs of electric cooperatives registered under this
Code

Ver 1
1.
Learning
2. Activity:
Formation of Cooperatives
and margin. Use A4 Size Bondpaper, 1’ margin except for the 1.5 margin at the top of
the page, font style and size of verdana, 12.
2. As a class in coordination with your other classmates, form a Cooperatives where

every student is a member of the Coop. Make your own Articles of Cooperation.
Summarize the steps in the Formation and Registration of Cooperatives. Observe
correct grammar and proper spacing, indention and margin. Use A4 Size Bondpaper, 1’
margin except for the 1.5 margin at the top of the page, font style and size of verdana,
12.

Ver 1
“THAT IN ALL THINGS, GOD MAY BE GLORIFIED”
“Feel the Fear, but do it anyway. If you don’t push yourself, you
don’t find the boundaries of your current skill level and you don’t
fall, you don’t get any better.”

Ver 1
Ver 1

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BUSINESS LAW

2 | Business Law (PARTNERSHIP AND CORPORATION)

1. Distinguish Partnership from Corporation, Cooperatives and other Business

CHAPTER I. GENERAL PROVISIONS (ARTICLES 1767-1783)

First, By the contract of Partnership,

Second, Two or more persons bind themselves

A Contract of Partnership just like any other contract is CONSENSUAL, it is perfected by

Who are those persons that may be bound in a Contract of Partnership?

The following persons are disqualified from entering into contracts:

Third, TO CONTRIBUTE MONEY, PROPERTY OR INDUSTRY

Answer: No, unless the check is encashed.

Property contributed may be movable, immovable or intangible property. (Ex: equipment,

Note: Contributions may differ for each of the partners.

Fourth, TO A COMMON FUND

It must be emphasized that in a Contract of Partnership, there should be MUTUAL

Fifth, WITH THE INTENTION OF DIVIDING PROFITS AMONG THEMSELVES

The primary objective of Commercial Partnerships is to generate profits. Perhaps,

As we go on with our discussion, we will be discussing different principles, rules and

Initially, we have discussed that a Contract of Partnership is a Consensual Contract.

What is a juridical personality?

In simplest term, juridical personality means that an entity is regarded as a PERSON

If A and B form a partnership, AB Partnership, the property of AB Partnership is not that

Consequences of being a Juridical Person

First paragraph of Article 1769

What is then in Article 1825?

Article 1825 discusses the principle of Partner by Estoppel and a Partnership by

Second Paragraph of Article 1769

Co-ownership or Co-possession over any property does not in itself establish a

How do you distinguish partnership from co-ownership?

CJP DDPE Partnership Co-ownership

Third paragraph of Article 1769

7 | Business Law (PARTNERSHIP AND CORPORATION)

No because of the following reasons:

Fourth paragraph of Article 1769

First Illustrative Example:

Second Illustrative Example:

Third Illustrative Example:

Fourth Illustrative Example:

Fifth Illustrative Example:

The importance of determining whether there exists a Contract of Partnership is

The partnership must have a lawful object or purpose

Example of unlawful purpose:

A & B are partners in AB Partnership where A contributed P100,000 in cash and B

Legal effects of a Judicial Dissolution

Can a partnership be created orally?

What are the immovable properties?

What are the kinds of immovable properties?

Article 1772. Every contract of partnership having a capital of P3,000.00 or more,

10 | Business Law (PARTNERSHIP AND CORPORATION)

How do we reconcile this with Article 1358 and 1357?

ARTICLE 1358. The following must appear in a public document:

(2) The cession, repudiation or renunciation of hereditary rights or of those of

11 | Business Law (PARTNERSHIP AND CORPORATION)

Article 1773. A contract of partnership is void, whenever immovable property is

(1) The contract must be in a public instrument

12 | Business Law (PARTNERSHIP AND CORPORATION)

3. If A wishes to be in a partnership with B and promises to contribute land but

Any immovable property or an interest therein may be acquired in the partnership

As to its object, a partnership is either universal or particular. As regards to the

(1) As to the Object:

(a) Universal Partnership of All Present Property defined in Article 1778.

(b) Universal Partnership of All Profits defined in Article 1780.

(c) Particular Partnerships defined in Article 1783.