Chapter 4: Limited Partnership

-special kind of partnership

-one or more general partners (liable beyond his contribution)

-one or more limited partners (have limited liability); investors; not bound by the obligations of the
partnership. Art. 1843

Art. 1844: Requirements for formation of a limited partnership

1.) Sign and swear to a certificate

2.) File for record in the SEC

*give actual/ constructive notice to potential creditors/ persons dealing with the partnership (for them
to be aware that the partners only have a limited liability)

Art. 1849: If there are additional partners, they may be admitted as long as there is a proper
amendment to the certificate which must be signed and sworn to by all of the partners, including new
limited partners, then file the same to the SEC.

*Unlike in general partnership where you just need the consent of the partners if someone wants to be a
new partner.

*SEC- Partnership & Corporation

*LGU- Sole proprietorship

Sign and Swear to a Certificate

1. Name of the partnership- with the word “limited”

2. Character of the business

3. Location of the principal place of business

4. Name and place of residence of all members

5. Term for which the partnership is to exist

Recall: In general partnership, it can be continued even if the term has already expired.

In limited partnership, it cannot continue when the specific term or undertaking has ended
without amending the certificate to be passed to SEC. Otherwise, it would now become a general
partnership.

*If partners want to keep the nature of the limited partnership, they should amend the
certificate to be passed to SEC.

6. Cash:

- description
 -agreed value of the property contributed

*Upon formation

7. Additional contributions when made- if stated in the certificate

8. Time- contribution of each limited partner is to be returned.

Recall: In general partnership, partners cannot directly get their contributions without dissolving
the partnership.

9. Share of the profits/ other compensation (income)

Existing rights if stated in the certificate.

10. Limited partner- substitute an assignee as contributor in his place, and the terms and conditions of
the substitution.

11. Partners- admit additional limited partners

12. Preference over the limited partners, as to contributions or as to compensation by way of income
and the nature of such priority.

Note: Limited partners are preferred over general partners

13. Remaining general partners to continue the business on death, retirement, civil interdiction, insanity
or insolvency of a general partner.

14. Limited partner- demand and receive property other than cash in return for his contribution.
(Exception)

GR: Limited partner should only receive cash in return

Characteristics of a Limited Partnership

- formed by compliance to Art. 1844

- at least one general partner controls the business and are personally liable to creditors.

- at least one limited partner- investors (in essence)

* may ask for the return of their capital contributions

* partnership debts are paid out of common fund and the individual property of the general
partners

* contribute to the capita and share profits

* do not participate in the management

* not personally liable for partnership obligations beyond the amount of their capital
contributions
 Why limited partnership is authorized? Why general partners are personally liable?

1. Secure capital from others for one’s business and still retain control (only for general
partners); limited partners cannot participate in the management, once they participated as managers
they will be liable as general partners.

2. Share in profits without risk of personal liability (the only risk is the contributed capital)

3. Associate as partners with those having business skill (Persons whose contributions are not
enough so they associate with investors as partners)

Distinction between General Partnership and Limited Partnership

General Partner Limited Partner

-Personally liable
-Equal right in management (2 or more)
-Contribute money, property or industry
-Proper party to court proceedings
-Interest can’t be assigned to make new partner
(it needs consents of partners)
-Name may appear in firm name
-Prohibited from engaging in a business-like
partnerships
-Retirement or insolvency or death- partnership
is dissolved
-Limited liability to the extent of contribution
-No share in management
-Money and/or property contributions only
-Not a party to proceedings
-Interest is assignable with assignee acquiring all
-Name not included in the firm name- “Limited/
Ltd.”
-No prohibition
- Retirement/ insolvency/ death does not dissolve
partnership

Art. 1845 Limited Partner’s Contribution (Cash and property)

- Once a limited partner contributed “Industry”, he will now become a general partner.

GR: Contributions must be paid before the formation of the limited partnership (because it will be the
capital of the business)

Exception: Additional capital (can be given after the formation of the partnership)

Art. 1846

GR: Surname of limited partner shall not appear in the partnership name.

Exception: 1. It is also the surname of the general partner

2. When he is not yet a partner, nut his surname is already used

Note: If a partner’s surname appeared in the partnership name, he is liable as a general partner without
actual knowledge that he is a general partner.

Art. 1847 False statement in certificate

-all partners written in the certificate may be liable

- liable- knew the statement to be false:

1. At the time he signed the certificate

2. Subsequently, but within a sufficient time before the statement was relied upon or within reasonable
time to amend the certificate but still not done

Limitations of a limited partner

1. No control in business

2. Can’t perform acts of administration, not even in the capacity of agents of the managing partners

Consequences: liable as a general partner

Art 1850 Rights, Powers and Liabilities of a general partner in a limited partnership

1. Right of control/ unlimited personal liability- a general partner is liable to the extent of his personal
properties thus, it is only right that he is going to manage the partnership

2. Acts of Administration/ Acts of Strict Dominion

- bind the partnership by any acts of administration

- has no power to do the specific acts (Art. 1850), even there is consent of all general partners, without
the written consent or at least ratification of all the limited partners.

Art. 1850 Damages

1. Any act in contravention to the certificate

2. Act- impossible to carry on the ordinary business of the partnership (against the partnership’s
interest)

3. Confess a judgment against the partnership

4. Possess a partnership property of assign their rights in specific partnership property, for other
than a partnership purpose

*prejudicial to interest of limited partners

5. Admit someone as a general partner- needs consent and ratification

7. Continue the business with partnership property on the death, retirement, insanity, civil
interdiction, or insolvency of a general partner, unless stated in the certificate

3. Other limitations of the general partner/s:

- No power to bind limited patners beyond the latter’s investment

- Act for the firm beyond the purpose and scope of partnership

- No authority to change the nature of the business without consent of the limited partners
Art. 1851 Rights in general of a Limited Partner

1. Same right to compel the partners to account as a general has

2. Has the right to accounting

3. Require the partnership books to be kept at the principal place of business

4. Inspect and copy at a reasonable hour- partnership books

5. Demand true and full information of all things

6. Ask for dissolution and winding up

7. Receive share of the profits/ other compensation by way of income

8. Receive the return of his contribution provided the partnership assets are in excess of all its liabilities

Recall: General partnership- needs to satisfy the debts first from partnership creditors before acquiring
their shares

*Limited partner- can get his share even without satisfying first the partnership creditors, as long as it is
an excess of assets over liabilities.

Art. 1852 If there is a mistake or the name of the partner is not the same in the certificate, he is liable as
a general partner.

Recourse: 1. Ascertain the mistake

2. Renounce his interest in the profits

*One person can be both general and limited partner:

1. Stated in the certificate

2. There is a right of reimbursement from general partners

3. Priority to share over contributions than other general partners

Loan and business transactions with Limited Partnership

1. Allowable transactions

- Granting loans to the partnership- the limited partner can be a creditor of the partnership.

- Transact other business with the partnership

- Receive pro-rata share of the partnership assets with the general creditors if he is NOT also a
general partner.
2. Prohibited transactions

- Receiving or holding as collateral security of any partnership property- they can grant loan to
the partnership but can’t receive or hold its properties for collateral (could defraud creditors)

-Receive any payment, conveyance or release from liability if it will prejudice the right of third
persons (already received share but many debts)