Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2S-2020-2021

College: Business Education

Campus : Bayombong Campus

DEGREE BSBA COURSE BRG 6

PROGRAM NO.
SPECIALIZATION FM/MM/HRM/BE COURSE Partnership and Corporation
TITLE Acctg
YEAR LEVEL First Year TIME FRAME WK NO. 1-2 IM NO. 01

I. UNIT TITLE/CHAPTER TITLE: NATURE OF PARTNERSHIP BUSINESS

II. LESSON TITLE :

Lesson 1: Definition, Nature and Characteristics of Partnership
Lesson 2: Advantages and Disadvantages of a Partnership
Lesson 3: Partnership Distinguished from Other Business Organization
Lesson 4: Classification of Partnership
Lesson 5: Kinds of Partners
Lesson 6: Articles of Partnership (Articles of Co-Partnership)

III. LESSON OVERVIEW

A partnership is an arrangement by two or more parties to manage and operate a

business and share it profits. This chapter provides a deeper understanding of the
nature of a partnership as a business organization including its characteristics,
classification and the different kinds of partners.

IV. DESIRED LEARNING OUTCOMES

1. Describe the nature of a partnership as a business organization & its characteristics.

2. Identify the advantages and disadvantages of a partnership business organization.
3. Distinguish between partnership and corporation
4. Identify and describe the different classifications of a partnership and the different
kinds of partners
5. Enumerate and explain the kinds of partners.
6. Discuss the importance of articles of partnership.

V. LESSON CONTENT

Lesson 1. Definition, Nature and Characteristics of Partnership

Definition of Partnership

In contract of a partnership, two or more person bind themselves to contribute money,

property, and industry to a common fund with the intention of dividing the profit among
themselves.( Civil Code of the Philippines, Article 1767)

An association of two or more persons to carry on, as co-owners, a business for profit (Uniform
Partnership Act, Section 6)

“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
reproduced for educational purposes only and not for commercial distribution,”
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 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2S-2020-2021

The partnership has a juridical personality separate and distinct from that of each of the partners
(Article 1768 Civil Code of the Philippines), it is also a resemble sole proprietorship, except that
there are two or more owners of the business. Each owner is called a PARTNER.

Characteristic of a Partnership

Mutual Contribution. There cannot be a partnership without contribution of money, property or

industry to a common fund.

Division of profit or losses. The essence of partnership is that each partner must share in the
profit or losses of the venture.

Co-Ownership of Contributed Asset. All asset contributed into the partnership are owned by
the partnership by virtue of its separate and distinct juridical personality.

Mutual Agency. Any partner can bind the other partners to a contract if he is acting within his
express or implied authority.

Unlimited Liability. All partners including industrial partners, are personally liable for all debts
incurred by the partnership.

Income Taxes. Partnership except general professional partnerships are subject to tax at the
rate of 30% of taxable income.

Partners’ Equity Accounts. Accounting for partnership are much like accounting for sole
proprietorship. The difference lies in the number of partners’ equity accounts, each partner has
a capital account and a withdrawal account that serves similar functions as the related accounts
for sole proprietorship.

Limited Life. A partnership is automatically dissolved when there is a change in the relationship
among the partners as this condition terminates partnership contracts

Lesson 2: Advantages and Disadvantages of Partnership

Advantages Disadvantages

Easy Formation. Mere agreement or Unlimited Liability. General partners are

mutual understanding by the partners may liable in the partnership’s unpaid debts to
organize a partnership the extent of their personal assets.

Joint Resources. A partnership provides Mutual Agency. All partners may be held
an opportunity to pool the abilities, liable for the actions of one partner.
experiences and resources of two or more
persons.

Tax Exemption.Except for business co- Consensual. An acceptance of a new

partnership, a general professional partner or transfer of one partner’s interest
partnership is exempted from income taxes. to another must be agreed to by all the
partner.

“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
reproduced for educational purposes only and not for commercial distribution,”
NVSU-FR-ICD-05-00 (081220) Page 2 of 8
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2S-2020-2021

Less Government Supervision. Limited Life. A mere change in the parties

Generally, partnerships receives less of partnership agreement dissolves the
government regulation than corporation. partnership.

Lesson 3: Partnership Distinguished from Other Business Organization

Distinction of Sole Proprietorships and Partnership

Sole Proprietorship Partnership

Formation. Very easy to form because Easy to form because a mere oral
only one owner decides when to engage in agreement between partners organizes a
business partnership.

Capital and Withdrawal Accounts. Only Several capital accounts and drawing
one capital account and drawing account. accounts are used depending on the
The capital and drawing account of the number of the partners.
proprietor.

Capitalization. Limited by the amount of Depends on the agreed investment to be

assets that a sole owner could invest. contributed by the partners. More than one
source of capitalization.

Agency. Simple Agency . The owner may Mutual Agency. Any partner may act to
bind the business and himself in any represent the business in any contract within
contract in the name of the business. the normal business activities.

Owner’s Legal Liability. Unlimited to the Unlimited to the general partner. The
sole proprietor. The owner is legally liable general partners are legally liable for all the
for all business debts. debts.

Life Expectancy. Limited within the desire Limited within the desire of the partners, or
or death of the owner. with the death, acceptance, withdrawal or
incapacity of any of the partners.

Partnership Distnguished from Corporation

Manner of creation. A partnership is created by mere agreement of the partners while a

corporation is created by operation of law.

Number of person. Two or more person may form a partnership; in a corporation, at least 5
person not exceeding 15.

Commencement of Juridical personality. Juridical personality commence from the execution

of the articles of partnership; in a corporation from the issuance of certificate of incorporation by
the Securities and Exchange Commission.

Liability. In a partnership, each of the partners except a limited partners is liable to extend of
his personal asset, in a corporation, stockholders are liable only to the extent of their interest or
investment in the corporation.

“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
reproduced for educational purposes only and not for commercial distribution,”
NVSU-FR-ICD-05-00 (081220) Page 3 of 8
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2S-2020-2021

Right of succession. In a partnership, there’s no right of succession; in a corporation, there is

a right of succession. A corporation has the capacity of continued of existence regardless of the
death, withdrawal, insolvency or in a capacity of its directors or stockholders.

Terms of Existence. In a partnership, for any period of time stipulated by the partners; in a
corporation, not to exceed 50 years but subject to extension.

Lesson 4: Classification of Partnerships

Partnerships may be classified into several categories depending on their nature, purpose,
object, duration and existence.

1. As to nature of business

A. Trading Partnership. Also known as “business co-partnership,” it buys and sells

finished merchandise or manufactures goods as its primary operational activity.
B. Non-Trading Partnership. It renders service only for a fee.

2. As to purpose.

A. Commercial Partnership. Engages in trading, merchandising or manufacturing of

goods for profit.
B. Professional Partnership. Organized for the exercise of a common profession, and
usually renders service based on the partners’ acquired profession.

Two Kinds of Professional Partnership

1. General Professional Partnership

2. Multi-Professional Partnership

3. As to object

A. UNIVERSAL PARTNERSHIP Of All present property. All contributions become part

of the partnership fund.
B. UNIVERSAL PARTNERSHIP Of profits. The partners retain ownership of the things
they have placed into the common fund. Their actual contribution will be their industry
and the use of the things they have place into the common fund.

4. As to Liability

A. General Partnership. Comprised of general partners or a combination of general and

industrial partners.
B. Limited Partnership. Comprised both limited and general partners.

1. As to duration.

A. Partnership at will. Formed for a particular undertaking and may be terminated any
time by will of any of the partners or by mutual agreement by partners. This partnership
has no fixed period of existence.
B. Partnership with a fixed term. Formed with a specified period of existence.

2. As to legality of existence

A. De jure partnership. Established and organized in accordance with all the legal
requirements for its existence.

“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
reproduced for educational purposes only and not for commercial distribution,”
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 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2S-2020-2021

B. De facto Partnership. Established and organized without complying with the legal
requirements for its existence

Lesson 5: Kinds of Partners

CLASSIFICATION DESCRIPTION

As to Contribution:

1. Capitalist Partner Contributes money or property to the partnership.

2. Industrial Partner Contributes only his skills, knowledge, industry or personal

service to the partnership.

3.Capitalist-Industrial Contributes money, property and industry to the partnership.

Partner

As to Liability

1. General Partner Assumes unlimited liability, i.e, he is liable for the partnership
debts to the extent of his personal assets

2. Limited Partner Liable to the extent of his capital contribution to the partnership

As to Participation

1. Managing Partner Appointed to run the business of the partnership

2. Silent Partner Known as partner but does not take active participation in
running the affairs of the partnership

3. Liquidating Partner Appointed to liquidate partnership assets and settle unfinished

transaction of the partnership after dissolution.

As to Third Persons

1. Secret Partner Not known as partner but takes active part in running the
partnership business.

2. Dormant Partner Not known as partner and inactive in the partnership

3. Nominal or A partner in name only permitting the use of his name either for
Ostensible Partner accommodation or for consideration. He subject to the liability
by the doctrine of estoppel.

Lesson 6: Articles of Partnership (Articles of Co-Partnership)

A written contract made by the partners. It is needed to appear in a public instrument and be
registered in the office of the SEC if partners contributed a real property or real rights or if the
total partnership capital amounted to 3,000 or more.

If a partnership fails to register with SEC, it cannot acquire legal personality to maintain an
action against third persons, but the partners may file a suit jointly against third party persons.

“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
reproduced for educational purposes only and not for commercial distribution,”
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 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2S-2020-2021

On the other hand, failure to comply with the registration requirement does not affect the liability
of the partnership and its partners to the third person.

The agreement commonly contains the following:

1. Name of the partnership 6. Contributions of the partner

2. Names and addresses of the partners 7. Duties and rights of each partner

3. Kinds of partner whether general or 8. Conditions of withdrawal

limited

4. Principal place and purpose of the 9. Salary and profit and loss
business agreement

5. Effectivity and duration of the contract 10. Dissolution procedures

SEC REGISTRATION

The purpose of the registration is to set a condition for the issuance of the licenses to engage in
business or trade. The tax liabilities of big partnerships cannot be evaded, and the public can
also determine more accurately their membership and capital before dealing with them.

VI. LEARNING ACTIVITIES

Activity 1. TRUE OR FALSE. In the space before the statement, write “TRUE” if the statement is
correct, and “FALSE if the statement is incorrect.

1. An oral agreement is sufficient to effect partnership formation of a professional

partnership.
2. A written partnership agreement is usually made to avoid potential problems during the
operations of the business.
3. Every partner is assumed as an agent of partnership.
4. Every partnership should have atleast one general partner
5. General Partnership as to liability comprised of a limited and general partner.
6. A de facto partnership is established and organized in accordance with all the legal
requirements for its existence.
7. A capitalist-industrial partner could be a limited partner as to liability.
8. A capitalist-industrial partner in a general partnership is also liable for the partnership
debts to the extent of his personal assets.
9. An industrial partner is a limited partner.
10. A silent partner is not known as a partner in the partnership, but does not take active
participation in running the affairs of the partnership.
11. A secret partner is known as a partner in the partnership, but does not take active
participation in running the affairs of the partnership.
12. The partner investing the particular kind of asset retains his personal rights to the said
property. He may receive back the same property if the partnership is terminated.
13. Upon the termination of the legal life of the partnership, it may continue its normal
activities under a new business name.
14. A partnership must always have more than two partners.
15. Mutual agency means that each partner has the right to bind the partnership to
contracts.

“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
reproduced for educational purposes only and not for commercial distribution,”
NVSU-FR-ICD-05-00 (081220) Page 6 of 8
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2S-2020-2021

VII. REFERENCES

Ballada, Win. Ballada Susan, (2016). Partnership and Corporation Accounting (Made
Easy). Sampaloc, Manila: Domadane Publishers

Domingo, A. 2nd Edition. Partnership, Revised Corporation, Cooperative Law. #02

Ampucao, Itogon, Benguet: Coaching for Results Publishing

Lopez, JR., R., (2015). Learning the Basic of ACCOUNTING. Davao City, Philippines:
MS LOPEZ Printing & Publishing

Millan, Z., (2020). Financial Accounting and Reportin (Fundamentals), 2019 Edition.
Baguio City: Bandolin Exterprise

“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
reproduced for educational purposes only and not for commercial distribution,”
NVSU-FR-ICD-05-00 (081220) Page 7 of 8