LIMITED PARTNERSHIP

Characteristics
A limited partnership has the following characteristics:
• It is formed by compliance with the statutory requirements
• Its business is controlled or managed by one or more general partners, who are personally liable
to creditors.
• Its obligations or debts are paid out of the partnership assets and the individual property of the
general partners.
• One or more limited partners contribute to the capital and share in the profits but do not manage
the business and are not personally liable for partnership obligations beyond their capital
contributions.
• The limited partners may have their contributions back subject to conditions prescribed by law.

Formation

• Two or more persons desiring to form a limited partnership shall sign and swear to a certificate
stating the items in Article 1844 and file for the record of the certificate in the SEC.
• A limited partnership is formed if there is substantial compliance in good faith with the
requirements. The purpose of filing the certificate in the SEC is to give actual or constructive
notice to potential creditors or persons dealing with the partnership and to acquaint them with
its essential features, including the limited liability of limited partners.
• The surname of a limited partner shall not appear in the partnership name unless it is also the
surname of a general partner or prior to the time when the limited partner became such, the
business had been carried on under a name in which his surname appeared.
• A limited partner whose surname appears in a partnership name contrary to this prohibition is
liable as a general partner to partnership creditors who extend credit without actual knowledge
that he is not a general partner.
• According to Article 1853, if a person is both a general and a limited partner in the same
partnership at the same time, this fact must be stated in the certificate. 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 as a limited
partner, he shall have the rights against the other members which he would have had if he were
not also a general partner.

Management

• Only general partners have the right to manage the partnership.

• Under Article 1848, if a limited partner takes part in the control of the business, he becomes liable
as a general partner. A general partner in a limited partnership has the rights and powers and is
subject to all limitations and liabilities of a partner in a general partnership.
• Under Article 1850, he has general authority over the business, but written consent or ratification
by all limited partners is needed for him to be able to:
o do any act in contravention of the certificate;
o do any act which would make it impossible to carry on the ordinary business of the
partnership;
o confess a judgment against the partnership;
 o possess partnership property, or assign their rights in a specific property, for other than a
partnership purpose;
o admit a person as a general partner;
o admit a person as a limited partner, unless the right to do so is given in the certificate; or
o 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.

Obligations of a Limited Partner

• Under Article 1845, the limited partner may contribute cash or other property, but not services.
• He is liable to the partnership for the difference between his actual contribution and that stated
in the certificate as having been made and for any unpaid contribution which he agreed to make
in the future at the time and on the conditions stated in the certificate.
• He holds as trustee for the partnership- specific property stated in the certificate as contributed
by him, but which was not contributed or which has been wrongfully returned, as well as money
or other property wrongfully paid or conveyed to him on account of his contribution.
• Even if a limited partner has rightfully received the return in whole or in part of his capital
contribution, he is still liable to the partnership for any sum, not exceeding said return with
interest, needed to discharge its liabilities to all creditors who extended credit or whose claims
arose before such return.
• A person who has contributed capital to a partnership, erroneously believing that he has become
a limited partner, although his name was indicated in the certificate as a general partner or he was
not designated as a limited partner, is not personally liable as a general partner by reason of his
exercise of the rights of a limited partner, provided: on ascertaining the mistake, he promptly
renounces his interest in the profits of the business or other compensation by way of income, he
does not participate in the management of the business;" and his surname does not appear in the
partnership name.

Rights of a Limited Partner

In general, a limited partner shall have the same rights as a general partner to:
• require that the partnership books be kept at the principal place of business of the partnership,
• inspect and copy any of them at a reasonable hour,
• demand true and full information of all things affecting the partnership;
• demand a formal account of partnership affairs whenever circumstances render it just and
reasonable;
• ask for dissolution and winding up by decree of court;
• receive a share of the profits or other compensation by way of income; and
• receive the return of his contribution provided the partnership assets are in excess of all its
liabilities. (Article 1851)

Under Article 1854, a limited partner may lend money to the partnership, transact other business with the
partnership, and if he is not also a general partner, receive a pro rata share of the partnership assets with
general creditors.
But with respect to his transactions with the partnership, he cannot receive or hold as collateral security
any partnership property or receive any payment, conveyance, or release from liability if it will prejudice
the right of third persons. Violation of the prohibition is considered a fraud on the creditors of the
partnership.

According to Article 1856, a limited partner may receive from the partnership the share of the profits or
the compensation by way of income as stated in the certificate. This right is subject to the condition that
the partnership assets are in excess of the partnership liabilities after such payment. The partnership
liabilities referred to exclude the liabilities to the limited and general partners.

Under Article 1857, par. 1, a limited partner shall not receive from a general partner or out of partnership
property any part of his contributions until:

A. 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 the property of the partnership sufficient to pay
them;

B. the consent of all members is had, unless the return may be demanded as a matter of right; and

C. the certificate is cancelled or so amended as to set forth the withdrawal or reduction.

A limited partner has only the right to demand and receive cash in return for his contribution, regardless
of whether he contributed money or property. He may, however, receive his contribution in a form other
than cash when provided in the certificate or when all the partners' consent.16

Article 1855 provides that while the limited partners stand on equal footing, priority or preference may be
given to some limited partners over others with respect to the return of contributions, their compensation
by way of income or any other matter, if all the general and limited partners agree in the certificate.

The interest of a limited partner is assignable. The assignee may become a substituted limited partner or
a mere assignee. A substituted limited partner is a person admitted to all the rights of a limited partner
who has died or has assigned mis interest in a partnership. He has all the rights and powers, and is subject
to all The restrictions and liabilities of his assignor, except those liabilities that he was ignorant of and
cannot be ascertained from the certificate.

On the other hand, an assignee is only entitled to receive the share of the profits or other compensation
by way of income, or the return of contribution, to which the assignor would otherwise be entitled. He as
neither the right to require any information or account of the partnership transactions nor the right to
inspect the partnership books.

An assignee has the right to become a substituted limited partner if all the partners consent thereto or
the assignor who was empowered to do so him that right." An assignee also becomes a substituted limited
partner when the certificate is appropriately amended Under Article 1857, par 4, a limited partner may
have the partnership dissolved and its affairs wound up when he rightfully but unsuccessfully demands
the return of his contribution or he has a right to contribution but his contribution is not paid because the
partnership property is insufficient to pay its liabilities.
Dissolution of Limited Partnership

Article 1860 provides that the retirement, death, insolvency, insanity, or civil interdiction of a general
partner dissolves the partnership. But it is not so dissolved when the business is continued by the
remaining general partners under a right to do so stated in the certificate or with the consent of all
members. Upon the death of a limited partner, his executor or administrator shall have all the rights of a
limited partner for the purpose of settling his estate and the power to constitute an assignee as a
substituted limited partner, if the deceased was so empowered in the certificate. Under Article 1861, the
estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.

Settlement of Accounts

Article 1863, par. 1 provides that in settling accounts after dissolution, the liabilities of the partnership
shall be paid in the following order:
• those to creditors, including limited partners except those on account of their contributions, in
the order of priority as provided by law;
• those to limited partners in respect to their share of the profits and other compensation by way
of income in their contributions;
• those to limited partners in respect to the capital of their contributions;
• those to general partners other than for capital and profits;
• those to general partners in respect to profits; and
• those to general partners in respect to capital.

Amendment or Cancellation of Certificate

Under Article 1864, when the partnership is dissolved or all limited partners cease to be such limited
partners, the certificate shall be canceled. On the other hand, a certificate shall be amended when:

• there is a change in the name of the partnership or in the amount or character of the contribution
of any limited partner;
• a person is substituted as a limited partner;
• an additional limited partner is admitted;
• a person is admitted as a general partner,
• a general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction
and the business is continued;
• there is a change in the character of the business of the partnership;
• there is a false or erroneous statement in the certificate;
• 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;
• a time is fixed for the dissolution of the partnership or the return of a contribution, but no time
was specified in the certificate; or
• the partners desire to make a change in any other statement in the certificate to accurately
represent the agreement among them.

Article 1865 provides that to amend or cancel a certificate, the amendment or cancellation must be in
writing and must be signed and sworn to by all the partners including the new partners, and the
assigning limited partner in case of substitution or addition of a limited or general partner. The writing
to amend (with the certificate, as amended) or to cancel must be filed with the SEC. If a partner designated
to execute the writing refuses to do so, a partner who desires the cancellation or amendment may petition
the court to order the cancellation or amendment. The court shall order the SEC to record the cancellation
or amendment if it finds that the petitioner has a right to have the writing executed.