Nature and Formation of Partnership
Partnership at Will – no term; no
Partnership
= 1767 of Civil Code of the Philippines
= a contract whereby two or more persons
bind themselves to contribute money,
property or industry into a common fund
with the intention of dividing profits among
themselves.”
CHARACTERISTICS OF PARTNERSHIP
= Mutual Contribution – contribute money,
property, and industry
= Mutual Agency – agent; he can bind
other to a contract if he is acting within the
express or implied authority
= Unlimited Liability – personal asset can
be used to satisfy creditor’s claim if
partnership’s asset is not enough
= Limited Life – dissolved by: admission,
incapacity, death, withdrawal and
expiration of terms
= Division of profits and losses – reason;
distinguishes property from other
organizations; any term that exclude a
party is void
= Legal Entity – separate legal personality
= Co-ownership of contributed assets –
property contributed is owned by
partnership; joint assets
= Income tax – 30% income tax except
from GPP, GPP are partnership of lawyers
and accountants.
ADVANTAGES OF A PARTNERSHIP
- Easy to organize
- Unlimited Liability – attract creditors
- Better opportunities to obtain funds
- Skills and expertise of partners make it
possible to do activities.
DISADVANTAGES OF A PARTNERSHIP
- Less stable; easy to dissolved
- Solidary liable ang partners
- Liability extend to personal assets
- Shared decisions lead to dissolution
- Consult before making a decision
Less Solidary Liability Shared Consult
KINDS OF PARTNERSHIPS
As to LIABILITY:
General partnership – partners are liable
to the extent of their separate properties
Limited partnership – there limited
partners are not personally liable for the
obligation of partnership; LTD; need 1
General
As to DURATION:
undertaking; can be taken down any time
Partnership with fixed term – term is
fixed and agreed upon; undertaking
As to LEGALITY
De jure – complied with all requirements
De facto – failed or needed more
requirements
As to PURPOSE
Commercial or Trading – Manufacture;
Merchandise
Professional or Non trading –
professions together to render services
As to OBJECT
UNIVERSAL PARTNERSHIP
Universal partnership of all present
property – mutual contribution in a
common fund with intention to divide profit
among themselves; joint asset includes
investment and acquisition
Universal partnership of all profit -
usufruct or use of assets only was
contributed to the partnership; lahat ng
kikitain
PARTICULAR PARTNERSHIP –
determinate thing ang contribution;
sasakyan LANG
As to REPRESENTATION
Ordinary – your partnership exists in eyes
of everyone
Partnership by estoppel – not a
partnership but forced to act one
As to PUBLICITY
Secret – Unknown to the public
Open – known to the public
CLASS of PARTNERS
As to CONTRIBUTION:
Capitalist – contributed money
Industrialist – contributed skill, industry,
expertise
Capitalist-Industrialist – contributed
money, property, AND industry
As to LIABILITY
General Partner – his liability extend to
his separate properties
Limited Partner – does not extend to his
separate property
As to MANAGEMENT
Managing Partner – manages
Silent partner – does not manage A. Forming partnership for the first
time
As to OTHER CLASSIFICATIONS
Liquidating partner – winding up of
affairs
Nominal partner – not a partner or party
but there to protect innocent persons
Ostensible partner – takes part in
management; known to public
Secret partner – takes part in
management; but unknown
Dominant partner – both silent and secret
partner

PARTNERSHIP CONTRACT
= could be written or oral
= needed by SEC
Article of Co-Partnership
= should be written so dispute could be
avoided and minimized
= it includes the following:
NAME of: partnership, partner, classes of
partner, liability of partner
DATE of contract
PURPOSE of principal office of business
CAPITAL – contributions of individual
partners; description and agreed values
RIGHT AND DUTIES
MANNER OF DIVIDING INCOME,
SALARY, AND INTEREST
CONDITIONS TO WITHDRAW
MANNER OF KEEPING BOOKS
CAUSE OF DISSOLUTION
PROVISION FOR ARBITRATION B. SOLE PROPRIETOR AND AN
IN SETTLING DISPUTES INDIVIDUAL FORM A PARTNERSHIP
= The parties may either use the book of
Who organizes a partnership? sole proprietor or open a new set of books
SEC – to secure license you must pass an = There will adjusting entries on the book
Article of Co-Partnership of the sole proprietor; CAPITAL
City or Municipality Mayor’s Office – ADJUSTMENT ACCOUNT
Mayor’s Permit and License must be get.

Accounting for PARTNERSHIP

Opening Entries
Cash – face value
Property – agreed value or fair market
value
Industry – memorandum entry
Assumption 1 – The partnership will
use the book sole proprietor Assumption 2- The partnership will
Rules: open a new set of books
1. Adjust the books of the sole proprietor In the new partnership book:
to bring account balances to agreed
values.
2. Record the investment of the other
partner.

Rule 1 – Adjusting

In the sole proprietor book, the adjustment

and closing of entries must be made,
hence the following:

1. An allowance for uncollectible accounts

of P12,000 is to be established.

2. The inventories are to be valued at their

current replacement cost of P220,000

3. Prepaid expenses of P7,000 and

accrued expenses of P4,000 are to be
recognized.

Then after all the adjustments, add/minus

the capital accounts to the original one.

Reyes, Capital – 670,000

Add: b. 20,000
c. 3,000
Less: a. 12,000
Meija, Capital – 681,000; as mentioned in
the problem.

Rule 2 – Record of investment of new

partner
C. TWO OR MORE SOLE
PROPRIETORS FORM A PARTNERSHIP Rule No. 2 – Record investment of
= They can use the books sole proprietors Villegas
or open new book which was advisable.

Given:

Assumption 2 – The partners will use a

new set of books

Assumption 1 – The partners will use

the books of sole proprietor

If books of Valdes will be used; the

following should be the rules.
1. Adjust book of Valdes
2. Record investment of Villegas

Rule 1 – Adjust the balance of the

chosen book owner

a. Allowance for Uncollectible Accounts

shall be P7,500 and P32,000, respectively.
Partnership’s Statement of Financial
Position
b. Inventories are to be valued at 110% of
their recorded values.

c. Both store and delivery equipment are

5% depreciated