Module 1 Part 1

Brief History & Nature of Partnership; Characteristics,

Advantages & Disadvantages; Classifications, types of
Partners ; Laws on Partnership formation & Accounting.
 In this era of modern age where technology continued to evolve like a rocket,
thanks to the increasing number of tech savvy populace, one of the many ways to form
alliances is through partnership.

 Behind the success of businesses namely Microsoft of Bill Gates & Paul Allen;
Google of Larry Page & Sergey Brin , Apple of Steve Jobs, Steve Wozniak & Ronald
Wayne , the so called giants in the business world, they formed meaningful partnerships
which not only gave them riches but created also shared opportunities for communities
and people around the world.
After studying the module, the students should be able to:
 understand how the partnership business operates, its characteristics, the advantages
and disadvantages;
 distinguish a partnership business from other forms of business organization;
 identify and describe the different classifications of partnerships and the different
types of partners;
 recognize the different problems peculiar to partnership and the different ways of
forming a partnership business including knowledge of various laws inherent in its
formation;
 familiarize the process of adjusting and revaluation of accounts of an existing
business;
 prepare entries necessary to record and effect partnership formation.
 Partnership is not a new venture, as early as 2200 B.C., Hammurabi,the King of
Babylon already provided for the regulation of partnerships.
 In ancient Rome the partnership is called a “societa”
 The English settlers then brought the concept of partnership to the US thus the
partnership law in US evolved from the English law “Partnership Act of 1890”.
 United States’ own law on partnership:
Uniform Partnership Act was approved in 1914 and later, the
Uniform Limited Partnership Act in 1916.
In the Philippines, there are two types of partnerships:
a) Commercial which was about commercial and mercantile partnerships governed
by the Code of Commerce
b) Civil Code (old), which governed the civil or non-commercial partnerships but
later on to be known as the new civil code after the provisions of the two codes
relating to mercantile and civil partnerships was repealed.
PARTNERSHIP as a form of business organization,
 a contract of partnership wherein two or more persons contribute money, property
or industry to a common fund with the intention of dividing the profits among
themselves.

 an arrangement between two or more people to oversee business operations and

share its profits and liabilities.

 an arrangement where parties, known as business partners, agree to cooperate to

advance their mutual interests. Partners could be individuals, businesses, interest-
based organizations, schools, governments or other organizations.
 The partnership is a legal relationship among the contracting parties which
originates from a voluntary contract between them which maybe done orally or in
writing or simply implied from the acts of the parties and as long as the elements
of mutual contribution and intent to divide profits are present as stated in Article
1767, Civil Code of the Phils.

 It has juridical personality separate and distinct from that of each of the partners.
(Art 1768, Civil Code of the Phils.).

 Each owner of a partnership is called Partner.

 A partnership can be constituted orally or in writing.

 It can also be registered or remain unregistered but with the latter, the partnership
will still be a valid one and has legal personality.
An example:
 Bill Gates – 65 yrs old,married,net worth U$120.3 billion (Dec’20),
considered No.4 richest man in the world.
– Microsoft’s chief visionary and
built a multi-media empire
– sells software for PC’s, servers,
smartphones, TV set –top
boxes, gaming consoles and the
web, new version of windows,
tablet and surface.
He owns Bill & Melinda Gates Foundation committed to global
healthcare, education, disease prevention and vaccine development
World richest man is the world’s most charitable!
 Paul Allen -Single, net worth U$23.1B (died2018)
- passion for sports and science
- owns Portland Trailblazers (basketball team)
Seattle Seahawks (football team)
Seattle Sounders (soccer team )
- co-founder of Microsoft
established Allen Institute for Brain & Science
which makes public a detailed “atlas” of genes that
controls the human brain.
 In 1975, Gates and Allen developed a product
to license BASIC (Beginner’s All-Purpose
Symbolic Instruction Code), an easy to learn
programming language which paved the way
to partnership formation initially called
Microsoft (Micro Computer Software).
 Originally, profits are to be split 60:40 but
later was amended to 64:36 with Gates
receiving the larger share due to his original
contribution to BASIC.
1.Mutual Contribution. There cannot be a partnership without mutual contribution of
money, property or industry/skills to a common fund.

2. Division of Profits & Losses. The essence of a partnership is that each partner must
share in the profits or losses of the venture.

3. Mutual Agency. Each partner has the authority to act for the partnership and to enter
into contracts binding upon it, provided these are within his expressed or implied
authority. Any act of the partner which will not fall into the category “ within the
normal course of business “ will not bind the partnership.
4. Limited Life or Easily dissolved. Its life is limited to the duration of the contract.
Any change in the relationship among partners terminates the contract and therefore,
dissolves the partnership.
It may be dissolved for the following reasons:
a) Admission of new partner
b) Death of any of the partners
c) Insolvency
d) Incapacity
e) Withdrawal of a partner or expiration of the term specified in the partnership
agreement.

Insolvency is a financial state in which a person of entity is no longer able to pay its
bills and all its maturing obligations. The person has more liabilities than assets.
5. Unlimited Liability. All partners except limited partners, including industrial
partners are personally liable for the debts or unpaid obligations of the partnership.
Creditor’s claims will be satisfied from the personal assets of the partners without
prejudice to the rights of separate creditors of the partners.

6. Co-ownership of contributed property. All assets invested by the partners to the

partnership will not anymore separately owned but now belong to the partnership by
virtue of its separate and distinct juridical personality. The partners jointly owned the
asset.

7. Separate legal entity. It has separate juridical personality distinct from the partners.
It can sue and be sued. It can acquire assets and incur liabilities or enter into a contract
with third parties on its own name.
8. Partner’s Equity Accounts. The partnership equity accounts depend on the number
of partners. Each partner has a capital account and a withdrawal account similar in
function to that of sole proprietorship.

9. Income Taxes. A partnership is subject to 30% tax on income (RANo. 9337), except,
for general professional partnership.
ADVANTAGES

1. Easily formed. May be created orally or in writing.

2. Greater amount of capital. It brings greater financial capability to the business

because partners can easily raise capital needed.

3. Relative freedom and flexibility in decision-making. Decisions are made by the

managing partner and changes in the enterprise may simply be implemented by
agreement among partners without so much formalities provided it complies with the
provisions of Partnership Law.

4. Better management. Combined skills, expertise and experience of each partner will
result in better operations of the firm.
DISADVANTAGES
1. Unlimited liability. Each partner is personally liable to partnership’s debts except for
limited partners.

2. Easily dissolved and unstable. There is lack of partnership continuity once the
relationship among partners changed.

3. Difficulty in the transfer of ownership interest. The interest of a partner cannot be

transferred to another without the consent of the other partners which is not true in the
case of a Corporation.

4. Limited Capital. Partnership is less effective compared to Corp. in raising large

amount of Capital.
 Distinguishing Factors Partnership Corporation
a. Manner of Creation Created by mere agreement of partners. Created by the operation of Law

b. Number of Persons Two or more persons may form a Not exceeding 15 persons
partnership
c. Commencement of juridical personality It commences from the execution of the From the issuance of certificate of
Articles of Partnership. incorporation by SEC
d. Management Every partner serves as agent of the Management is vested on the BOD.
partnership, or a managing a partner is
appointed.
e. Extent of liability Each of the partners is liable to the Shareholders are liable only to the
creditors up to the extent of personal extent of their interest or investment in
assets except for limited partners. the corporation.

f. Right of Succession No right of succession. Has right of succession. The business

continued to exist regardless of death,
withdrawal, incapacity or insolvency of
the directors or stockholders.

g. Terms of Existence As stipulated in the agreement or as Perpetual existence unless its articles of
agreed upon by the partners. incorporation provide otherwise.

Thank you! Next Part 2