Partnership 6.21.2012 I. INTRODUCTION OF BUSINESS ORGANIZATION Why should a person engage in business?

? For livelihood, and if you want to engage in business, how does it start? How did business arise? How did it start? --ancient, barter, no currency, but from barter people got what they needed. People later invented a currency to enhance the transactions. Merchants then arrived, they developed such business, and it developed. Why partnership? Once before, people started with sole proprietorship, partnership arose because people sought for aid to find more capital. What if capital is already sufficient, why would partnership still be needed? Losses? Losses is never an incentive to be a partner. Even if I have millions, its never good to be lonely. Even the bible tells us that its never easy to be alone. Biblical times Genesis Adam and Eve. - first book in the old testament. Story in the beginning, there was nothing, and God said let there be light, there was light. 2nd day- land separate from the waters, let there be birds and bees, and everything was over. After that, it was still lonely, God made Adam, formed him according his own image and likeness and he breathed life into his nostrils Adam, wandered around picked apples, until he sang a song Mr. Lonely. God heard his song, and he said, its not good for man to be alone. When Adam slept, God took one of his ribs, and created a woman, then Adam woke up and found Eve. --- from sole proprietorship --- to --- partnership of Adam and Eve. Enormous investments of Adam with the hardwork and love of Eve Cain and Abel came (corporation) II. PARTNERSHIP You have millions would you engage in a normal form of business, like a machine shop for example? Auto repair shop for example? YES, How, how would you run the business? One would find a partner or employee; which one would you prefer? Partner or employee? A partner would contribute his services to the partnership; thus his industry would greatly help the business; how about an employee? You could also get the services from an employee, but a partner, distinguished from employee, would know how to decide on matters of the business, while an employee would only be paid for his skills and experience. Looking for an employee might be expensive but not as productive, when one looks for a partner. Since you would already have millions, it would be more efficient to find an industrial partner. Partnership a contract where two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. Partner contribute money, property and industry; no salary but portion of the profit and even the portion of the losses.

Employee salary; no contribution of money, property and industry, but instead his skill would be hired in exchange of a wage or salary. His heart will not be in the business. EMPLOYEE Contract of Employment PARTNERSHIP Contract of Partnership It is where two or more partners agree to contribute money, property or industry to a common fund, with the intention of gaining certain profits and dividing the same among themselves. Illustration: Here are 5 carpenters who agree to contribute 50 pesos every week and then they will raffle who would be entitled take the total amount home at the end of the week, are they partners? No. there should be an intention to divide any profit it among themselves. If they contributed money then they agreed to buy a lotto ticket, and if they win they would divide the profit among themselves, would this be a partnership? Yes, since lotto is legal. III. VALID CONTRACT OF PARTNERSHIP 1) valid contract 2) legal capacity to enter into a contract 3) object is lawful 4) mutual contribution of money, property or industry 5) intent to gain profit and dividing the same valid contract: 1) consent Not vitiated; my own volition 2) object The mutual contribution of money, property or industry 3) cause/consideration The profit that the partnership will gain in the future IV. NATURE OF PARTNERSHIP a. fiduciary trust is important b. consensual - contract is perfected by mere consent o as distinguished from formal contract where there are certain requirements needed to complete c. nominate it has a given name d. bilateral - since the partners contributed money, property and industry, they would in return expect reciprocal benefits mong each other. - conjugal partnership? The same? o No. business partnership is created by mere consent of partners; conjugal partnership is created by law, upon the celebration of marriage. What do we mean? Whats the difference? Civil Partnership: consent is mutually given by partners to commence such partnership; the law cannot force them to become partners. It is the result of the agreement of partners; if there is no agreement, then there is no partnership; there should be an intention to become partners. Conjugal Partnership: a property regime, where the husband and the wife to be would agree which property regime would

govern their partnership. The husband and wife should agree what kind of property regime would govern their properties if not absolute community would set in. V. PARTNERSHIP VS. CORPORATION - How about a corporation? o Corporations would need at least 5 incorporators o Corp needs to submit certain requirements to SEC for it to commence its existence. o Corporation is created by law Why? The corporation code requires certain compliance; and upon such compliance; a corporation is created. A corporation is created by virtue of law (the corporation code) The corporation is a creation of the State, by operation of law. Other differences in Partnership and Corporation
Partnership Manner of creation Number of incorporators Commencement juridical personality Powers of Mere agreement of the parties May be organized by only 2 persons From the moment of the execution of the contract of partnership May exercise any power authorized by the partners provided it is not contrary to law, morals, good customs, public order or public policy Every partner is an agent of the partnership unless the management is agreed upon to the contrary None since when a partner dies, the partnership will be dissolved Corporation By law or operation of law Requires at incorporators least 5

From the date of issuance of the certificate of incorporation by the SEC Can exercise only the powers expressly granted by law or implied from those granted or incident to its existence Power to do business and manage its affairs is vested in the board of directors Has so that even if the stockholder will die, the corporation will not be dissolved but the stockholdings of the deceased stockholder will be transmitted to his heirs Stockholders are only liable to the extent of the shares subscribed by them Generally, stockholder has the right to transfer his shares without the prior consent of the other stockholders May not be formed for a term in excess of 50 years extendible to not more than 50 years in any one instance

Management

Right of succession

Extent of liability to third persons

Partners (except limited partners) are liable personally (may be severally liable) for partnership debts to third persons Partner cannot transfer his interest in the partnership so as to make the transferee a partner without the consent of all the other partners Any period of time as stipulated by the partners

Transferability interest

of

Term of existence

Dissolution Governing law

At any time by the will of any or all of the partners Civil Code

Can only be dissolved with the consent of the State Corporation Code

POINTS OF EMPHASIS: As for liability: There are instances when for example a partner may initially contribute only Php1,000,000, but eventually when a partnership incurs liabilities, a partner may contribute an additional Php2,000,000 But in a corporation the liability is only up to the extent of the shares of the stockholders. As for succession When a partner dies, the partnership dies with him But when the stockholders die, the corporation continues to exist since the shares of the stockholder will be transmitted to their heirs by way of succession. Nature of a partnership In a partnership, like in a relationship, trust is very important. One cannot become a partner without the unanimous vote all the partners. Powers of the Partnership and Corporation The may exercise any power authorized by the partners provided it is not contrary to law, morals, good customs, public order or public policy FOLLOWING THE LIBERALITY OF CONTRACTS. Corporate Powers are vested by law or those that are incidental to its existence. In a partnership, it is binding only to the partners principle of the Privity of Contracts refers to the binding effect of what has been agreed by the partners in a contract Remember the consensuality of contracts, the liberality of contracts, and the privity of contracts. VI. GUIDELINES IN A PARTNERSHIP ARTICLE 1769 ( mas chada imemorize nalang ang article) 1) Not partners to each other, not partners to third parties 2) Co-ownership or co-possession of properties does not in itself establish a partnership 3) Sharing of gross returns does not in itself establish partnership 4) Receipt of a person of a share of profits in a partnership except when such receipts are of: a. Debt b. Wage c. Annuity d. Interest e. Proceeds of a sale PARTNERSHIP vs. CO-OWNERSHIP
As to Creation Juridical Personality Purpose Duration Partnership always created by a contract, either express or implied has a juridical personality separate and distinct from that of each partner realization of profits no limitation upon the duration is set by law Co-ownership generally created by law, but may exist even without a contract Has no juridical personality common enjoyment of a thing or right; does not necessarily involve sharing of profits an agreement to keep the thing undivided for more than 10 years is not allowed

Transfer Interest

of

Power to Act with 3rd Persons Dissolution Agency of Representatio n Profits Form

a partner may not dispose of his individual interest in the partnership so as to make the assignee a partner without unanimous consent in the absence of stipulation to the contrary, a partner may bind the partnership death or incapacity of a partner results in the dissolution of partnership as a rule, there is mutual agency may be stipulated upon may be in any from except when real property is contributed (here a public instrument is required)

a co-owner can dispose of his share without the consent of the others a co-owner ownership cannot represent the co-

death or incapacity of a co-owner does not necessarily dissolve the co-ownership as a rule, there is no mutual representation (although it is enough for a co-owner to bring an action for ejectment against a stranger) must always depend upon proportionate shares and any stipulation to the contrary is VOID (Art.485) no public instrument is needed even if real property is the object of the co-ownership

Illustration: If two brothers inherited from their parent and a third party claims the property, who will the third party sue? The two brothers since the co-ownership does not have a juridical personality unlike a partnership, where it has a juridical personality. 2nd Illustration: Santi Faith and Yangson were talking. Yangson said that he had an unused car, and Santi Faith had a flower shop. So Yangson invited Santi Faith to be with him in the morgue on the Southern Islands since there is a big business there, then with Yangson prosposed that Santi Faith could station herself near the funeral parlor, to sell flowers while Yangson could drive the dead to the funeral parlor. They had one customer, they send the cutomer the bill flowers: Php20,000, car with driver: Php25,000, signed by both Jerson Yangson and Santi Faith by Santi Faith, after that Santi Faith got Php45,000, then she split it in half, were you fair? They did not agree to be partners; they just agreed on joint efforts -cooperation, thus there is no partnership since it partnership should not be presumed. It is provided in the law that persons who are not partners to each other are not partners as to third parties. 3rd Illustration: Yangson was not happy with Santi Faith, he looked for another partner, in the name of Agot make-up artist. Yangson proposed a business, when he would have already had a passenger, Agot would do the make-up on the cadaver. They agreed to split payment on a 75 -35 percentage of payment. After the make-up was done, the customer was not happy, thus he sued Agot for damages, but he did not sue the driver since he said that he did a good job. When Agot was sued she asked Yangson to divide the liability with her if she was asked to pay. What do you think would happen? Was there partnership? Yes, since there was consent from both partners. Partnership is consensual, thus is constituted merely by consent except where immovable property is contributed, in which case, a public instrument shall be necessary, and if the capital of the partnership is 3000, in money or property, then the same shall appear in a public instrument. VII. PROPERTY IMMOVABLE PROPERTY property that cannot be moved Immovable by nature

Immovable by incorporation Immovable by destination/intention MOVABLE PROPERTY moved from one place to another Consumable: you have to consume it in order to enjoy it Rice; bubble gum Non-consumable: you can enjoy it, but not consume it Personal Computer Fungible Nonfungible