What is Partnership?
 As to creation, Partnership is created by
 is a contract whereby 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,
or in order to exercise a profession.
 It is both a contract and a business
organization.
NATURE
 By its nature, partnership is a
consensual contract as it is perfected by
mere consent or meeting of the minds
between parties.
As distinguished from Joint Venture
 As to transaction, JV is ordinarily limited
to a single transaction, whereas
Partnership usually contemplates the
undertaking of a general and continuous
business of a particular kind
 As to property, in both, property
contributed becomes the property of
As distinguished from Cooperatives
the business entity
 As to name, a JV has no firm name,
while a partnership is required to
operate under a specific firm name.
 As to conduct of business, in JV none of
the co-venturers can bind the JV or his
co-venturers, while a partner, when
acting in pursuance of the firm business,
binds not only himself as a principal but
as their agent as well, also the
partnership and his co-partners
As distinguished from Corporation
mere consent of the parties, whereas a
Corporation is created by operation of
law.
 As to exercise of power, a Corporation
can only exercise such powers and
functions expressly granted to it by law
and those that are necessary or
incidental to its existence. While a
partnership can do anything by
agreement of the parties.
 As to existence, a Corporation has the
right of succession which presupposes
that it continues to exist despite death,
withdrawal of the stockholders or
members whereas in a Partnership since
it is based on mutual trust, death,
withdrawal, incapacity, and insolvency
of one partners would result in its
dissolution
 As to dissolution, a Corporation needs
the consent of the State for it to cease
as a body corporate while a Partnership
can be dissolved by mere agreement of
parties.
 As to purpose, a Partnership is organized
for profit while a Cooperative is
organized primarily for self-help
 As to personality, both Partnership and
Cooperative have their own separate
juridical personality
 As to creation, Partnership is created by
mere consent of the parties, whereas a
Cooperative is created by operation of
law.

ELEMENTS OF PARTNERSHIP
1. CONSENT
2. SUBJECT MATTER
3. CONSIDERATION
LAWFUL OBJECT OR PURPOSE – it must be
within the commerce of man, possible and not
contrary to law, morals, good customs, public
order. ( Article 1352. Contracts without cause,
or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary
to law, morals, good customs, public order or
public policy)
KINDS OF PARTNERS
 General Partner – contributes property
and whose liability extends to his/her
personal property after the assets of the
Partnership have been exhausted.
 Limited Partner – contributes property
and whose liability only extends to
his/her contribution to the partnership
 Industrial Partner – A partner who
contributes services to the partnership
 Managing Partner - A person who takes
active interest in the conduct and
management of the business of the firm
is known as active or managing partner.
 Dormant Partner – A person does not
take active part in the management of
the business. Such a partner only
contributes to the share capital of the
firm, is bound by the activities of other
partners, and shares the profits and
losses of the business.
 Nominal/Ostensible Partner - is one who
does not have any real interest in the
business but lends his name to the firm,
without any capital contributions, and
doesn’t share the profits of the business.
 Partner by estoppel – is a person who
misrepresents himself as a partner and
as a result, incurs liability, is liable as if
he is actually a partner to the
partnership he misrepresented.
-He will never become a partner of the
partnership and he has no rights.
According to Object
a. Universal
▪ With all present property
(COMMON FUND)
- Properties which belongs to the
partners at the time of constitution of
the partnership
- Profits that they may acquire
therewith.
- Except (properties acquired
SUBSEQUENTLY by inheritance, legacy,
or donation EXCEPT fruits thereof)
▪ With all profits (COMMON FUND)
- All profits acquired by industry
or work of the partners becomes
common property
b. Particular
According to Liability
 General – All partners are general
partners whose liability extends to their
individual properties, after the assets of
the partnership have been exhausted.
  Limited – Where at least one of the
partners are liable only up to the extent
of his contribution
As to duration
a. Partnership with Fixed Term
b. Partnership for a particular
undertaking
c. Partnership at will
FORMALITIES REQUIRED
 As a general rule, a partnership may be
constituted in any form. However, there
are certain exceptions which require a
particular form to make a partnership
enforceable Article 1771 Civil Code
1. When capital contribution total
Php3,000.00 or more - Shall appear in a
public instrument; and
- Recorded in the office of SEC (Article
1772)
Effect of non-compliance: Does not
affect the validity of the partnership. For
enforceability or greater efficacy.
2. When immovable property is
contributed
- Must be in a pubic instrument
- Inventory of the property must be
made, signed by the parties and
attached to the public instrument.
Effect of non-compliance: Partnership is
void. (Article 1773)
RULES ON MANAGEMENT
As a GENERAL RULE, every partner has the right
to manage the Partnership.
Except:
1.When there is managing partner
2.When a partner is considered as Dormant
Partner
APPOINTMENT OF MANAGING PARTNER
MANAGING PARTNER IN THE ARTICLES
OF PARTNERSHIP
1. May execute all acts of administration, in
good faith, even with opposition from the
other partners;
2.administration can only be revoked if (a)with
just or lawful cause; and (2) by a vote of the
partner representing the controlling interest.
MANAGING PARTNER AFTER PARTNERSHIP
HAS BEEN CONSTITUTED:
1. May execute all acts of administration, in
good faith, even with opposition from the
other partners;
2. The power as manager may be revoked by a
vote of the partners representing the
controlling interest EVEN WITHOUT just or
lawful cause
APPOINTMENT OF MULTIPLE MANAGING
PARTNER
1. Each partner may separately execute all
acts of administration;
2. Should one of the managing partners
oppose the act of another, the matter
shall be decided by a majority of the
managing partners per head count; (Any
of the partners may oppose the acts of
administration)
 3. Should there be a tie in the votes of the
managing partners, the controlling
interest of ALL the partners shall prevail.
Distribution of Profits and Losses
I. Rules on distribution of Profits
Sharing of losses and liabilities
▪ In accordance with the agreement;
I. Liabilities of a Partner
▪ If there is no agreement, in proportion
to contribution; the industrial partner
shall receive such hare as may be just
and equitable.
▪ If the industrial partner contributed
capital, he shall also receive a share in
the profits in proportion to his capital
II. Rules on distribution of Losses
▪ In accordance with the agreement;
▪ If there is a stipulation as to profits only,
sharing of losses shall be based on the
same proportion
▪ No stipulation or agreement, based on
capital contribution
▪ Industrial partner shall not be liable for
losses unless he also contributed capital
What if the agreement is not valid?
- As if NO agreement or stipulation. The apply
the rule when there is no agreement
 Designation of losses and profits
CANNOT be entrusted to one of the
partners
 A stipulation which excludes one or
more partners from any share in the
profits or losses is void. (in relation to
Art. 1797)
▪ Liable for whatever (money, property, or
service) that may have promised to
contribute. (Article 1786)
▪ Liable in case of eviction with regard to
specific and determinate things which
he may have contributed to the
partnership. (Ibid.)
▪ Liable for any amount that he may have
taken from the partnership funds which
he converted for his own use. (Article
1788)
▪ Liable to contribute additional fund in
case of an imminent loss of the business
of the partnership. (Article 1791)
▪ A new partner is liable for the
obligations already contracted before
his admission but only to the extent of
this contribution.
▪ A new partner is liable to the extent of
his personal property (if general partner)
for subsequent obligations like an
original partner.
 ▪ Responsible to the partnership for
damages suffered by it through his fault.
(Article 1794 )
▪ An industrial partner cannot engage in
business for himself, unless the
partnership expressly permits him to do
so. (Article 1789)
▪ Partners shall render on demand true
and full information of all things
affecting the partnership to any partner
or the legal representative of any
deceased partner or of any partner
under legal disability. (Article 1806)
▪ Every partner must account to the
partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other
partners from any transaction
connected with the formation, conduct,
or liquidation of the partnership or from
any use by him of its property. (Article
1807)
▪ The capitalist partners cannot engage
for their own account in any operation
which is of the kind of business in which
the partnership is engaged, unless there
is a stipulation to the contrary.
ASSOCIATION AND ASSIGNMENT OF
PARTNER’S INTEREST
I. ASSOCIATION OF OTHERS TO PARTNER’S
INTEREST:
▪ Can be done without the consent of
other partners
▪ Associate shall not be admitted to the
Partnership without the consent of ALL
the partners
▪ What happens when a partner associate
someone with his partnership interest?
▪ What happens when a partner assign or
convey his interest to another?
▪ Can a partner be forced to assign his
interest to another person?
II. ASSIGNMENT OF PARTNER’S INTEREST :
▪ Can be done without the consent of the
other partners
▪ Does not dissolve the partnership,
unless there is an agreement.
▪ Does not entitle the assignee to
interfere in the management and
administration of the partnership affairs.
▪ Assignee merely receives his share in
profits in accordance with what the
assigning partner would have received.
▪ IN CASE OF FRAUD, assignee may ask for
the dissolution of the partnership
through a court decree.
III. ASSIGNMENT OF INTEREST BY COURT
DECREE:
▪ Must be made by a JUDGMENT creditor
upon due application to a competent
court.
 ▪ Court may charge the interest of the
debtor partner with payment of
unsatisfied amount of such judgment
debt with interest thereon.
▪ Court may appoint a receiver of the
debtor partner’s share in profit for the
benefit of the judgment creditor
III. ASSIGNMENT OF INTEREST BY COURT
DECREE (REMEDIES):
▪ Interest charged may be redeemed at
any time before foreclosure, or in case
of a sale being directed by the court:
- With separate property, by any one or more
of the partners; or
- Court may appoint a receiver of the debtor
partner’s share in profit for the benefit of the
judgment creditor
PROPERTY RIGHTS OF A PARTNER
What are the Property Rights of a Partner?
a. His rights in specific partnership property;
b. His interest in the partnership; and
c. His right to participate in the management
I. Rights in a Specific Partnership.
- Partner is considered as a co-owner with his
partners of specific partnership property
- A partner cannot assign his interest over a
specific partnership property unless all the
partners will assign theirs.
  - A partner can possess the property for
partnership purpose.
-A partner cannot possess the partnership
property for any other purpose other than
partnership purpose without the consent of
ALL the partners
-Not subject to attachment or execution except
on a claim against the partnership.
II. Partner’s Interest in the Partnership.
- Share in Profits and surplus
- Partnership Surplus is equivalent to
Partnership Assets – Partnership
Liabilities.
Obligations of the Partners with regard to
Third Persons
• All partners, including industrial ones,
are liable equally with all their property
and after all the partnership assets have
been exhausted, for the contracts which
may be entered into in the name and for
the account of the partnership, under its
signature and by a person authorized to
act for the partnership.
• The partnership is liable for the acts of a
partner who acts within the scope of his
authority
All partners are liable solidarily with the
partnership for everything chargeable to
the partnership as a result of the following:
 -Liability incurred due to any wrongful
act or omission of any partner acting in the
ordinary course of the business of the
partnership or with the authority of his co-
partners
-Liability incurred where one partner
acting within the scope of his apparent
authority receives money or property of a
third person and misapplies it;
- Liability incurred where the
partnership in the course of its business
receives money or property of a third
person and the money or property so
received is misapplied by any partner while
it is in the custody of the partnership.
MODES OF RETIREMENT AND
REQUIREMENTS
DISSOLUTION
• is the change in the relation of the
partners caused by any partner ceasing
to be associated in the carrying on of
business as distinguished from the
winding up of the business.
WINDING UP –
• On the other hand, is the process of
settling business affairs after dissolution.
TERMINATION
• is the point where all the partnership
affairs have been wound up.
Until when does a partnership exist as a body
corporate?
• Until termination, but only for purposes
of winding up the affairs only (General
Rule)
CAUSES OF DISSOLUTION
I. WITHOUT NEED OF COURT DECREE
a. Dissolution Effected without violation of the
Partnership Agreement:
• By the termination of the definite term
or particular undertaking specified in the
agreement;
• By the express will of any partner, who
must act in good faith, when no definite
term or particular is specified;
• By the express will of all the partners
who have not assigned their interests or
suffered them to be charged for their
separate debts, either before or after
the termination of any specified term or
particular undertaking;
• By the expulsion of any partner from the
business bona fide in accordance with
such a power conferred by the
agreement between the partners;
b. Dissolution Effected in Contravention of
Partnership Agreement:
• By the express will of any partner at any
time
• By any event which makes it unlawful
for the business of the partnership to be
carried on or for the members to carry it
on in partnership.
 •  Loss of the specific thing promised to be
contributed provided that the
Partnership is not yet the owner of the
thing at the time of loss.
• Death, Insolvency, and Civil interdiction
of the any partner
(Civil interdiction is a legal restraint upon a
person incapable of managing his estate,
because of mental incapacity or conviction of a
crime, from signing any deed or doing any act
to his own prejudice, without the consent of his
curator or interdictor.)
II. Dissolution effected through a Court
Decree whenever:
a. A partner has been declared insane in
any judicial proceeding or is shown to be
of unsound mind;
b. A partner becomes in any other way
incapable of performing his part of the
partnership contract;
c. A partner has been guilty of such
conduct as tends to affect prejudicially
the carrying on of the business;
d. A partner willfully or persistently
commits a breach of the partnership
agreement, or otherwise so conducts
himself in matters relating to the
partnership business that it is not
reasonably practicable to carry on the
business in partnership with him;
e. The business of the partnership can only
be carried on at a loss;
f. Other circumstances rendering a
dissolution equitable.
EFFECTS OF DISSOLUTION:
Terminates the authority of partners to
contract in behalf of the partnership except:
a. For winding-up; and
b. Contracts already entered into.
WHEN DISSOLUTION IS CAUSED BY THE
ACT, DEATH OR INSOLVENCY OF A
PARTNER
Each partner is liable for any liability created by
a partner acting for the partnership as if the
partnership had not been dissolved UNLESS:
a. The partner acting for the partnership
had knowledge of the dissolution
b. The partner acting for the partnership
had knowledge or notice of the death or
insolvency.
After dissolution, a partner can bind the
partnership:
a. By any act appropriate for winding up
partnership affairs or completing
transactions unfinished at dissolution
b. By any transaction which would bind the
partnership if dissolution had not taken
place, provided the other party to the
transaction had no knowledge or notice
of the dissolution of the partnership
The partnership is in no case bound by any act
of a partner after dissolution:
a. Where the partnership is dissolved
because it is unlawful to carry on the
business, unless the act is appropriate
for winding up partnership affairs; or
 b. Where the partner has become
insolvent; or
c. Where the partner has no authority to
wind up partnership affairs
When dissolution is caused in contravention
of the partnership agreement the rights of the
partners shall be as follows:
a. Partners who have not caused the
dissolution wrongfully shall have (Innocent
Partners):
i. The right to the surplus of the
partnership assets after paying all the
partnership liabilities
ii. The right to damages against the partner
who wrongfully dissolved that
partnership
iii. The right to continue the partnership if
all the other partners decide to do so
provided the partnership indemnify the
guilty partner of his share of the
partnership assets less damages.
b. Partner who caused the wrongful
dissolution shall have (GUILTY PARTNER):
1. The right to the surplus of the
partnership assets after paying all the
partnership liabilities subject to liability
for damages.
2. If the business is continued, is entitled to
indemnity from the continuing partners.
Rules in settling accounts between the
partners after dissolution:
1. The assets of the partnership are:
a. The partnership property,
b. The contributions of the partners
necessary for the payment of all the
liabilities specified in No. 2.
2. Order of Liability:
(a) Those owing to creditors other than
partners,
(b) Those owing to partners other than for
capital and profits,
(c) Those owing to partners in respect of
capital,
(d) Those owing to partners in respect of
profits.
Where a partner has become insolvent or his
estate is insolvent, the claims against his
separate property shall rank in the following
order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of
contribution.
LIMITED PARTNERSHIP
A limited partnership is one formed by two or
more persons under the provisions of the
following article, having as members one or
more general partners and one or more limited
partners.
CONTRIBUTIONS OF A LIMITED PARTNER
Maybe cash or property but NOT services.
(Article 1845)
Can a Limited partner be a general partner at
the same time?
Yes (1) If he so desires provided that this fact
shall be stated in the certificate of partnership
(Article 1853) (2) He takes part in the control of
the business (Article 1848)
Without the written consent or ratification of
the specific act by all the limited partners, a
general partner or all of the general partners
have no authority to:
(1) Do any act in contravention of the
certificate;
(2) Do any act which would make it impossible
to carry on the ordinary business of the
partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign
their rights in specific partnership property, for
other than a partnership purpose;
(5) Admit a person as a general partner;   limited partner who has died or has
(6) Admit a person as a limited partner, unless
the right so to do is given in the certificate;
(7) 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.
What are the rights of a limited partner?
All the rights of a general partner except, the
right to manage the partnership business.
When can a limited partner ask for the
dissolution of the partnership?
(1) When he rightfully but unsuccessfully
demands the return of his contribution, or 
(2) When the other liabilities of the partnership
have not been paid, or the partnership
property is insufficient for their payment as
required by the first paragraph, No. 1, and the
limited partner would otherwise be entitled to
the return of his contribution.
Liability of a Limited Partner
(1) Liable for the difference between his
contribution as actually made and that stated
in the certificate as having been made, and
(2) Liable for any unpaid contribution which he
agreed in the certificate to make in the future
at the time and on the conditions stated in the
certificate.
(3) Liable to partnership creditors up to the
extent of his contribution
Who is a Substituted Limited Partner?
• Is a person admitted to all the rights of a
assigned his interest in a partnership.
• An assignee is not always a substituted
limited partner but a substituted limited
partner is always an assignee
• Assignee becomes a substituted limited
partner if all the members consent
thereto or if the assignor, being
thereunto empowered by the
certificate, gives the assignee that right
When is a Limited partnership dissolved?
• Upon retirement, death, insolvency,
insanity or civil interdiction of a general
partner dissolves the partnership, unless
the business is continued by the
remaining general partners
Rules in settling accounts after dissolution
(Order of liability)
(1) Those to creditors, in the order of priority as
provided by law, except those to limited
partners on account of their contributions, and
to general partners;
(2) Those to limited partners in respect to their
share of the profits and other compensation by
way of income on their contributions;
(3) Those to limited partners in respect to the
capital of their contributions;
(4) Those to general partners other than for
capital and profits;
(5) Those to general partners in respect to
profits;
(6) Those to general partners in respect to
capital.