Business Law and Regulations

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General
Principles

GENERAL PRINCIPLES OF PARTNERSHIP

Brief History of the Concept of P A R T N E R S H I P.

The idea of partnership is quite ancient. In 2200 B.C., Hammurabi, King of Babylon, provided for
the regulation of partnerships. In ancient Rome, the partnership was called a societa. It was during the
Middle Ages in Italy that the laws of partnership began to develop. Italian merchants operated as limited
partners. Their approach was introduced throughout Europe. The English letters brought the concept of
partnership into the US. So, the Partnership Law in the United States evolved from the English law, the
Partnership Act of 1890. In the US, the Uniform Partnership Act was approved in 1914 and the Uniform
Limited Partnership Act in 1916. In the Philippines, before the effectivity of the New Civil Code on
August 30, 1950, there are two types of partnership: commercial and civil. Commercial or mercantile
Partnerships were governed by the Code of Commerce. The old Civil Code governed the civil or
non- commercial partnerships. The New Civil Code repealed the provisions of the two codes
relating to mercantile and civil partnerships. Rules from the two American Uniform Partnership Act
were incorporated into the New Civil Code.

So, what isDefinition

partnership?
ARTICLE 1767. By the contract of partnership 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. Two or
more persons may also form a partnership for the exercise
of a profession. (1665a).

 From the very definition, we can at least get four (4)

characteristics of a partnership already.
Characteristic of a Partnership:
The contract of partnership is:
(1) Consensual, because it is perfected by mere consent, that is,
upon the express or implied agreement of two or more persons;
(2) Nominate, because it has a special name or designation in our law;
(3) Bilateral, because it is entered into by two or more persons and the
rights and obligations arising therefrom are always reciprocal;
(4) Onerous, because each of the parties aspires to procure for himself
a benefit t through the giving of something;
(5) Commutative, because the undertaking of each of the partners is
considered as the equivalent of that of the others;
(6) Principal, because it does not depend for its existence or validity upon
some other contracts; and
(7) Preparatory, because it is entered into to an end, i.e., to engage in
business or specific c venture for the realization of profits with the view
of dividing them among the contracting parties.

What do you need to know?

ESSENTIAL FEATURES OF PARTNERSHIP

 The following are the essential features of a partnership contract:
(1) There must be a valid contract;
(2) The parties (two or more persons) must have legal capacity to
enter into the contract;
(3) There must be a mutual contribution of money, property, or
industry to a common fund;
(4) The object must be lawful; and
(5) The primary purpose must be to obtain profits and to divide
the same among the parties. It is also required that the articles
of partnership must not be kept secret among the members;
otherwise, the association shall have no legal personality and
shall be governed by the provisions of the Civil Code relating
to co-ownership. (Art. 1775.)

PARTNERSHIP, A JURIDICAL PERSON.

A partnership is sometimes referred to as a “firm’’ or a “company,’’
terms that connote an entity separate from its aggregate
individual partners.

ART. 1768. The partnership has a juridical personality separate and

distinct from that of each of the partners even in case of failure to
comply with the requirements of Article 1772, first paragraph. (n)

WHEN DOES A PARTNERSHIP EXIST?

GENERAL RULE: Rules to determine whether a partnership exists or not:
1. Persons who are not partners to each other are not partners as to third persons
except those in estoppel, STRICTLY speaking, not in a partnership (Art 1825).

2. Co-ownership/co-possession does not by itself establish partnership.

3. Sharing of gross returns does not by itself establish partnership

4. Receipt of a person of share in the profits is PRIMA FACIE evidence of

partnership, except if such share is for:
a. payment of debt
b. Wages
c. Annuity
d. Interest of loan
e. Consideration for sale of goodwill or property

Art. 1776 – Classification of Partnership

Here are the classifications of partnership: 
A.       It can be classified as to object/subject matter
1.        Universal Partnership
-  may   refer to all   the present property or to all the profits
a. universal of all present property (It means that which the partners
contribute all the property which actually belongs to them
to a common) 
b. universal of profits (It comprises all that the partners may acquire by
their industry or work during the existence of the partnership

2.        Particular Partnership
- object are determinate things, their use or fruits; a specific undertaking or
 the exercise of a profession or occupation

b.      It can be classified as to liability of partners

1.        General
- they are liable even with respect to their individual properties,
In pro rata after the assets of the partnership 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.

2.        Limited
-formed by two or more persons having as members one or more
general partners and one or more limited partners.
 
·          Note: The limited partners as such shall not be bound by the obligations
of the partnership. Also, a limited partner is one whose liability
is limited only up to the extent of his contribution.
  c.      It can be classified  as to duration
1.        at will
2.        at a fixed term (the term of existence has been agreed upon
expressly or impliedly and the expiration of the term thus fixed
or the accomplishment of the particular undertaking specified
will cause the automatic dissolution of the partnership
 

d.        It can be classified as to legality of existence

1.        de jure (or one which has complied with all the legal
requirements for its establishment)
2.        de facto (or one which has failed to comply with all the legal
requirements for its establishment.)
 
e.        It can be classified as to representation
1.        ordinary/real (or one which actually exists among the partners
and also as to third persons)
2.        ostensible/ partnership by estoppel (or one which in reality is
not a partnership, but is considered a partnership only in
relation to those who, by their conduct or admission, are
precluded to deny or disprove its existence.
 
f.        It can be classified as to publicity
1.        secret (or one wherein the existence of certain persons as
partners is not avowed or made known to the public by
any of the partners)
2.        open or notorious (or one whose existence is avowed or
made known to the public by the members of the firm)
 
g.       It can be classified as to purpose
1.        commercial (or one formed for the transaction of business)
2.        professional (or non-trading partnership or one formed for
the exercise of a profession)

       KINDS OF PARTNERS
Partners are classified according to their interests in the partnership business, or
their obligations to the partnership, or their liabilities to third persons

1.        Capitalist Partners
-          one who furnishes capital;
-          not exempted from losses; can engage in other business provided there is no competition
between the partner and his business
2.        Industrial Partners
-          one who furnishes industry or labor;
-          can be a general partner but never a limited partner;
-          exempted from losses as between the partner; cannot engage in any other busine ss
without express consent of the partners, otherwise
- he can be excluded from the firm (plus damage)
- or the benefits he obtains from the other business can be availed of by the other partners (plus
damages)
3.        General/Real Partners
-          one who is liable beyond the extent of his contribution
 4.        Managing Partners
-          one who manages actively the firm’s affairs 
5.        Liquidating Partners
-          one who liquidates or winds up the affairs of the firm after
it has been dishonored
6.        Partner by estoppel/Quasi-partner
-          one who is not really a partner
but who may become liable as such insofar as third persons are concerned
  
And, that’s it for the general principles of law of partnership. I hope you’ve
learn something. Good bye! 😊
References:
Ballada, W., & Balllada, S. (2019). Basic Financial Accounting and Reporting (22nd ed.). DomDane Publishers & Made Easy Books.
De Leon, H. S., & De Leon, H. M. (2010). Comments and Cases on Partnership, Agency, and Trusts (8th ed.). REX Book Store.
De Leon, Hector S. (2010). (10th ed). The Corporate code of the Philippines: annotated. Manila: Rex,