Course Module on

LEGAL ASPECTS IN TOURISM AND HOSPITALITY

MODULE 1
Lesson 4: LAWS ON PARTNERSHIP AND CORPORATION

Introduction
In an elevated level industry like the travel industry sector, it is basic that it carefully
complies with the legal requirements in order to operate as a legitimate business. Detail up
tasks must have a strong foundation, and so as to have a strong foundation, you should begin
with a strong business association. Shaping partnership or a corporation is a superior decision
in framing business organizations so as to enter a competitive industry, similar to the travel
industry.
This module will present an overview of a partnership and a corporation as a business
organization.
The Law on Partnership is governed by the Civil Code of the Philippines, while the
Law on Corporation is governed by Batas Pambansa Blg. 68, Corporation Code of the
Philippines.

Learning Objectives
At the end of this lesson, you should be able to:
 Differentiate the various kinds of partnership and
corporations and the responsibilities of partners and
incorporators
 Identify the requirements in the formation and
dissolution of partnership and corporations.

LAW ON PARTNESHIP
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)
Discussion of the Law

A partnership is an association of two or more persons who carry on as co-owners and

share profits. There can be a contribution of money (capital investment in the business
project) or services in return for a share of the profits.
-It is an unincorporated business entity formed by two or more people. The owners of a
partnership are called partners because they join efforts and resources to start the business. (It
does not include religious associations, conjugal partnership, and others of a similar nature
because a partnership as defined by law refers on to associations the purpose of which is to
obtain profits to be distributed among partners).

Partnership, nature:
Within the context of Philippine law, a "partnership" is treated as an artificial being
created by operation of law with a legal personality separate and distinct from the partners
thereof. It proceeds from the concept that persons may be allowed to pool their resources and
funds to engage in the pursuit of a common business objective without necessarily organizing
themselves into a corporation, upon which the law imposes a much higher form of regulation,
limitation and standards. Philippine partnerships operate under the concept of unlimited
liability and unless otherwise agreed upon by the partners, each one of them acts as manager
and agent of the partnership and consequently, their acts bind the partnership.

Partnership Contract is based on trust and confidence.

A partnership is different from a corporation in many ways. First, there is no time

limit for the existence of the partnership as this depends on the agreement of the parties. On
the other hand, a corporation can exist for a period not exceeding fifty (50) years. Second, as
to the beginning of juridical personality, a partnership becomes a juridical person from the
time the contract begins while in a corporation, it only becomes a juridical person upon
registration with the Securities & Exchange Commission (SEC). Third, although a partner
may transfer his interest in a partnership to another, the transferee does not automatically
become a partner unless all the other partners give their consent. However, in corporations,
when the shares of stock are transferred to another, the transferee becomes a stockholder of
the corporation. Fourth, as to liability to third persons, partners may be held liable with their
private and personal property while in corporations, the stockholders are generally liable only
to the extent of their subscribed capital stock. Lastly, a partnership may be dissolved due to
the insolvency, civil interdiction, death, insanity or retirement of any of the partners while
such grounds do not dissolve a corporation.

Like a corporation, a partnership has a separate juridical personality. Even if the

partnership failed to register with the SEC, it still has a separate juridical personality. Thus,
the partnership, as a separate person can acquire its own property, bring actions in court in its
own name and incur its own liabilities and obligations. A partnership action is embodied in a
Partners’ Resolution which is similar to a corporation’s Board Resolution.
 Partnerships are recorded with the Securities & Exchange Commission (SEC).
The following requirements must be submitted with the SEC:
1. Name Verification Slip with the reservation of the partnership name
2. Articles of Partnership
3. Registration Data Sheet
4. Affidavit of a partner undertaking to change partnership name
5. Certificate of Bank Deposit

If a partnership has foreign partners, the following additional requirements must be filed:
1. SEC Form No. F-105
2. Bank certificate on the capital contribution of the partners
3. For foreign partners who want to register their investments with the Bangko
Sentral ng Pilipinas, proof of the remittance

The following information should also be provided:

1. Name of the partnership
2. Principal office address
3. Telephone number of the partnership
4. Name, citizenship, address, birthday and TIN of the partners
5. Capital contribution of the partners
6. Purpose of the partnership

A partner has certain rights in the partnership. Thus, he has a share in the profits of the
partnership and has the right to a specific partnership property. As a partner, he has a right to
participate in the management, inspect partnership books and can in fact, demand for a formal
accounting. However, rights have corresponding obligations. Hence, a partner is obligated to
give his contribution and share in the losses.11

Meaning of Partnership Deed (US):

The partnership comes in existence by an agreement. The agreement may be written
or oral. But it is advisable that a Partnership Agreement or Partnership Deed is drawn up and
signed by the partners. The neglect of this precaution has shortened the life of many
partnership firms. When the partnership agreement is written and signer by all the partners, it
is called Partnership Deed or Articles of Partnership.

The partnership deed is not a public document like the Memorandum of Association
of a company.

Contents of a Partnership Deed

The partnership deed must contain the following particulars:
1. The name of the firm.
2. The names and addresses of the partners.
3. The nature of the business.
4. The term or duration of partnership.
5. The amount of capital to be contributed by each partner.

11
https://ndvlaw.com/how-to-form-a- partnership/#:~:text=The%20Philippine%20Civil%20Code%20provides,of%20a%20partnership
%20as%20follows%3A&text=By%20the% 20contract%20of%20partnership,dividing%20the%20profits%20among%20themselves
 6. The drawings that can be made by each partner.
7. The interest to be allowed on capital and charged on drawings.
8. Rights of partners.
9. Duties of partners.
10. Remuneration to partners.
11. The ratio in which the profits or losses are to be shared among the
partners.
12. The basis for the calculation of goodwill at the time of admission,
retirement and death of a partner.
13. The keeping of proper books of accounts and the preparation of Balance Sheet.
14. Settlement of amount on the dissolution of the firm.
15. The procedure to be adopted in case of disputes among the partners.

Rules to be Followed in the Absence of a Partnership Deed

In the absence of a partnership deed, the following rules have to be followed:
1. The partners are entitled to share the profits or losses equally.
2. Partners are not entitled to interest on their capital.
3. No partner will be allowed salary, or any other remuneration for any extra work
done for the firm.
4. No interest will be charged on partners’ drawings.
5. Interest at 6 per cent per annum will be allowed to partners on any loan given
to the firm by them.
6. Every partner has a right to take part in the working of the partnership
business.
7. No person can be admitted into the firm without the consent of all the
existing partners.
8. Every partner should use the partnership property for the benefit of the firm.
9. Every partner has a right to inspect the books of accounts of the firm.12

Six (6) Essential Requisites of an Ideal Partnership

The essential requisites of an ideal partnership are as follows:
1. A Written Agreement
2. Common Purpose
3. Long Duration
4. Good Faith
5. Sufficient Capital
6. Registration.

Requisite # 1. A Written Agreement:

In order to avoid any complications, disputes, misunderstanding, it is always desirable
that there should be a written agreement among the partners. Agreement should contain full
details about capital, sharing of profits, extent of authorities of each partner and their rights
and duties.

Requisite # 2. Common Purpose:

All the partners must work with great zeal. They should work with highest co-
operation and the greatest common advantage. Each partner should make his
12
https://www.businessmanagementideas.com/
contribution to the success of the business according to one’s capital skill, knowledge and
personality.

Requisite # 3. Long Duration:

The duration of an ideal partnership should be as long as possible because it is the
long partnership that can ensure efficiency and effective control and results in prosperity. If
the duration is small, the partners look more towards the ending of partnership than to the
consolidation and development of the business.
Therefore, it should be the endeavor of all the partners to extend the life of partnership
by working honestly, skillfully and avoid internal differences and disputes.

Requisite # 4. Good Faith:

Honesty of purpose and fair dealings are the fundamental principles for the well-
being of the partnership. Each partner should fully trust other partners and each partner
should prove worthy of the trust reposed in them.
While selecting a partner you have to be careful and select only when you are
confident of his honesty, sincerity and purposefulness. The number of partners should be as
small as will bring in the requisite resources, human as well as material.

Requisite # 5. Sufficient Capital:

The necessary funds, both long-term and short-term use, should be available
sufficiently. Long-term funds would be supplied by partners as capital, and other may be
obtained by loan. To maintain sound financial position of the firm, drawing by the partners
should be as less as possible and part of the profits must be ploughed back to the business for
further development.

Requisite # 6. Registration:
The registration of the partnership is not compulsory. But to avoid some
complications, it should be registered with the Registrar of Firms soon after its formation.
Because an unregistered firm cannot sue outsiders although outsiders can sue it.13

ADVANTAGES AND DISADVANTAGES OF FORMING PARTNERSHIP

Advantages of Forming Partnership

 Collaboration.
As compared to a sole proprietorship, which is essentially the same business
form but with only one owner, a partnership offers the advantage of allowing the
owners to draw on the resources and expertise of the co-partners. Running a business
on your own, while simpler, can also be a constant struggle. But with partners to share
the responsibilities and lighten the workload, members of a partnership often find that
they have more time for the other activities in their lives.

13
https://www.businessmanagementideas.com/
 Tax advantages.
The profits of a partnership pass through to its owners, who report their share
on their individual tax returns. Therefore, the profits are only taxed once (at the
personal level of its owners) rather than twice, as is the case with corporations, which
are taxed at the corporate level and then again at the personal level when dividends
are distributed to the shareholders. The benefits of single taxation can also be secured
by forming an S corporation (although some ownership restrictions apply) or by
forming a limited liability company (a new hybrid of corporations and partnerships
that is still evolving).

 Simple operating structure.

A partnership, as opposed to a corporation, is fairly simple to establish and
run. No forms need to be filed or formal agreements drafted (although it is advisable
to write a partnership agreement in the event of future disagreements). The most that
is ever required is perhaps filing a partnership certificate with a state office in order to
register the business's name and securing a business license. As a result, the annual
filing fees for corporations, which can sometimes be very expensive, are avoided
when forming a partnership.

 Flexibility.
Because the owners of a partnership are usually its managers, especially in the
case of a small business, the company is fairly easy to manage, and decisions can be
made quickly without a lot of bureaucracy. This is not the case with corporations,
which must have shareholders, directors, and officers, all of whom have some degree
of responsibility for making major decisions.

 Acquisition of capital.
Partnerships generally have an easier time acquiring capital than corporations
because partners, who apply for loans as individuals, can usually get loans on better
terms. This is because partners guarantee loans with their personal assets as well as
those of the business. As a result, loans for a partnership are subject to state usury
laws, which govern loans for individuals. Banks also perceive partners to be less of a
risk than corporations, which are only required to pledge the business's assets. In
addition, by forming a limited partnership, the business can attract investors (who will
not be actively involved in its management and who will enjoy limited liability)
without having to form a corporation and sell stock.

DRAWBACKS OF FORMING PARTNERSHIP

 Conflict with partners.

While collaborating with partners can be a great advantage to a small business
owner, having to actually run a business from day to day with one or more partners
can be a nightmare. First of all, you have to give up absolute control of the business
and learn to compromise. And when big decisions have to be made, such as whether
and how to expand the business, partners often disagree on the best course and are left
with a potentially explosive situation. The best way to deal with such predicaments is
to anticipate them by drawing
 up a partnership agreement that details how such disagreements will be dealt with.

 Authority of partners.
When one partner signs a contract, each of the other partners is legally bound
to fulfill it. For example, if Anthony orders $10,000 of computer equipment, it is as if
his partners, Susan and Jacob, had also placed the order. And if their business cannot
afford to pay the bill, then the personal assets of Susan and Jacob are on the line as
well as those of Anthony. And this is true whether the other partners are aware of the
contract or not. Even if a clause in the partnership agreement dictates that each partner
must inform the other partners before any such deals are made, all of the partners are
still responsible if the other party in the contract (the computer company) was not
aware of such a stipulation in the partnership agreement. The only recourse the other
partners have is to sue.

 Unlimited liability.
As the previous example illustrated, the personal assets of the partnership's
members are vulnerable because there is no separation between the owners and the
business. The primary reason many businesses choose to incorporate or form limited
liability companies is to protect the owners from the unlimited liability that is the
main drawback of partnerships or sole proprietorships. If an employee or customer is
injured and decides to sue, or if the business runs up excessive debts, then the partners
are personally responsible and in danger of losing all that they own. Therefore, if
considering a partnership, determine your assets that will be put at risk. If you possess
substantial personal assets that you will not invest in the company and do not want to
put in jeopardy, a corporation or limited liability company may be a better choice. But
if you are investing most of what you own in the business, then you don't stand to lose
any more than if you incorporated. Then if your business is successful, and you find at
a later date that you now possess extensive personal assets that you would like to
protect, you can consider changing the legal status of your business to secure limited
liability.

 Vulnerability to death or departure.

Unlike corporations, which exist perpetually, regardless of ownership, general
partnerships dissolve if one of the partners dies, retires, or withdraws. (In limited
partnerships, the death or withdrawal of the limited partner does not affect the
stability of the business.) Even though this is the law governing partnerships, the
partnership agreement can contain provisions to continue the business. For example, a
provision can be made allowing a buyout of a partner's share if he or she wants to
withdraw or if the partner dies.

 Limitations on transfer of ownership.

Unlike corporations, which exist independently of their owners, the existence
of partnerships is dependent upon the owners. Therefore, the Uniform Partnership Act
stipulates that ownership may not be transferred without the consent of all the other
partners. (Once again, a limited partner is an exception: his or her interest in the
company may be sold at will.)14

14
https://www.referenceforbusiness.com/small/OpQu/Partnership.html#ixzz6OBYXWFxr
 CLASSIFICATION OF PARTNERSHIPS

1. According to subject matter:

a. Universal partnership is a partnership formed by persons who agree to
contribute all of their individually owned property to the partnership. It speaks
no particular purpose or subject matter, as long as the purpose in forming a
partnership is to obtain profits and is not contrary to law, morals, public order
and public policy.
b. Particular partnership - When a partnership is formed for the object of
conducting a particular business, it is called particular partnership. The
particular undertaking cannot be extended to any other enterprise and this
would last only so long as the business id not completed.15

2. According to liability
a. General partnership – consists of general partners who are liable pro
rata and subsidiarity sometimes solidarity, with their separate property for
partnership debts
b. Limited Partnership (usually attaches the word “Ltd” or “Limited” at the
end of the company name) one formed by two or more persons having as
members one or more general partners, the latter not being personally liable
for the obligations of the partnership.

3. As to its duration
a. Partnership at will one in which no time is specified and is not formed for a
particular undertaking or venture which may be terminated anytime by mutual
agreement.
b. Partnership with a fixed term the term for which the partnership is to
exist is fixed or agreed upon or one formed for a particular undertaking.

4. As to legality of its existence

a. De jure partnership complied with all the legal requirements for its
establishment
b. De facto partnership failed to comply with all the legal requirements
for its establishment

5. As to representation to others
a. Ordinary or real partnership which actually exists among the partners and
also as to third persons
b. Ostensible partnership or partnership by estoppel 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

6. As to publicity
a. Secret partnership wherein the existence of certain persons as partners is
no avowed or made known to the public by any of the partners
b. Open or notorious partnership whose existence is avowed or made
known to the public by the members of the firm
15
https://business-finance.blurtit.com/111401/explain-the-following-kind-of-partnership-1-particular-partnership-2-partnership-at-will
 7. As to purpose
a. Commercial or trading partnership one formed for the transaction of
business
b. Professional or non-trading partnership one formed for the
exercise of a profession16

FORMS OF PARTNERSHIP

A partnership can be in any form, even if not recorded at the Office of the Securities
and Exchange Commission, except:
1. when it is stipulated;
2. when immovable property or real rights are contributed, in which case there must
be a public instrument to which is attached an inventory of the immovable
properties and signed by the parties, otherwise the partnership is void.
3. In case of limited partnership, the parties must:
a. Sign and swear to a certificate which shall state, among others the name of
the partnership adding the word “Limited”, and the character of the
business;
b. File for record the certificate in the Office of the Securities and Exchange
Commission.
Failure to comply with the foregoing formal requirements will only make the
partnership a General Partnership.

KINDS OF PARTNER

1. UNDER THE CIVIL CODE

a. Capitalist one who contributes money or property to the common fund
b. Industrial one who contributes only his industry or personal service
c. General one whose liability to third persons extends to his separate property
d. Limited one whose liability to third persons is limited to his capital
contribution
e. Managing one who manages the affairs or business of the partnership
f. Liquidating one who takes charge of the winding up of partnership affairs upon
dissolution
g. Partner by Estopple one who is not really a partner but is liable as a partner for
the
protection of innocent third persons
g. Continuing Partner one who continues the business of a partnership after it has
been
dissolved by reason of the admission of a new partner, retirement, death or
expulsion of one of the partners

16
https://www.studocu.com/ph/document/university-of-the-east/accountancy/lecture-notes/lecture-notes-accountancy-classifications-of-

partnership/1014350/view
 h. Surviving Partner one who remains after a partnership has been dissolved by
death of
any partner
i. Sub partner one who is not a member of a partnership who contracts with a
partner with reference to the latter’s share in the partnership

2. OTHER CLASSIFICATIONS
a. Ostensible one who takes active part and known to the public as partner in the
business
b. Secret one who takes active part in the business but is not known to be
partner by outside
parties
c. Silent one who does not take any active part in the business although he may be
known
to be partner
d. Dormant one who does not take active part in the business and is not known or
held out as partner. “Sleeping partner” may retire from the partnership without giving
notice and cannot be held liable for the obligations of the firm subsequent to his
withdrawal. Only interest in joining the partnership would be sharing of the profits
earned
e. Original one who is a member of the partnership for the time of its organization
f. Incoming person lately or about to be taken into a partnership as a member
g. Retiring one who withdrawn from the partnership

OBLIGATIONS OF THE PARTNERS

1. Where contribution of money or property.

If a partner promises to contribute money during the celebration of the contract
and he fails to do so, he shall pay the interest and damages from the time he should
have compiled without need of any demand. (Art. 1788, Civil Code of the Philippines.)
If a partner promises to contribute specific determinate things, he must:
a) Preserve the property;
b) Deliver the fruits of the time agreement;
c) Warrant against eviction and hidden effects;
d) Transfer of ownership on delivery to the partnership;
e) Pay damages for the delay without necessity of demand; and
f) Bear risk of loss before delivery.

2. Where contribution is industry.

(Art. 1789, Civil Code of the Philippines.) An industrial partner cannot engage in
business for himself, unless the partnership expressly permits him to do so; and if he
should do so, the capitalist partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in violation of this provision,
with a right to damages in either case. (n)

3. Responsibility between partnership and partner. (Art. 1796, Civil Code of the
Philippines.)
The partnership shall be responsible to every partner for the amounts he may have
disbursed on behalf of the partnership and for the corresponding interest,
 from the time the expense are made; it shall also answer to each partner for the
obligations he may have contracted in good faith in the interest of the partnership
business, and for risks in consequence of its management.
(Art. 1807, Civil Code of the Philippines.) 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. (n)

4. Obligations of the capitalist partner. (Art. 1808, Civil Code of the Philippines.)
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.
Any capitalist partner violating this prohibition shall bring to the common funds any
profits accruing to him from his transactions, and shall personally bear all the losses.
(n)

5. Sharing of profit and loss among partners. (Art. 1797, Civil Code of the
Philippines.) The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner shall
not be liable for the losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If besides his services he
has contributed capital, he shall also receive a share in the profits in proportion to his
capital.
(Art. 1799, Civil Code of the Philippines.) A stipulation which excludes one or
more partners from any share in the profits or losses is void.
(Art. 1798, Civil Code of the Philippines.) If the partners have agreed to entrust
to a third person the designation of the share of each one in the profits and losses,
such designation may be impugned only when it is manifestly inequitable. In no case
may a partner who has begun to execute the decision of the third person, or who has
not impugned the same within a period of three months from the time he had
knowledge thereof, complain of such decision.
The designation of losses and profits cannot be entrusted to one of the
partners.

6. Property rights of a partner. (Art. 1810, Civil Code of the Philippines.) The
property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
(Art. 1800, Civil Code of the Philippines.) The partner who has been appointed
manager in the articles of partnership may execute all acts of administration despite
the opposition of his partners, unless he should act in bad faith; and his power is
irrevocable without just or lawful cause. The vote of the partners representing the
controlling interest shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any
time.
 (Art. 1801, Civil Code of the Philippines.) If two or more partners have been
entrusted with the management of the partnership without specification of their
respective duties, or without a stipulation that one of them shall not act without the
consent of all the others, each one may separately execute all acts of administration,
but if any of them should oppose the acts of the others, the decision of the majority
shall prevail. In case of a tie, the matter shall be decided by the partners owning the
controlling interest.

7. Liability of individual partners to third person. (Art. 1816, Civil Code of the
Philippines.) All partners, including the industrial partner, are liable pro rata with all
their properties for contracts with third persons provided:
a. They were entered into in the name and for account of the partnership;
b. Under its signature;
c. By persons authorized to act for the partnership;
d. The partnership assets are already exhausted.

All partners are liable solidarily with the partnership for:

1. Wrongful acts and omission causing loss to non-partner and
2. Conversion or misappropriation of funds belonging to stranger received in the
usual course of business by partnership.

8. Liability of the limited partner. According to Art. 1846 of the Civil code of the
Philippines. A limited partner is liable as general: (a) when he allows his surname to
appear in the partnership name and (Art. 1948) when he takes part in the control of
the business. IN this case, he shall have all the rights and powers and be subject to all
the restrictions of a general partner that as to the other partners, he shall be preferred
as to the return in this contribution and share in the profits (Art. 1853).

DISSOLUTION AND WINDING UP OF A PARTNERSHIP

Art. 1830. Dissolution is caused:

(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking
specified in the agreement;
(b) By the express will of any partner, who must act in good faith,
when no definite term or particular is specified;
(c) 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;
(d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement between the
partners;

(2) In contravention of the agreement between the partners, where the circumstances
do not permit a dissolution under any other provision of this article, by the express
will of any partner at any time;
 (3) 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;
(4) When a specific thing which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing, when the
partner who contributed it having reserved the ownership thereof, has only transferred
to the partnership the use or enjoyment of the same; but the partnership shall not be
dissolved by the loss of the thing when it occurs after the partnership has acquired the
ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)

Art. 1831. On application by or for a partner the court shall decree a dissolution
whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be of
unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the
partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
(4) 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;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.

On the application of the purchaser of a partner's interest under Article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was
assigned or when the charging order was issued.

Discussion:
In the case of a limited partnership, the same is dissolved:
1. In case of retirement, death, insolvency, insanity or civil interdiction of a
general partner;
2. When asked for by limited partner under the provisions of Article 1857, as
when he rightfully but unsuccessfully demands the return of his contribution,
or as when the limited partner would otherwise be entitled to the return of his
contribution but there are remaining liabilities of the partnership which have
not been paid or the partnership property in insufficient for their payment.

In a limited partnership, the retirement, death, insolvency, insanity or civil interdiction

of a general partner dissolves the partnership unless the business shall be continued by the
remaining general partners. In such a case, an amendment of the certificate of limited
partnership shall be executed and recorded at the Securities and Exchange Commission. On
the other hand, the death of all the limited partners shall dissolve the partnership unless a
substituted limited partner will be admitted to all the rights of a limited partner who has died
or has assigned his interest in the partnership,
in such a case an amendment in the certificate must also be executed for the inclusion of the
substituted limited partner which must be recorded in writing at the Securities and Exchange
Commission. Take note that the amendment of the certificate of limited partnership must
comply substantially with requirements set forth in Article 1844 as well as Article 1843 of
the Civil Code of the Philippines.

Civil Interdiction is defined as an accessory penalty for the commission of an

offense, which deprives the offender during the time of his sentence of the rights of parental
authority, or guardianship, either as to the person or property of any ward, of martial
authority, of the right to manage his property and of the right to dispose of such property by
any act or any conveyance inter vivos.

Insolvency is defined as a financial condition in which one is unable to meet his

obligations as they mature in the ordinary course of business or in which one’s liabilities
exceed his assets at any given time.
Examples of misconduct under No.3 of Article 1831 of the Civil Code of the
Philippines include addiction to alcohol or drug abuse. Examples of other circumstances
which render dissolution equitable under No. 6 of Article 1831 of the Civil Code of the
Philippines are abandonment.

LAW ON CORPORATION

Republic Act No. 11232

Sec. 2. Corporation Defined. – A corporation is an artificial being created by
operation of law, having the right of succession and the powers, attributes,
and properties expressly authorized by law or incidental to its existence.

In the Philippines, the law which governs the creation of private corporation is Batas
Pambansa Blg. 68, known as the Corporation Code of the Philippines.
“Right of Succession” means has the capacity to exist regardless of the death,
withdrawal, insolvency, or incapacity of the individual stockholders and regardless of the
transfer on interest or shares of stock.
The powers of all corporations are limited to those mentioned in their characters or in
the general acts under which they are created.

KINDS OF CORPORATION

1. Stock Corporation - is a corporation with capital stock divided into shares and
authorized to distribute to the holders of such shares dividends or allotments of the
surplus profits on the basis of the shares held.

2. Non-Stock Corporation - is a corporation organized principally for public

purposes such as charitable, educational, cultural, or similar purposes and does not
issue shares of stock to its members.

3. Corporation de Jure - A de jure corporation is a fully incorporated company. To

be considered de jure, the company must have fulfilled all of the statutory
requirements for properly forming a corporation. An entity gains many
 advantages from becoming a corporation such as easier access to capital and limited
liability.

4. De Facto Corporation - A de facto corporation is a corporation that has been

legally recognized, even if it has not filed its Articles of Incorporation.
A de facto corporation will also provide you with some limited liability
protections simply by engaging in the process of incorporation. Basically, a de facto
corporation is a company that is recognized as a corporation by the state, even though
the company has failed to file the required Articles of Incorporation.
Three basic requirements must be met before a company will gain the status
of a de facto corporation:
a. The state must have a relevant statute related to incorporation.
b. The company must have attempted to comply with the statute in good faith.
c. The company is being operated as a corporation and can provide
evidence of same.

5. Public Corporation - are those formed or organized for the government of a

portion of the state. It is created by its own charter for the exercise of public function.
Examples: barangay, city, municipality

6. Private corporations - are those formed for some private purpose, benefit, aim, or
end, as distinguished from public corporations, which have for their purpose the
general good and welfare.

7. Corporation Sole - A corporation sole is a special form of corporation usually

associated with the clergy. Conceived and introduced into the common law by sheer
necessity, this legal creation which was referred to as "that unhappy freak of English
law" was designed to facilitate the exercise of the functions of ownership carried on
by the clerics for and on behalf of the church which was regarded as the property
owner (See I Couvier's Law Dictionary, p. 682-683). SEC. 154. — For the
administration of the temporalities of any religious denomination, society or
church and the management of the estates and the properties thereof, it
shall be lawful for the bishop, chief priest, or presiding either of any such
religious denomination, society or church to become a corporation sole,
unless inconsistent with the rules, regulations or discipline of his religious
denomination, society or church or forbidden by competent authority thereof.

8. Eleemosynary Corporation - a corporation created for or devoted to charitable

purposes or one supported by charity. It is a corporation created, not for private gain
or profit, but for the administration of a charitable trust or for a charitable purpose,
such as the maintenance of a hospital.

9. Domestic Corporation - is a business entity that is organized, registered, and

existing under Philippine laws. It is an artificial being created by operation of law and
has a juridical personality that is separate from its stockholders and/or other
corporations to which it is connected.
10. Foreign corporation - is an entity formed, organized, or existing under any laws
other than those of the Philippines and whose laws allow Filipino citizens and
corporations to conduct business in its country or state of origin.

ADVANTAGES AND DISADVANTAGES OF A CORPORATE ORGANIZATION

Advantages of A Corporate Organization

1. Owners have limited Liability. A corporation is considered by law as a separate

and distinct legal entity. Thus, owners of corporation or shareholders are only
indebted to the extent of their interest in the corporation. Corporations have limited
liability. This means that their creditors can only run after the assets of the corporation
and not the on the personal assets of the stockholders in the settlement of the
corporation’s debts or liabilities.

2. It can exist with continuity. The power of succession gives a corporation

continuous existence. Unlike a sole proprietorship, where the death of the owner
proprietor ceases its existence, the death of a shareholder will not terminate the
corporation. The shares of ownership or interest of a corporation can be transferred
from one owner to another owner. A corporation continues to exist until the
shareholders decide to dissolve it or merge with another business.

3. Shares of ownership are transferable. The shares of stock or interest of a

publicly traded corporation can be traded easily though a stockbroker. Shares of
corporations are freely transferable except when shareholders have “buy- sell”
agreements restricting when and to whom share may be sold or transferred. Securities
laws and regulations may also limit the transferability of certain shares. For non-
publicly traded corporations, the stock certificate can be transferred or assigned to
another owner by executing a deed of assignment of shares of stock.

4. It attracts more investors. Corporations attract investors because of its stock

structure, perpetual existence, ownership transferability, and limited liability.
Attracting more investors allows a corporation to raise more capital or equity to
manage and expand their operations. Furthermore, because of a more regulated form
of corporation and the fiduciary duties of its board of directors, it earns more trust
and confidence not only from investors, but also from its employees, creditors,
suppliers, customers and other outside stakeholders.

5. You can be an employee of your own corporation. Since the corporation is a

distinct entity from its owners or shareholders, they can become the corporation’s
employees or officers. Thus, they can receive salaries or compensation income aside
from the dividends they may receive from the corporation. They can also be eligible
for reimbursement or deduction of expenses they incurred related to their employment
with the corporation.
6. The corporation pays its own tax. As a separate legal entity, a corporation is
also a separate taxpayer from its owners. It has its own Taxpayer Identification
Number, and it pays its own taxes, such as corporate income tax, business taxes and
withholding taxes. The owners or stockholders pay their own taxes on the
compensation and or dividend income they receive from the corporation.

DISADVANTAGES OF A CORPORATE ORGANIZATION

1. Incorporation is costly. Incorporating a business needs to file with the Securities

and Exchange Commission (SEC) and may involve a lot of formal and legal papers,
such as by laws, articles of incorporation, affidavit and board resolutions. This is
sometimes done by getting the service of a corporate attorney or firms which are
specialized in incorporating a business. It may also require higher amount of initial or
paid-up capital for other types of corporation like financing and lending corporations.
Furthermore, the amount of subscribed capital is taxed with documentary stamp tax,
which may result to additional expenses to be incurred by the incorporators.
2. Corporations are highly regulated. Ordinary corporations are regulated by the
SEC. Special corporations may be required with secondary licenses and are further
regulated by other government agencies, such as Bangko Sentral ng Pilipinas (BSP)
for financing and lending companies, Commission on Higher Education (CHED) for
companies operating secondary schools and Insurance Commission (IC) for insurance
companies. Moreover, corporations also need to comply with the quarterly or annual
reportorial requirements with the SEC and other agencies requiring those reports for
certain types of corporations. This also means that the more compliance it requires,
the more paper works and cost it involves. And when there are more to comply,
bigger penalties are awaiting to be paid if they are not complied.

3. Limited liability may discourage creditors. The limited liability feature of the
corporation can be an advantage for stockholders. However, it can also be a
disadvantage when a corporation doesn’t have a good financial condition and
performance. Because of the limited liability, a corporation with a low credit score
may discourage creditors to lend their money to the corporation.

4. It may result to double taxation. Since the corporation is already taxed on its
income, distributing this income to shareholders in the form of dividends may result
to double taxation. This is because the dividend income received by the shareholders
(natural persons) is also taxed on their personal income tax returns.

5. It is not easy to dissolve. Corporations are difficult to dissolve as it is also

difficult to form. Everything is regulated from formation, to operation, and to
dissolution. An application for dissolution must be filed with the S.E.C with complete
requirements, including tax clearance with the Bureau of Internal Revenue. The
liquidation process is also regulated to ensure that the rights of any creditor having a
claim against it are not prejudiced.
 COMPARISON BOARD

(Distinction between a Partnership and a Corporation)

Partnership Corporation

A business where partners contribute

A business structure owned by
resources, skills and labor for the end
Definition shareholders and functions as a
purpose of dividing profit
separate legal entity

Shareholders, directors, officers,

Composed of Partners, employees
employees
Owners Partners Shareholders
Minimum
5 members, with at least 3 being
number of 2 members
Filipino
members
Profit-sharing method for partners and
Distribution of wages for employees; partners Dividends for shareholders and
earnings especially industrial ones may prefer to wages for employees
receive a salary
Larger capital, limited liability by
Shared startup costs, easier startup,
Advantages shareholders, ability to sell shares,
shared profits and management
perpetual lifetime
Double taxation, independent
Possibility of conflict, unlimited
management, complex accounts,
liability, partners can be liable for debt
Disadvantages heavy paperwork, transfer of
and losses up to their personal assets,
ownership can affect management
joint liability
decisions
Corporation tax; directors are also
Partners are taxed according to
Taxation taxed based on income they
their relative profit
receive
Regulating Securities and Exchange Securities and Exchange
body Commission (SEC) Commission (SEC)
Corporation Code of the
Associated Articles of Partnership, Foreign
Philippines, Foreign Investments
laws Investments Act, Labor Code
Act, Labor Code
Source: https://whyunlike.com/difference-between-partnership-and-corporation-in-the-philippines/
 DIFFERENCE BETWEEN PARTNERSHIP AND CORPORATION IN THE
PHILIPPINES

Partnership
A partnership is a business structure wherein two or more legal entities contribute
assets, skills and labor for the purpose of dividing profit. A partnership is distinct because of
two things – joint ownership and unlimited liability. Partners generally own assets jointly, but
they are also jointly liable for any debt. Any loss, liability or legal constraints that the
partnership faces are answerable by all of the partners. Additionally, should the business fail
or incur debt and is unable to pay for it, partners are obligated to pay through their personal
assets.

Corporation
A corporation is a company owned by its shareholders; However, it is a considered
a separate legal entity and is seen as a different person in the eyes of law. Risks are
proportional to the amount one invests in the company. Shareholders earn in the form of
dividends, while officers and employees receive a salary. In the
Philippines, the Securities and Exchange Commission requires at least 5
shareholders, 3 of which are Filipino. 17

STEPS IN THE CREATION AND ORGANIZATION OF A CORPORATION18

1. Promotion.
It is the process of bringing together the incorporators or the persons interested in the
business, of procuring subscriptions or capital for the corporation and of setting in motion the
machinery that leads to the incorporation of the corporation itself.
2. Incorporation.

a. Verification from the records of the Securities and Exchange Commission (SEC) that
the proposed corporate name is not the same or similar to an existing corporation.
b. Drafting and execution of the articles of incorporation by the incorporators. The
person elected as temporary treasurer should execute an affidavit regarding the share
capital subscribed and paid up. The treasurer should also submit a sworn statement of
assets and liabilities of the corporation.
c. Deposit by the treasurer of the cash paid for the shares subscribed in the bank in the
name of the treasurer in trust for and to the credit of the corporation. The bank is
required to issue a certificate of deposit.
d. Filing of the articles of incorporation with the SEC together with treasurer’s affidavit,
statement of financial position, certificate of bank deposit, and certificate as to the
name of the corporation;
e. Payment of the filing and publication fees; and
f. Issuance by the SEC of the certificate of incorporation.

3. Formal organization and commencement of business operations.

Formal organization requires the adoption of by-laws and the election of the board of
directors and of the administrative officers. It also includes the taking of such other steps as
are necessary to enable the corporation to transact the legitimate business or accomplish the
purpose for which it was created.
Section 22 of the Corporation Code states that if a corporation does not formally
organize and commence the transaction of its business within two (2) years from the date of
its incorporation, its corporate powers shall cease and the corporation shall be deemed
dissolved.
-if a corporation has commenced business but subsequently becomes continuously
inoperative for a period of at least five (5) years, the same shall be a ground for the
suspension or revocation of its certificate of incorporation.

17 Source: https://whyunlike.com/difference-between-partnership-and-corporation-in-the-philippines/

18 https://prezi.com/ubmpua67l5sb/steps-in-the-creation-of-a-corporation/
 Section 14 provides that all corporations organized under this Code shall file with the
Securities and Exchange Commission articles of incorporation in any of the official
languages duly signed and acknowledged by all of the incorporators, containing substantially
the following matters except as otherwise prescribed by this Code or special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is formed;
3. The principal place of business which must be within the Philippines;
4. The term of existence;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor more
than fifteen (15);
7. The names, nationalities and residences of the persons who shall act as directors of
trustees until the first regular directors or trustees are elected and qualified.
8. If it be a stock corporation:
a. Amount of authorized share capital in pesos,
b. Number of shares into which it is divided,
c. In case the shares are par value shares:
i. The par value of each share,
ii. Names, nationalities and residences of the original subscribers,
iii. The amount subscribed and paid by each subscriber on his
subscription.
d. In case of no-par value, the articles need only state such fact, and the number
of shares into which said share capita is divided.
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities
and residences of the contributors and the amount contributed.

A private corporation may provide in its by-laws for:

1. The time, place and manner of calling and conducting regular or special
meetings of the directors or trustees;
2. The time and manner of calling and conducting regular or special meetings of the
shareholders or members;
3. The required quorum in meetings of shareholders or members and the manner of
voting therein;
4. The form for proxies of shareholders and members and manners of voting them;
5. The qualifications, duties and compensation of directors or trustees, officers and
employees;
6. The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof;
7. The manner of election or appointment and the term of office of all officers other than
directors or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner of issuing stock certificates; and
10. Such other matters as may be necessary for the proper or convenient
transaction of its corporate business and affairs.
The following are some of the rights of a shareholders:
1. Right to be issued certificate of stock or other evidence of share ownership and to
transfer such shares.
2. Right to attend and vote in person or by proxy at shareholders’ meetings.
3. Right to elect and remove directors.
4. Right to adopt, amend or repeal the by-laws.
5. Right to purchase a portion of any new shares issued to maintain the same percentage
of stock ownership. The right is known as the pre-emptive right. However, this right
is not absolute and may be denied.
6. Right to receive dividends when declared.
7. Right to inspect corporate books and records, and to receive financial reports of the
corporation’s operations.
8. Right to participate in the distribution of corporate assets upon dissolution.

Articles of Incorporation for Stock Corporations

The Articles of Incorporation is a document that is needed to form a corporation in the
Philippines. A corporation is an artificial person created by law and should be registered with
the Securities and Exchange Commission ("SEC"). The existence of a corporation begins
after it has submitted the Articles of Incorporation to the SEC and the SEC issues a
Certificate of Incorporation.
A corporation can have a perpetual existence.
This document is specifically drafted for stock corporations with more than one
(1) incorporator. If there will only be one incorporator, please use the Articles of
Incorporation for a One Person Corporation.

I. Types of Corporation
A corporation can be a stock corporation or a non-stock corporation.
A stock corporation has a capital stock that is divided into shares that may or
may not have a par value. Par values are the minimum subscription or issue price
of the shares of the corporation. Stock corporations are authorized to engage in income
generating activities and to distribute dividends to its shareholders. Stock
corporations are generally not required to have a minimum authorized capital stock. Stocks
cannot be issued below the par value or issue price.
A non-stock corporation does not have stocks and no part of its income
can be distributed to its members, trustees, or officers as dividends. Any profit generated
by the non-stock corporation as an incident to its operation can, whenever necessary or
proper, only be used for the furtherance of the purpose or purposes for which the non-stock
corporation was organized. A non-stock corporation is formed or organized for charitable,
religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service,
or similar purposes, like trade, industry, agricultural, and like chambers, or any combinations
thereof.
II. Incorporators
Incorporators are the stockholders mentioned in the Articles of Incorporation as
originally forming or composing the corporation. They are the signatories of the Articles of
Incorporation. There cannot be more than fifteen (15) incorporators. Incorporators may be
a natural person, a partnership, an association or corporation. Incorporators of a
stock corporation must own or be a subscriber to at least one (1) share of the capital stock
of the corporation.
Foreigners are generally allowed to be incorporators provided that the
requirements of the incorporators are complied with and the business activity of the
corporation is not fully reserved for Filipino ownership. Examples of business activities
that are fully reserved to Filipino ownership are mass media (except recording), retail trade
with paid up capital of less than US$2,500,000.00, cooperatives, and private securities
agencies.

III. Directors
The number of directors of a corporation cannot be more than fifteen (15)
directors. Directors exercise the corporate powers of the corporation, conduct all
business, and control and hold all properties of the corporation. They are elected from the
stockholders of the corporation and hold office for one (1) year until their successors are
elected and qualified.
Directors must be natural persons (another corporation can't be a director) of legal
age. They must own at least one (1) share of the capital stock of the corporation of
which he is a director and said share should be recorded in his name in the books of the
corporation. A person is disqualified from being a director of any corporation if, within five
(5) years before the election or appointment, the person was:
1. Convicted by final judgment of (a) an offense punishable by imprisonment for a
period exceeding six years, or (b) a violation of the Revised Corporation Code or (c) a
violation of the Securities Regulation Code;
2. Found administratively liable for any offense involving acts of fraud;
3. Found liable by a foreign court or equivalent foreign regulatory authority for acts,
violations, or misconduct similar to those enumerated in (1) and (2).
Foreigners may generally be directors of a corporation except for business activities
that are fully reserved for Filipinos such as mass media (except recording), retail trade with
paid up capital of less than US$2,500,000.00, cooperatives, and private securities agencies
among others. If the business activities of the corporation is partially nationalized, such as
private recruitment (75% Filipino ownership), advertising (70% Filipino ownership),
operation of public utilities (60% Filipino ownership), and ownership of private land (60%
Filipino ownership), among others, the number of seats for foreigners in the board of
directors is in proportion of their present foreign equity to the number of directors.

iv. Subscription
Subscription is the mutual agreement between a corporation and a person,
known as a subscriber, to take and pay for the shares of a corporation.
 If the corporation has stocks without par values, the subscribed shares must be fully
paid at the time of subscription. The issue price of stocks without par values may be fixed in
the Articles of Incorporation or by the board of directors, if authorized by the articles
of incorporation or the by-laws, or in the absence of such authority, by the stockholders
representing at least majority of the outstanding capital stock at a meeting called
for the purpose of fixing said issue price. Stocks without par values cannot be issued at less
than five (P5.00) pesos per share.

How to use this document

This document can be used by incorporators when forming a stock corporation. This
document compiles the information required by the Corporation Code of the Philippines in
forming a corporation in the Philippines. Take note that the Securities and Exchange
Commission requires additional requirements for the primary registration of stock
corporations such as a cover sheet, name verification slip, by- laws, and, if necessary,
registration to, endorsement or clearances from other government agencies. It is important to
check the requirements before filling up and filing this document.
In this document, the user will be asked for information on the corporation such as the
name, principal address, and purpose or purposes of the corporation. The user will be asked
for the number of shares that the corporation will issue and, if said shares will have a par
value, the par value of each share. The user will also be asked to provide details such as the
name, citizenship, residential address and tax identification number (TIN) of the
incorporators and the name, citizenship, and residential address of the directors. The names,
citizenship, number of shares subscribed, and the amount paid by the subscribers to the shares
of the corporation will also be asked in completing this document. The user must also enter
the name of the treasurer. Once the document is completed, the incorporators and the
treasurer must sign at least three (3) original copies of the document.
Finally, this document includes an acknowledgment that may be filled up if the
information is available. The acknowledgment will ask for information such as the province
and city or municipality where the document will be notarized. The incorporators must
personally appear before the notary public and present proof of their identification to
acknowledge their signatures on the document as their free and voluntary act and deed. The
notary public will usually keep one (1) original copy of the document.
Once the document is notarized, the user may submit the document to the Securities
and Exchange Commission, together with the other requirements, to register the corporation.

Applicable Law
Articles of Corporation are governed by the Revised Corporation Code of the
Philippines. However, other laws, their rules and regulations, and SEC rules may affect the
conduct and transactions of the Corporation such as but not limited to the 1987 Constitution
of the Philippines, the Securities Regulation Code, the Foreign Investment Act, the Republic
Act 8179, specifically the Foreign Investment Negative List, the Anti- Money Laundering
Act, and the Anti-Dummy Law may affect the ownership and board
membership requirements of a corporation, depending on the business of the corporation. The
paid-up capital may also have a minimum amount depending on the industry.19

DISSOLUTION AND LIQUIDATION OF A CORPORATION

Not all corporations are successful in its business operations in the Philippines and not
all domestic corporations in the Philippines are meant forever. Like humans, corporate life
comes to an end and this is what is technically referred to as dissolution and liquidation.
Dissolution in the Philippines is the stage of terminating the life of a corporation and
liquidation in the Philippines is the process of winding up the affairs, settlement of corporate
obligations / debts and distribution of remaining corporate assets through liquidating
dividends in the Philippines.

Dissolution of a corporation in the Philippines under the Corporation Code of the

Philippines (Batas Bambansa Bilang 68 or BP No. 68) could be involuntary upon Securities
and Exchange Commission’s (SEC) complaint coupled with a prescribed process of notice
and hearing or voluntary based on the application of the corporation with the SEC. Voluntary
dissolution of corporation in the Philippines come in a number of ways as follows:
1. Voluntary dissolution where no creditors are affected;
2. Voluntary dissolution where creditors are affected; or
3. Dissolution by shortening corporate term

Of the above ways of dissolving a domestic corporation in the Philippines, the most
common is the dissolution be shortening corporate term. Upon approval of the SEC of the
amended articles of incorporation with the shortened corporate term, the corporation shall be
deemed dissolved without any further proceedings.
Hereunder are the normal SEC requirements for dissolution of corporations in the
Philippines:
1. Directors’ Certificate – A Notarized document signed by majority of the directors and
corporate secretary certifying the amendment of the articles of incorporation
shortening the corporate term, the votes of the directors and stockholders thereto, and
the date and place of the stockholders meeting
2. Amended Articles of Incorporation
3. Audited financial statements as of date of the stockholders meeting approving
dissolution or any date thereafter
4. List of creditors, if any, and their consent, or certification as to non- existence of
creditors. If there are creditors and their consent was not secured, the application
should be in the form of a petition to be filed with Office of General Counsel of the
SEC
5. BIR Tax Clearance
6. Publisher’s affidavit of the publication of the dissolution of the corporation (once a
week for three (3) consecutive weeks)
7. Endorsements /clearances from other government agencies, if applicable

The first two (2) of the above documentary requirements for SEC dissolution by
shortening corporate term is for the corporate secretary’s preparation. The third is for

19 https://www.wonder.legal/ph/
the independent certified public accountant (CPA) in the Philippines. The fourth is for the
accounting department to provide. The fifth one, BIR clearance, is quite technical for the
dissolving corporation because before the BIR will issue a tax clearance, it will see to it that
the corporation has no tax liabilities by conducting a tax examination for at least the three (3)
taxable years preceding the year of dissolution which has not yet been examined. Publisher’s
affidavit is not much of a problem while the endorsement only applies to those corporations
with secondary license.

Upon completion of the above documentary requirements for dissolution of

corporation in the Philippines and such other requirements the SEC may require, the, process
of evaluation and approval may come within less than a month.20

The 30-day period for the filing of the short-period return has been interpreted to
mean 30 days from the approval by the SEC of the dissolution. Thus, a dissolved corporation
needs to file the final adjustment return within 30 days from the approval by the SEC of its
dissolution. If, for some reason, the filing cannot be done within the period, the dissolved
corporation may ask for an extension of time to file the income- tax return.

The non-filing of this short-period return sometimes has negative repercussions.

Dissolved corporation is actually allowed to file a refund claim for excess tax payments or
withholding tax credits that remain unutilized as of the date of dissolution. A dissolved
corporation is granted the opportunity to claim a refund of its excess creditable withholding
taxes for previous years upon dissolution. But there were some instances where the refund
claim of a dissolved corporation had been denied on the ground that the short-period return
was not filed. According to the Courts, it is only the filing of the short-period return that the
dissolved corporation will be able to ascertain whether a tax is still due, or a refund can be
claimed. It is the filing of the short-period return, where it can be ascertained that the excess
tax credits remain unutilized as of the date of dissolution, hence, the necessity of filing the
short- period return.21

Steps on How to Register a Corporation

1. Reserve and register business name in SEC (Security and Exchange Commission)
 Visit SEC website or make a personal appearance at their office in Mandaluyong.
 Complete and sign all required documents: Articles of Incorporation, By-Laws,
Treasurer’s Affidavit, Joint Affidavit of Two Incorporators. All documents need to be
notarized (more on this below).
2. Acquire Barangay Clearance
 Visit the Barangay where your business is located and request for clearance.
 Submit the following together with your Barangay clearance: Certificate of Business
Registration from SEC, Two (2) Valid IDs, Proof of Address (Contract of Lease or
Certificate of Land Title)
3. Acquire Business Permit from Mayor’s Office
 Visit the municipal office where your business is located and request for a business
permit form.

20 https://taxacctgcenter.ph/
21 Atty. Julie Ann L. Aranda. (https://businessmirror.com.ph/2016/12/21/dissolution-of-a-corporation/)
  Submit the following together with your completed Business Permit: Certificate of
Business Registration from SEC, Two (2) Valid IDs, Proof of Address (Contract of
Lease or Certificate of Land Title), Barangay Clearance.
4. Register with BIR (Bureau of Internal Revenue)
 Visit the Regional District Office that covers your business location
 Request for a copy of BIR Form 1903 — Application for Registration of Partnership
or Corporation
 Submit the following together with your completed Business Permit: Certificate of
Business Registration from SEC, Two (2) Valid IDs, Proof of Address (Contract of
Lease or Certificate of Land Title), Barangay Clearance, Business Permit from
Mayor’s office
 Pay all applicable fees and register your book of accounts and receipts
 Claim your Certificate of Registration

FULL LIST OF REQUIREMENTS & DOCUMENTS NEEDED FOR SEC

The incorporation process is lodged with the Securities & Exchange

Commission (SEC).

The following requirements/documents must be submitted with the SEC:

1. Name Reservation/Verification Slip
2. Cover Sheet
3. Articles of Incorporation
4. Corporate By-laws
5. Registration Data Sheet
6. Registration Data Sheet (CAPITAL STOCK / INCORPORATORS
/DIRECTORS / OFFICERS INFORMATION)
7. Affidavit of Undertaking to Change Corporate Name
8. Treasurer’s Affidavit stating the amount of the shares of stock subscribed and
the amount of the subscription price which has been paid-in to him as
Treasurer-in-Trust of the proposed corporation. He should likewise certify that
at least twenty-five percent (25%) of the authorized capital stock has been
subscribed, and at least twenty-five percent (25%) of the amount subscribed
has been paid-in to him for the benefit and to the credit of the corporation.
9. Bank Certificate

Anent the documents, the following information must be supplied to adequately fill
out the necessary documents for submission with the SEC:
1. Corporate Name (The last part must end with Inc., Incorporated, Corporation
or Corp.)
2. Purpose of the Corporation
3. Address of the Corporation
4. Telephone Number
5. Value of each share (This is usually P100.00 for 1 share)
6. Authorized capital (Total number of shares of the Corporation)
7. Subscribed capital (Number of shares to be subscribed by the incorporators. This
cannot be less than 25% of the authorized capital)
8. Paid-up capital (Number of shares paid by the incorporators. This cannot be less
than 25% of the paid-up capital)
 9. Name and Branch of Bank where the paid-up capital amount will be deposited
10. Incorporators (Name, nationality, address, birthday, Tax Identification Number,
Community Tax Certificate Number or Passport Number)
11. Shares of the Incorporators (number of subscribed shares, number of shares
paid and percentage of ownership)
12. Number of Directors and their names (Must be an incorporator. Not less than 5
and not more than 15 directors)
13. Name of the Chairman of the Board
14. Name of President
15. Name of Corporate Secretary
16. Name of Treasurer
17. Term of the Corporation
18. Date of annual meeting of the corporation
19. Accounting Year (Calendar Year or Fiscal Year. Calendar Year is
recommended since this is used by most government agencies)

The government fees for the incorporation of a domestic corporation are as follows:
 Basic Filing Fee for the Articles of Incorporation – 1/5 of 1% of the authorized
capital stock or the subscription price of the subscribed capital stock
 Legal Research– 1% of the filing fee
 Examining and Filing Fee for the By-Laws

The first step would be to reserve your corporate name either online or personally
with the SEC. Once the name is reserved, you may proceed to SEC to submit the documents
listed above.

A faster way to procure the listed documents is to buy the “Green Lane Forms” from
the SEC. Said forms cost Five Hundred Pesos (P500.00) and takes one to two days to
process.

Other Legal Documents to consider when establishing your business:

Data Privacy – your customers are providing you with their data and using your
service.
 Are you up to date in terms of implications of the recent amendment to the
Privacy Act?
 Is your company compliant and operating within Philippine Law?
 And what about your Terms and Conditions of Use, does it indemnify you
against misuse of your services?
Could your company be doing more to better protect its intellectual property? Or
could you be extracting more value from your IP?

Employment Agreement – you’ll be looking to bring on staff in the short to

medium term and you’ll need an employment agreement that best protects your business.

Shareholders agreement – You need this agreement to protect your shares which
are just entrusted to other shareholders.22

22 https://grit.ph/register-corporation/
 Lesson Summary
In an elevated level industry like the travel industry sector, it is basic that it carefully
complies with the legal requirements in order to operate as a legitimate business. Detail up
tasks must have a strong foundation, and so as to have a strong foundation, you should begin
with a strong business association. Shaping partnership or a corporation is a superior decision
in framing business organizations so as to enter a competitive industry, similar to the travel
industry.
A partnership is an association of two or more persons who carry on as co- owners
and share profits. There can be a contribution of money (capital investment in the business
project) or services in return for a share of the profits. It is an unincorporated business entity
formed by two or more people. The owners of a partnership are called partners because they
join efforts and resources to start the business. (It does not include religious associations,
conjugal partnership, and others of a similar nature because a partnership as defined by law
refers on to associations the purpose of which is to obtain profits to be distributed among
partners).
Within the context of Philippine law, a "partnership" is treated as an artificial being
created by operation of law with a legal personality separate and distinct from the partners
thereof. It proceeds from the concept that persons may be allowed to pool their resources and
funds to engage in the pursuit of a common business objective without necessarily organizing
themselves into a corporation, upon which the law imposes a much higher form of regulation,
limitation and standards. Philippine partnerships operate under the concept of unlimited
liability and unless otherwise agreed upon by the partners, each one of them acts as manager
and agent of the partnership and consequently, their acts bind the partnership.
A partnership is different from a corporation in many ways. First, there is no time
limit for the existence of the partnership as this depends on the agreement of the parties. On
the other hand, a corporation can exist for a period not exceeding fifty (50) years. Second, as
to the beginning of juridical personality, a partnership becomes a juridical person from the
time the contract begins while in a corporation, it only becomes a juridical person upon
registration with the Securities & Exchange Commission (SEC). Third, although a partner
may transfer his interest in a partnership to another, the transferee does not automatically
become a partner unless all the other partners give their consent. However, in corporations,
when the shares of stock are transferred to another, the transferee becomes a stockholder of
the corporation. Fourth, as to liability to third persons, partners may be held liable with their
private and personal property while in corporations, the stockholders are generally liable only
to the extent of their subscribed capital stock. Lastly, a partnership may be dissolved due to
the insolvency, civil interdiction, death, insanity or retirement of any of the partners while
such grounds do not dissolve a corporation.
Like a corporation, a partnership has a separate juridical personality. Even if the
partnership failed to register with the SEC, it still has a separate juridical personality. Thus,
the partnership, as a separate person can acquire its own property, bring actions in court in its
own name and incur its own liabilities and obligations. A partnership action is embodied in a
Partners’ Resolution which is similar to a corporation’s Board Resolution.
In the Philippines, the law which governs the creation of private corporation is Batas Pambansa Blg.
68, known as the Corporation Code of the Philippines.
“Right of Succession” means has the capacity to exist regardless of the death,
withdrawal, insolvency, or incapacity of the individual stockholders and regardless of the
transfer on interest or shares of stock. The powers of all corporations are limited to those
mentioned in their characters or in the general acts under which they are created.
A corporation is a company owned by its shareholders; However, it is a considered a
separate legal entity and is seen as a different person in the eyes of law. Risks are
proportional to the amount one invests in the company. Shareholders earn in the form of
dividends, while officers and employees receive a salary. In the Philippines, the Securities
and Exchange Commission requires at least 5 shareholders, 3 of which are Filipino.
 Supplementary Readings / Materials

Supplementary videos:

1. Partnership and Corporation

https://www.youtube.com/watch?v=KErkzN00gUk

2. ARW RFBT - LAW ON PARTNERSHIP

https://www.youtube.com/watch?v=nrcAjoNL5aU

3. 012 Corporation Law Lecture with Dean Eduardo Abella

https://www.youtube.com/watch?v=vspEjMzzvoc&list=PLwnwpfWHHt4d3Lf6t
6vkYDlmLrjLRZvTX
 References

Websites/online sources
 Aranda, Julie Ann L. (2016) Dissolution of a Corporation. Retrieved March 20,
2020, https://businessmirror.com.ph/2016/12/21/dissolution-of-a-corporation/

 Acidere, Jason (2020). How To Register And Form A Corporation In The

Philippines. Retrieved March 20, 2020, https://grit.ph/register-corporation/

 Business Management Ideas (n.d.). Partnership Deed: Meaning, Contents and

Rules | Business Management. Retrieved March 20, 2020, from
https://www.businessmanagementideas.com/organisation/types/partnership/p
artnership-deed-meaning-contents-and-rules-business-management/8918

 Business Study Notes (2020). What Are the Advantages and Disadvantages of
Partnership? Retrieved March 20, 2020, from
https://www.businessstudynotes.com/others/introduction-to- business/advantages-
and-disadvantages-of-partnership/

 Business Finance Blurt It (2020). Explain the Following Kinds of Partnership.

Retrieved March 20, 2020, from https://business-
finance.blurtit.com/111401/explain-the-following-kind-of-partnership-1- particular-
partnership-2-partnership-at-will

 Nicolas & De Vega Law Offices Attorneys-At-Law (n.d.). How to Form a

Partnership in the Philippines. Retrieved March 20, 2020, from
https://ndvlaw.com/how-to-form-a- partnership/#:~:text=The%20Philippine%20Civil
%20Code%20provides,of%20 a%20partnership%20as%20follows%3A&text=By
%20the%20contract%20of% 20partnership,dividing%20the%20profits%20among
%20themselves

 Ordiz, Janine Marri. (2014) Steps in the Creation of a Corporation. Retrieved

March 20, 2020, from https://prezi.com/ubmpua67l5sb/steps-in-the-creation-of- a-
corporation/

 StuDocu (n.d.) Lecture notes - Accountancy - Classifications OF Partnership.

Retrieved March 20, 2020, from
https://www.studocu.com/ph/document/university-of-the-
 east/accountancy/lecture-notes/lecture-notes-accountancy-classifications-of-
partnership/1014350/view

 Tax Acctg Center (n.d.) Dissolution and Liquidation of Corporations in the

Philippines. Retrieved March 20, 2020, from
https://taxacctgcenter.ph/dissolution-and-liquidation-of-corporations-in-the-
philippines/

 WHYUNLIKE.COM Differences and Similarities (2020). Difference Between

Partnership and Corporation in the Philippines. Retrieved March 20, 2020, from
https://whyunlike.com/difference-between-partnership-and-corporation-in-the-
philippines/

 Wonder.Legal Philippines (n.d.) Articles of Incorporation for Stock Corporations.

Retrieved March 20, 2020, from
https://www.wonder.legal/ph/modele/articles-incorporation-stock-corporations