Introduction of

Partnership
Liquidation
Learning Objectives

After this discussion, listeners should be able to:

1. Define Liquidation
2. Distinguish dissolution from Liquidation
3. Understand and apply the rules in settling accounts
after dissolution.
What is Liquidation?
The liquidation of a partnership is the winding up of its
business activities characterized by sale of all non-cash
assets, settlement of all liabilities and distribution of the
remaining cash to the partners. The conversion of non-
cash assets into cash is referred to as realization.
Dissolution vs. Liquidation
Dissolution is a voluntary legal closure of a
business while a Liquidation involves the selling
of a company’s assets in order to pay creditors.
 Rules in settling accounts after Dissolution
The following rules are subject to revision by the agreement of the partners, either in their original
partnership agreement or in a dissolution agreement (Civil Code of the Philippines, Article 1839)

Assets of the Partnership

01 The assets of the partnership consist of the following:

1. Partnership Property
2. The contribution of the partnership
 Order of Preference
02 The assets of a general partnership shall be applied in the following order:

1. Those owing to outside creditors

2. Those owing to inside creditors (loans or advances for business expenses)
3. Those owing to partners in respect of capital
4. Those owing to partners in respect of profits.

Insufficient Partnership Assets

03 When the partnership assets are insufficient to settle all outside liabilities, the
partners should make additional contributions in the partnership. Any partner
who contributed in excess of his share in this liability has a right to collect the
supposed additional contributions from the other partners.
 Preference of Partnership Creditors and Partner’s
04 Separate Creditors
The creditors of the partnership shall have priority in payments over those of the
partners’ separate creditors as regards the partnership properties. On the other
hand, the creditors of the partners are preferred with respect to the separate or
personal properties of the partners.

Distribution of Separate Properties

05 of an Insolvent Partner
If a partner is insolvent, his personal shall be distributed as follows:
1. Those owing the separate creditors
2. Those owing the partnership creditors
3. Those owing to partners by way of contribution.
Thank
you!