PARTNERSHIP

 A partnership is a contract of two or more persons who 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.

 A partnership is both:
- contract
- business organization

Characteristics of a Contract of Partnership

 Consensual
 Principal
 Bilateral or multilateral
 Nominate
 Preparatory
 Onerous

Essential Requisites of Partnership

 There must be a valid contract.

 There must be a mutual contribution of money, property or industry to a common fund.
 It must be a lawful object or purpose.
 The partnership must be established for the common benefit of interest of the partners which is to
obtain profits and to divide the profits among the partners.

Rule: The receipt of a person of a share of the profits of a business is a prima facie evidence that he is a
partner in the business.
Exception:

- As a debt by installments or otherwise.

-As wages of an employee or rent to a landlord.

-As annuity to e widow or representative of a deceased partner.

-As interest on loan, though the amount of payment vary with the profits of the business.

-As the consideration for the sale of goodwill of a business or other property by installment or
otherwise.

Kinds of partnership

 As to object:
a) Universal Partnership
- Universal Partnership of all present property
- Universal Partnership of profits
b) Particular Partnership

 As to liability
a) General Partnership
b) Limited Partnership

 As to duration
a) Partnership for a fixed term
b) Partnership for a particular undertaking
c) Partnership at will

 As to representation to others
a) Ordinary partnership
b) Partnership by estoppel
Kinds of Partners

 General Partner – One who is liable for partnership debts to the extent of his separate property
after all the assets of the partnership have been exhausted.
 Limited Partner – One who is liable for partnership debts to the extent of his capital contribution
only.
 Capitalist Partner – One who contributes money or property to the common fund.
 Industrial Partner – One who contributes his services or industry to the partnership.

Division of Profit and Loss

ALL CAPITALIST:

 As agreed upon.
 If agreement is on the profits only, share on losses shall be in the same proportion.
 In the absence of any agreement, share in the profits and losses shall be in proportion to his capital
contribution

CAPITALIST and INDUSTRIAL

PROFITS

 As agreed Upon
 In the absence of agreement, the industrial partner shall first receive a just and equitable share in
the profits, and thereafter, each capitalist partner shall share in the profits in proportion to his
capital contribution.

LOSSES

 Industrial partner shall not share in the losses

 Capitalist Partners shall share:
- As agreed upon
- According to share in profits
- According to capital contribution

Rules on Management

 A managing partner appointed in the Articles of Partnership may execute all acts of administration
despite opposition of his partners unless he acted in bad faith.

 The appointment of the managing partner in the Articles of Partnership may be revoke only:
- With just or lawful cause – vote of the partners owning controlling interest.
- Without just or lawful cause – vote of all partners

 A managing partner appointed after the constitution of the partnership may execute all acts of
administration but in case of opposition by the other partners, the partners owning the controlling
interest may resort to voting his removal as manager.

 Revocation of his appointment as managing partner may be done with or without just or lawful
cause, by votes of the partners owning controlling interest.

Two or more partners appointed as managers

 There is specification of their respective duties

- Each managing partner shall perform only the duties specified in his appointment.

 No specification of duties
- Each one may separately execute all acts of administration
- In case of opposition:
- the decision of the majority of the managing partner shall prevail.
- in case of tie, decision of the managing partner/s owning controlling interest
 When the manner of management has not been agreed upon:
- All the partners shall be considered agents of the partnership
- Whatever any one of them may do alone shall bind the partnership
- Rule in case of opposition:
 Decision of majority prevails.
 In case of tie, decision of partners owning the controlling interest prevails.

Rights of Partners to Engage in Business

 Industrial Partner

An industrial partner cannot engage in business for himself unless the partnership expressly permits him
to do so.

 Capitalist Partner

A capitalist partner may engage in business for his own account if the business is of a kind different from
the partnership or if the same, there is a stipulation allowing him to engage in that partnership.

Application of Payments

 If the partner authorized to receive payment issues the receipt for the partnership, payment shall be
applied to the partnership credit.
 If the partner authorized to receive payment issues his own receipt, payment shall be applied to the
two credits proportionately.

Dissolution and Winding Up

 Dissolution

The change in the relation of the partners caused by any partner ceasing to be associated in the carrying
on of the business.
 Winding Up

The process of settling the business or affairs of the partnership after dissolution.

 Termination

The point when all the business or affairs of the partnership are completely wound up.

Causes of Dissolution

 Without violation of the agreement of the partners.

 In contravention of the agreement between the partners.
 When it becomes unlawful for the business of the partnership to be carried on.
 Death of any partner.
 Insolvency of any partner or the partnership.
 Civil interdiction of any partner.
 Decree of the court.

Effects of Dissolution

 Dissolution terminates all authority of any partner to act for the partnership.

Liquidation of dissolved partnership

 Liquidation of winding up involves the sale of the assets of the partnership, the payment of its
liabilities, and the distribution of the remaining cash or other property to the partners.
 Order of payment of partnership liabilities:
- Creditors other than partners
- Partners other than capital and profits
- Partners in respect of capital
- Partners in respect of profits