Business Organizations

Week 2:

Partnership: Basic Concepts

I. Definition

a. 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 (Article 1767, NCC).

b. Characteristic elements of partnership (De Leon, 2010):

i. Bilateral – entered into by two or more persons.

ii. Onerous - each of the parties aspires to procure for himself a
benefit through the giving of something.
iii. Consensual – perfected by mere consent.
iv. Preparatory – it is entered into as a means to engage in
business or specific venture for the realization of profits with
the view of dividing them among the partners.
v. Profit-oriented.

II. Partnership Distinguished from Co-ownership

Co-Ownership Partnership
Definition There is co- By the contract of
ownership whenever partnership two or
the ownership of an more persons bind
undivided thing or themselves to
right belongs to contribute money,
different persons property, or industry
(Article 484, NCC). to a common fund,
with the intention of
dividing the profits
among themselves
(Article 1767, NCC).
Creation Created by law. Created by contract.
Juridical Personality No separate juridical Has a juridical
personality from the personality separate
co-owners. and distinct from
 each partner (Article
1768, NCC).
Purpose Enjoyment of a thing Profits (Article 1767,
or right by all the co- NCC).
owners (Article 486,
NCC).
Duration An agreement to No limitation
keep the thing (Article 1767, 1785).
undivided for more
than ten (10) years is
not allowed (Article
494).
Disposal A co-owner may A partner may not
freely dispose his dispose his interest in
interest to a third the partnership to
person making the make a third-person
third person a co- a partner unless all
owner (Article 495, parties agreed
NCC). (Article 1812, NCC).
Power to act with A co-owner cannot A partner may bind
third persons represent the co- the partnership,
ownership (Article unless there is an
491 & 492, NCC). agreement to the
contrary (Article
1803, NCC).
Effect of death Death of a co-owner Death of a partner
does not dissolve the dissolves the
co-ownership. partnership (Article
1830(5), NCC).

III. Partnership Distinguished from Trust

Trust Partnership
Definition A trust is the legal By the contract of
relationship between partnership two or
one person having an more persons bind
equitable ownership themselves to
of property and contribute money,
another person property, or industry
owning the legal title to a common fund,
to such property, the with the intention of
equitable ownership dividing the profits
 of the former among themselves
entitling him to the (Article 1767, NCC).
performance of
certain duties and the
exercise of certain
powers by the latter
(Estate of Margarita
D. Cabacungan v.
Marilou Laigo).
Parties Trustor – one who All of the members
executes the are principals and are
instrument creating agents of each other.
the trust.

Trustee - the person

expressly designated
to carry out the trust.

(Cañezo v. Rojas)

Beneficiary

IV. Basic Features of a Partnership (De Leon, 2010).

a. There must be a valid contract.

b. The parties must have legal capacity to enter into the contract.

c. There must be a mutual contribution of money, property, or

industry to a common fund.

d. The object must be lawful.

e. The primary purpose is to obtain profits and to divide the same

among the parties.

f. Mutual Agency

i. All partners shall be considered agents and whatever any one

of them may do alone shall bind the partnership.
 ii. Every partner is an agent of the partnership for the purpose
of its business, and the act of every partner binds the
partnership.

g. Delectus Personae (Selection of Persons)

V. Who May be Partners

a. 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 (Article 1767, NCC).

b. Individuals – natural persons entering into a contract of partnership

must have the necessary legal capacity to enter the contract.

i. General Rule for Individuals: any person may be a partner

who is capable of entering into contractual relations.

ii. Exceptions: any person who cannot give consent to a

contract.

1. Unemancipated minors
2. Insane or demented persons
3. Deaf-mutes who do not know how to write
4. Persons who are suffering from civil interdiction
5. Incompetents who are under guardianship.
6. Persons who are prohibited from giving each other
any donation or advantage cannot enter into universal
partnership (Article 1782, NCC).

c. Partnerships

d. Corporations - 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 (Section
2, Revised Corporation Code of the Philippines).

VI. Partnership Capital

 a. 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 (Article 1767, NCC).

b. Money – Legal tender in the Philippines (cash).

c. Property – Real or personal property may be contributed.

d. Industry – the active cooperation, the work of the party associated,

which may be either personal manual efforts or intellectual, and for
which he receives a share in the profits (not merely salary).

VII. Separate Juridical Personality

a. The partnership has a juridical personality separate and distinct

from that of each of the partners (Article 1768, NCC).

i. A partnership duly formed under the law is a juridical person

to which the law grants a juridical personality separate and
distinct from that of each of the partners (Article 44(3),
NCC).

b. Article 1772 provides that every contract of partnership having a

capital of three thousand pesos or more, in money or property, shall
appear in a public instrument and must be recorded in the SEC.
The failure to comply with the public instrument requirement shall
not affect the liability of the partnership and the members thereof
to third persons.

i. Even without a public instrument, the partnership constituted

by the partners shall acquire its own separate juridical
personality that is distinct from the partners.

c. Partnerships with no Juridical Personalities:

i. A contract of partnership where immovable property is

contributed but an inventory of the immovable properties is
not made (Article 1773, NCC).
ii. Secret associations or societies under Article 1775 of the
New Civil Code.

VIII. Formal Requisites

a. No required form is necessary (Article 1771, NCC). However,
partnerships are subject to Article 1772, and 1773 of the New Civil
Code.

i. Where immovable property or real rights are contributed to

the partnership, a public instrument shall be necessary.

1. An inventory of the properties, signed by the parties,

must be attached to the public instrument.

ii. Every contract of partnership, having a capital of Php 3,000

or more shall appear in a public instrument.

1. The instrument must be recorded in the SEC.