Definition of Partnership according to the Civil Code of the Philippines

Art. 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).

There is no time limit for the existence of the partnership as this depends on the agreement of the parties. A
partnership becomes a juridical person from the time the contract begins. 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. Partners may be held liable with their private and personal property. A partnership may
be dissolved due to the insolvency, civil interdiction, death, insanity or retirement of any of the partners. 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.

Characteristics of Partnership

1. Easy of formation. As compared to corporations, the formation of a partnership requires less

formality. Mas madali magform ng partnership kaysa corporation kasi at least two persons naman ang
pagform ng partnership.
2. Separate legal personality. The partnership has a judicial personality separate and distinct from
the partners. Magkaiba or magkahiwalay yung accounts sa partnership kaya kung gusto mo man
bumili ng property, pwedeng pwede naman basta under your name ang transaction.
3. Mutual agency. The partners are agents of the partnership for the purpose of its business.

Advantages of Partnership against Sole Proprietorship

 Capital can be raised easily and greater amount too in a partnership as in a partnership all the partners can
contribute towards raising a capital, which is not the case in a sole proprietorship.
 Skills of the partners can be pooled along with knowledge, abilities and work force for the betterment of the
business while in a sole proprietorship, the owner has only himself to rely on for ideas and skills.
 Losses are shared in a partnership and thus no single person feels the entire burden unlike in a sole
proprietorship where losses are suffered by the owner alone.
 The partners in a partnership pay their personal income taxes on their share of the profits from the business,
the partnership does not have to pay any special taxes but in a proprietorship, the proprietor has to bear the
burden of all the taxes alone.
 A partnership can continue to be in existence if after one of the partners dies or opts out if they make an
agreement legally that allows them to continue the partnership.
 The partners have limited liability and are a separate entity from the business unlike in a sole
proprietorship. The partners are thus not personally liable in case of any debts or any other liabilities.
 Partnerships have certain rules and are governed by regulations of an authorized body which prevent it
from mismanagement and help regulate it and operate it efficiently.

Advantages of Partnership over a Corporation

A partnership is easier to form because only a contractual agreement between the partners is needed.

Relatively lower extent of government regulation compared to corporations.

Disadvantages of Partnership
Kinds of Partnership

General partnership

A general partnership is a company owned by two or more individuals who agree to run the business as partners or
co-owners.

Unless otherwise agreed, each partner has an equal share of profits and losses. Partnership agreements play a major
role in general partnerships that don’t evenly split duties and shares.

In general partnerships, partners manage the business and assume responsibility for the partnership’s debts.

If you plan on forming a general partnership, create a formal agreement stating each partner’s role and shares. Be
sure to also specify how you plan on selling or closing the business if the partnership dissolves.

Because the business is not a separate entity from its partners, profits in general partnerships are only taxed at the
personal income level. Profits are not taxed at the company level.

General partnerships are easy to establish, low-cost, and flexible. On the downside, your personal assets are at risk
in a general partnership. Not to mention, partners are liable for each other’s actions.

Limited partnership

Limited partnerships are more structured than general partnerships and have both general and limited partners. To
start a limited partnership, you need at least one general and one limited partner. So, what’s the difference between a
general partner and a limited partner?

A limited partner is well … limited. Limited partners only serve as investors for the partnership. Typically, a limited
partner does not have decision-making rights. They get ownership but don’t have as many risks and responsibilities
as a general partner.

Limited partners can lose their status if they become too involved in managing the company (e.g., signing legal
documents or contracts). If you’re a limited partner, be careful about the activities you do and the decisions you
make in the partnership.

General partners own and operate the company and assume liabilities for the partnership. A general partner has
control and responsibility when it comes to the limited partnership.

Limited partnerships are generally very attractive to investors due to the different responsibilities of the general and
limited partners.

Limited liability partnership

A limited liability partnership, or LLP, is a type of partnership where owners aren’t held personally responsible for
the business’s debts or other partners’ actions.

With an LLP, you typically can’t lose your personal assets if someone takes legal action against your business. But,
partners can be held liable if they personally do something wrong.
The protection an LLP partner receives varies from state to state. Check your state’s rules before you form a limited
liability partnership. In some states, only certain professions can form an LLP, such as lawyers, doctors, or
accountants.

LLPs make it easy to add or remove partners. And unlike some other types of partnership, you can have liability
protection from other members’ actions (depending on your state).

LLC partnership

An LLC partnership can have two or more owners, called members. Limited liability companies with multiple
members are referred to as multi-member LLCs or LLC partnerships.

Under an LLC partnership, members’ personal assets are protected. In most cases, members can’t be sued for the
business’s actions or debts. Members can be held liable for other members’ actions, though.

Most businesses can form an LLC partnership. LLC partnerships offer personal liability protection and tax
flexibility for members.

Kinds of Partners

A general partner actively manages and exercises control over the company.

Limited partners are often called silent partners. A limited partner invests money in exchange for shares in
the partnership but has restricted voting power on company business and no day-to-day involvement in the business .
A limited partner may become personally liable only if they are proved to have assumed an active role in the
business.

Kinds of Partners:
1. As to liability:
a. General Partner
b. Limited Partner
c. General-Limited Partner
2. As to contribution:
a. Capitalist Partner
b. Industrial Partner
c. Capitalist-Industrial Partner
3. Other classifications:
a. Managing Partner
b. Liquidating Partner
c. Nominal Partner
d. Ostensible Partner
e. Secret Partner
f. Silent Partner
g. Dormant Partner