NOTES ON BUSINESS LAWS AND REGULATION
Consensual – perfected by mere
THE LAW ON PARTNERSHIP
PARTNERSHIP - is a contract whereby 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 or in order to exercise a profession.
ESSENTIAL FEATURES OF PARTNERSHIP
1. Has a separate juridical personality from
the partners;
2. Based on a valid contract;
3. The persons forming the partnership
must have legal personality/capacity;
4. There is a mutual contribution of
money, property or industry;
5. The contribution is made to a common
fund;
6. Entered for a lawful business;
7. The primary purpose is to obtain profits;
8. The partners intend to divide the profits
(and losses) among themselves.
LEGAL EFFECTS OF PARTNERSHIP HAVING A
SEPARATE JURIDICAL PERSONALITY
The partnership can, in general:
1. acquire and possess property of all
kinds
2. incur obligations
3. bring civil and criminal actions
4. can be adjudged insolvent even if the
individual members be each financially
solvent
5. unless he is generally sued, a partner
has no right to make a separate
appearance in court, if the partnership
being sued is already represented
CHARACTERISTICS OF PARTNERSHIP
1.
consent
2. Bilateral – entered into by 2 or more
persons with reciprocal rights and
obligations
3. Principal – does not depend upon the
existence of any other contract
4. Commutative – one partner’s
undertaking is equivalent to those of
the others
5. Preparatory – entered into for the
purpose of engaging in a lawful business
6. Onerous – partners are obliged to part
with their money, property, or industry
7. Nominate – has a special nomenclature
given by the law
RULES ON THE LEGAL CAPACITY OF PERSONS
TO ENTER INTO A PARTNERSHIP
Has legal capacity:
1. Any person capacitated to enter into a
contract.
Has no legal capacity:
1. Persons suffering from Civil Interdiction;
2. Minors (below 18 years old);
3. Insane or demented persons:1
4. Deaf-mutes who do not know how to
write;
5. Incompetent persons.
Has limited legal capacity:
1. Those who are prohibited from making
donations or advantage to each other
cannot enter into a universal
partnership2;
2. Corporations3;
1
Unless contracted during a lucid interval, i.e. has
clarity of mind at the time of the execution of the
contract
2
Only particular partnership is allowed
3
There must first be an express authorization by
statute or charter

RULES TO DETERMINE EXISTENCE OF
PARTNERSHIP
In determining whether a partnership exists,
these rules shall apply:
1. Except as provided by article 1825,
persons who are not partners as to each
other are not partners as to third
persons;
2. Co-ownership or co-possession does not
of itself establish a partnership,
whether such co-owners or co-
possessors do or do not share any
profits made by the use of the property;
3. The sharing of gross returns does not of
itself establish a partnership, whether
or not the persons sharing them have a
joint or common right or interest in any
property from which the returns are
derived;
4. The receipt by a person of a share of the
profits of a business is prima facie
evidence that he is a partner in the
business, but no such inference shall be
drawn if such profits were received in
payment:
a. As a debt by installments or
otherwise;
b. As wages of an employee or
rent to a landlord;
c. As an annuity to a widow or
representative of a deceased
partner;
d. As interest on a loan, though
the amount of payment vary
with the profits of the business;
e. As the consideration for the sale
of a goodwill of a business or
other property by installments
or otherwise.
KINDS OF PARTNERSHIP
1. De jure – has complied with all the
requisites for its lawful establishment;
2. De facto – not established in accordance
with law but the relationship is actually
existing as if it had been so established;
3. Universal – may be based on all present
properties4 or all profits5;
4. Particular - has for its object
determinate things, their use or fruits,
or a specific undertaking, or the exercise
of a profession or vocation.
5. General – partners are liable pro rata
and subsidiarily/solidarily with their
separate property for partnership
obligations;
6. Limited – has one or more general
partners and one or more limited6
partners;
7. Secret – the existence of certain
partners is not made known to the
public;
8. Notorious – all existence is made known
to the public;
9. Commercial/Trading – exists for the
transaction of business;
10. Professional – exists for the exercise of
profession;
11. Fixed-Term – has a definite period of
existence based on a duration of time;
12. Particular Undertaking – has a definite
period of existence based on the
completion of a particular project or
transaction, etc.;
13. At-will – has no definite period of
existence.
KINDS OF PARTNERS
4
The partners shall contribute all their present
properties into the common fund
5
All that the partners may acquire by their industry
or work during the existence of the partnership shall
be included in the profit, to be divided among the
partners
6
Not personally liable for partnership obligations
 1. Capitalist – contributes money or
property;
2. Industrial – contributes industry or
service;
3. General – liability to third persons
extends to his separate property;
4. Limited - liability to third persons is
limited to his/her capital contribution;
5. Managing – designated to manage the
affairs of the partnership;
6. Partner by Estoppel – not a partner but
liable as such for the protection of
innocent third persons;
7. Sub-partner – not a partner, but who
contracts with a partner concerning the
share of the latter in the partnership;
8. Ostensible – takes an active part in the
business, and whose existence is known
by the public;
9. Secret - takes an active part in the
business, but whose existence is not
known by the public;
10. Silent – does not take an active part in
the business, and but whose existence
is known by the public;
11. Dormant – does not take an active part
in the business, and whose existence is
not known by the public;
12. Original – has been a partner since the
constitution of the partnership.
RIGHTS AND OBLIGATIONS OF THE
PARTNERSHIP
1. Right to Contribution – partnership has
the right to the contribution of the
partners who promised them at the
perfection of the contract.
2. Right to Additional Contribution - If
there is no agreement to the contrary,
in case of an imminent loss of the
business of the partnership, any partner
who refuses to contribute an additional
share to the capital, except an industrial
partner, to save the venture, shall be
obliged to sell his interest to the other
partners.
3. Right to Apply Payment Received to
Partnership Credit - If a partner
authorized to manage collects a
demandable sum, which was owed to
him in his own name, from a person
who owed the partnership another sum
also demandable, the sum thus
collected shall be applied to the two
credits in proportion7 to their amounts,
even though he may have given a
receipt for his own credit only; but
should he have given it for the account
of the partnership credit, the amount
shall be fully applied to the latter.
4. Right to Return of Credit Received – A
partner who has received, in whole or in
part, his share of a partnership credit,
when the other partners have not
collected theirs, shall be obliged, if the
debtor should thereafter become
insolvent, to bring to the partnership
capital what he received even though
he may have given receipt for his share
only.8
5. Right to Indemnity for Damages - Every
partner is responsible to the
partnership for damages suffered by it
through his fault, and he cannot
compensate them with the profits and
benefits which he may have earned for
the partnership by his industry.
However, the courts may equitably
lessen this responsibility if through the
7
Take note that the application of the payment is IN
PROPORTION to the amounts of the debt between
the partner and the partnership, hence pro rata. The
higher the amount of the demandable loan payment,
the higher the share in the sum paid.
8
Similar to the previous provisions, but contemplates
the entirety of the sum paid by third persons instead
of a pro-rated application of the payment to the
demandable loans
 partner’s extraordinary efforts in other
activities of the partnership, unusual
profits have been realized.
WHO BEARS THE LOSS OF THINGS
CONTRIBUTED INTO THE PARTNERSHIP FUND?
a. For specific/determinate things, where
only the use is contributed: borne by
the Partner
b. For specific/determinate things, where
ownership is transferred to the
Partnership: borne by the Partnership
c. For fungible/consumable things: borne
by the Partnership
d. For things contributed for sale: borne by
the Partnership
e. For things brought and appraised in the
inventory: borne by the Partnership
f. For things lost due to the fault of any of
the partners: such Partner is liable for
damages to the Partnership
RESPONSIBILITY FOR ADVANCES MADE BY
PARTNERS
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
expenses 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.
RIGHTS AND OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES
1. Right to Associate Another in Share -
Every partner may associate another
person with him in his share, but the
associate shall not be admitted into the
partnership without the consent of all
the other partners, even if the partner
having an associate should be a
manager.9
2. Right to Inspect Partnership Books - The
partnership books shall be kept, subject
to any agreement between the
partners, at the principal place of
business of the partnership, and every
partner shall at any reasonable hour
have access to and may inspect and
copy any of them.
3. Right to a Formal Account - Any partner
shall have the right to a formal account
as to partnership affairs:
a. If he is wrongfully excluded
from the partnership business
or possession of its property by
his co-partners;
b. If the right exists under the
terms of any agreement;
c. As provided by article 180710;
d. Whenever other circumstances
render it just and reasonable.
4. Property Rights - The property rights of
a partner are:
a. His rights in specific partnership
property11;
b. His interest in the
12
partnership ; and
c. His right to participate in the
management13.
9
This is a “sub-partner”
10
ARTICLE 1807. 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.
11
The partners have equal rights to possess
partnership property for partnership purposes, but
for other purposes, the consent of their partners is
necessary.
12
A partner’s interest in the partnership is his share
of the profits and surplus after its dissoluton
13
Management of the partnership shall be governed,
primarily, by the agreement of the parties in the
Articles of Partnership. Should there be no
agreement, all the partners shall be considered as
Note: 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
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.
5. Right to Profits and Obligation for
Losses – Profits and losses shall be
distributed in conformity with the
partnership agreement.
If only the share in profits has been stipulated:
the share in losses shall be in the same
proportion.
In the absence of any stipulation, the share in
the profits and losses of the capitalist partners
shall be in proportion to their contributions.
The Industrial partners’ share in the profit shall
be determined by the capitalist partners as
may be deemed just and equitable.
The industrial partners shall not be liable for
losses.
6. Exclusion of Partner from Share - A
stipulation which excludes one or more
partners from any share in the profits is
agents of the Partnership.
void, but the Partnership shall remain
valid and the profits shall be distributed
as if there was no such agreement.14
7. Obligation to Render Information -
Partners shall render on demand true
and full information of all things
affecting the partnership to any partner
or the legal representative of any
deceased partner or of any partner
under legal disability15.
8. Obligation to Account and Act as
Trustee - 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.
RIGHTS AND OBLIGATIONS OF THE PARTNERS
TO THIRD PERSON
1. Obligation to Operate under a Firm
Name - Every partnership shall operate
under a firm name, which may or may
not include the name of one or more of
the partners. Those who, not being
members of the partnership, include
their names in the firm name, shall be
subject to the liability of a partner.
2. Liability of the Partnership – The
partnership is primarily liable for
contracts entered into in its name and
for its account, under its signature, and
by a person authorized to act for it. All
partners, including industrial ones, shall
be liable pro rata with all their property
and after all the partnership assets have
14
An agreement which excludes a partner from
losses is valid as to the partners, but not to third
persons/creditors.
15
This obligation pertains to those information not
reflected in the partnership books.
 been exhausted, for the contracts which
may be entered into in the name and
for the account of the partnership,
under its signature and by a person
authorized to act for the partnership.
However, any partner may enter into a
separate obligation to perform a
partnership contract16.
Note: The industrial partner is not exempt from
this liability, however, he/she can recover the
amount he has paid from the capitalist partners
unless the partnership agreement provides
otherwise.
3. Liability of Partners for Partnership
Contracts - Every partner is an agent of
the partnership for the purpose of its
business, and the act of every partner,
including the execution in the
partnership name of any instrument, for
apparently carrying on in the usual way
the business of the partnership of which
he is a member binds the partnership,
unless the partner so acting has in fact
no authority to act for the partnership
in the particular matter, and the person
with whom he is dealing has knowledge
of the fact that he has no such
authority. An act of a partner which is
not apparently for the carrying on of
business of the partnership in the usual
way, does not bind the partnership
unless authorized by the other partners.
Except when authorized by the other
partners or unless they have abandoned
the business, one or more but less than
all the partners have no authority to:
a. Assign the partnership property
in trust for creditors or on the
16
General Rule – the partners are only subsidiarily
liable, i.e. only after the assets of the partnership
have been completely exhausted. Exception – in case
there is wrongful act or omission and misapplication
of money or property by a partner in the ordinary
course of business.
assignee’s promise to pay the
debts of the partnership;
b. Dispose of the good-will of the
business;
c. Do any other act which would
make it impossible to carry on
the ordinary business of a
partnership;
d. Confess a judgment;
e. Enter into a compromise
concerning a partnership claim
or liability;
f. Submit a partnership claim or
liability to arbitration;
g. Renounce a claim of the
partnership.
No act of a partner in contravention
of a restriction on authority shall
bind the partnership to persons
having knowledge of the restriction.
4. Conveyance of Partnership Real
Property - Where title to real property
is in the partnership name, any partner
may convey title to such property by a
conveyance executed in the partnership
name; but the partnership may recover
such property unless the partner’s act
binds the partnership under the
provisions of the first paragraph of
article 181817, or unless such property
has been conveyed by the grantee or a
person claiming through such grantee to
a holder for value without knowledge
that the partner, in making the
conveyance, has exceeded his authority.
Note: Where title to real property is in the name
of one or more but not all the partners, and the
record does not disclose the right of the
partnership, the partners in whose name the
title stands may convey title to such property,
17
No. 3 of the Rights and Obligations of the Partners
to Third Persons
but the partnership may recover such property
if the partners’ act does not bind the
partnership under the provisions of the first
paragraph of article 1818, unless the purchaser
or his assignee, is a holder for value, without
knowledge.
Where the title to real property is in the names
of all the partners a conveyance executed by all
the partners passes all their rights in such
property.
5. Liability of Partners - An admission or
representation made by any partner
concerning partnership affairs within
the scope of his authority in
accordance with this Title is evidence18
against the partnership.
6. Liability of a Partner by Estoppel - When
a person, by words spoken or written or
by conduct, represents himself, or
consents to another representing him to
anyone, as a partner in an existing
partnership or with one or more
persons not actual partners, he is liable
to any such persons to whom such
representation has been made, who
has, on the faith of such representation,
given credit to the actual or apparent
partnership, and if he has made such
representation or consented to its being
made in a public manner he is liable to
such person, whether the
representation has or has not been
made or communicated to such person
so giving credit by or with the
knowledge of the apparent partner
making the representation or
consenting to its being made:
a. When a partnership liability
results, he is liable as though he
were an actual member of the
partnership;
18
This pertains to the admissibility of evidence in a
court of law.
b. When no partnership liability
results, he is liable pro rata with
the other persons, if any, so
consenting to the contract or
representation as to incur
liability, otherwise separately.
When a person has been thus
represented to be a partner in an
existing partnership, or with one or
more persons not actual partners, he is
an agent of the persons consenting to
such representation to bind them to the
same extent and in the same manner as
though he were a partner in fact, with
respect to persons who rely upon the
representation. When all the members
of the existing partnership consent to
the representation, a partnership act or
obligation results; but in all other cases
it is the joint act or obligation of the
person acting and the persons
consenting to the representation.
7. Liability of an Incoming Partner - A
person admitted as a partner into an
existing partnership is liable for all the
obligations of the partnership arising
before his admission as though he had
been a partner when such obligations
were incurred, except that this liability
shall be satisfied only out of partnership
property, unless there is a stipulation to
the contrary19.
DISSOLUTION AND WINDING UP
DISSOLUTION - is the change in the relation of
the partners caused by any partner ceasing to
be associated in the carrying on as
19
Hence: Liability is limited to share in partnership
property for EXISTING obligations while his separate
property may be included for SUBSEQUENT
obligations.
distinguished from the winding up of the
business.
WINDING UP – the process of settling business
affairs after partnership dissolution.
TERMINATION – The point in time after all the
partnership affairs have been wound up.
CAUSES OF DISSOLUTION
1. A partnership may be dissolved without
violation of the agreement between the
partners, as follows:
a. Termination of the definite term or
particular undertaking;
b. The express will of any partner,
who must act in good faith, when
no definite term or particular
undertaking is specified;
c. 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. The bona fide expulsion of any
partner from the business in
accordance with such a power
conferred by the agreement
between the partners;
2. A partnership may be also dissolved
based on a violation or 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 will20 of
any partner at any time;
3. A partnership may also be dissolved by
operation of law, as follows:
20
No justifiable cause is required but if the no
justifiable cause or no cause at all was given, he/she
may be liable for damages. He/She cannot be
compelled to stay as a partner.
a. 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;
b. 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;
c. By the death of any partner;
d. By the insolvency of any
partner or of the partnership;
e. By the civil interdiction of any
partner;
4. A partnership may also be dissolved by
court decree21, as follows:
a. A partner is declared “insane”
in any judicial proceeding or is
shown to be of unsound mind;
b. A partner becomes incapable of
performing his part of the
partnership contract;
c. A partner has been found guilty
of such conduct as tends to
affect prejudicially the
business;
d. A partner’s willful and
persistent breach of
agreement;
e. The business of the partnership
can only be carried on at a loss;
21
To be filed in court
 f. Upon application by the
purchaser of a partner’s
interest;
g. Other circumstances which
render dissolution equitable.
5. A partnership is also dissolved in the
following instances:
a. When a new partner is
admitted into an existing
partnership;
b. When any partner retires;
c. When the other partners assign
their rights to the sole
remaining partner;
d. When all the partners assign
their rights in the partnership
property to third persons.
Note: If in case of the expiration or completion
of partnerships with a fixed term or for a
particular undertaking, respectively, the
partners continue the same without making any
new agreement, the firm becomes a
partnership at will.22
EFFECTS OF DISSOLUTION
1. When the firm is dissolved, a partner
can no longer bind the partnership.
2. A dissolved partnership still has the
personality for the winding up of its
affairs:
a. The firm is still allowed to
collect previously acquired
credits
b. The firm is still bound to pay off
its debts.
3. Where the dissolution is caused by the
act, insolvency, or death of a partner,
each partner is liable to his co-partners
for his share of any liability created by
any partner, acting for the partnership,
22
Hence, any partner may, at his sole pleasure,
dictate the dissolution of the partnership at will but
he must act in GOOD FAITH.
as if the partnership had not been
dissolved unless:
If dissolution was by act of any partner:
a. The partner acting for the
partnership had knowledge of
the dissolution23; or
If dissolution was by death or insolvency of
a partner:
a. The partner acting for the
partnership had “knowledge or
notice” of the death or
insolvency24;
4. With respect to third persons, a partner
can still bind the partnership even after
dissolution in:
a. Transaction in connection with
winding up the affairs of the
partnership;
b. Completing transactions
unfinished at dissolution;
c. Transactions that would bind
the partnership if dissolution
had not taken place when the
other party or creditor: had
extended credit to the
partnership prior to the
dissolution, or though he/she
did not extend credit, he had
known the partnership prior to
dissolution, and had no
knowledge or notice of the
dissolution, the fact of
dissolution was not advertised
in a newspaper of general
circulation in the place where
the partnership business is
regularly carried on.
5. With respect to liability for transactions
after dissolution, the liability of a
23
Hence, only one partner is liable
24
Same, only one partner is liable
 partner shall be satisfied out of
partnership assets alone, when such
partner had been, prior to dissolution:
a. Unknown as a partner to the
person with whom the contract
is made; and
b. So far unknown and inactive in
partnership affairs that the
business reputation of the
partnership could not be said
to have been in any degree due
to his connection with it.
NOTE: A partnership is in no case bound by any
act of a partner after dissolution:
o Where the partnership is dissolved
because it is unlawful to carry on the
business, unless the act is appropriate
for winding up partnership affairs; or
o Where the partner has become
insolvent; or
o Where the partner has no authority to
wind up partnership affairs; except by a
transaction with one who —
 Had extended credit to the
partnership prior to dissolution
and had no knowledge or notice
of his want of authority; or
 Had not extended credit to the
partnership prior to dissolution,
and, having no knowledge or
notice of his want of authority,
the fact of his want of authority
has not been advertised in the
manner provided for advertising
the fact of dissolution.
6. A partner is discharged from any
existing liability upon dissolution of the
partnership by an agreement to that
effect between himself, the partnership
creditor and the person or partnership
continuing the business; and such
agreement may be inferred from the
course of dealing between the creditor
having knowledge of the dissolution and
the person or partnership continuing
the business.
The individual property of a deceased
partner shall be liable for all obligations
of the partnership incurred while he
was a partner, but subject to the prior
payment of his separate debts.25
RIGHTS OF CREDITORS OF A DISSOLVED
PARTNERSHIP
Creditors of the dissolved partnership are also
creditors of the person or partnership
continuing the business:
1. If the business is continued without
liquidation, and the cause of the
dissolution is:
a. Admission of new partner;
b. Retirement or death of any
partner and his/her rights to
partnership property are
assigned to a partner/s or third
person/s;
c. Retirement of all but one
partner, and their rights to
partnership property are
assigned to the remaining
partner, who continues the
business26;
d. Wrongful dissolution by any
partner, and the remaining
partners continue the
27
business ;
25
General Rule: Dissolution does not, by itself,
discharge the existing liability of any partner.
Exception: when there is an agreement to that effect
between himself, the partnership creditor, and
person or partnership continuing the business.
26
Either alone or with others
27
Either alone or with others
 e. Expulsion of a partner, and the
remaining partners continue
the business28.
2. If the cause of the dissolution is the
retirement or death of any partner, and
the business is continued with the
consent of the retired partner or the
representative of the deceased partner,
without assignment of their rights to
partnership property:
3. If the cause of the dissolution is the
assignment by all the partners or the
representatives of their rights to
partnership property to one or more
third persons who promise to pay the
debts and who continue the business.
LIMITED PARTNERSHIP
CHARACTERISTICS
1. Formed by compliance with statutory
requirements;
2. Business is controlled or managed by
one or more general partners, who are
personally liable to creditors;
3. Its obligations or debts are paid out of
the partnership assets and the
individual property of the general
partners;
4. One or more limited partners contribute
to the capital and share in the profits
but do not manage the business and
are not personally liable for partnership
obligations beyond their capital
contributions;
5. The limited partners may have their
contributions back, subject to
conditions prescribed by law.
MANAGEMENT OF A LIMITED PARTNERSHIP
28
Either alone or with others
Only General partners have the right to manage
the partnership.
A Limited partner shall not become liable as a
general partner unless, in addition to the
exercise of his rights and powers as a limited
partner, he takes part in the control of the
business.
RIGHTS AND AUTHORITY OF A GENERAL
PARTNER
A general partner shall have all the rights and
powers and be subject to all the restrictions and
liabilities of a partner in a partnership without
limited partners.
However, without the written consent29 or
ratification30 of the specific act by ALL the
limited partners, a general partner or all of the
general partners have no authority to:
1. Do any act in contravention of the
certificate;
2. Do any act which would make it
impossible to carry on the ordinary
business of the partnership;
3. Confess a judgment against the
partnership;
4. Possess partnership property, or assign
their rights in specific partnership
property, for other than a partnership
purpose;
5. Admit a person as a general partner;
6. Admit a person as a limited partner,
unless the right so to do is given in the
certificate;
7. Continue the business with partnership
property on the death, retirement,
insanity, civil interdiction or insolvency
of a general partner, unless the right so
to do is given in the certificate.
29
Prior authorization (before the fact)
30
Confirmation of the act (after the fact)

OBLIGATIONS OF A LIMITED PARTNER
The contributions of a Limited partner may be
cash or property, but not services.
1. A limited partner is liable to the
partnership:
a. For the difference between his
contribution as actually made
and that stated in the certificate
as having been made, and
b. For any unpaid contribution
which he agreed in the
certificate to make in the future
at the time and on the
conditions stated in the
certificate.
2. A limited partner holds as trustee for
the partnership:
a. Specific property stated in the
certificate as contributed by
him, but which was not
contributed or which has been
wrongfully returned, and
b. Money or other property
wrongfully paid or conveyed to
him on account of his
contribution.
NOTE: These liabilities of a Limited partner can
be waived or compromised only by the consent
of all members; but a waiver or compromise
shall not affect the right of a creditor of a
partnership who extended credit or whose
claim arose after the filing and before a
cancellation or amendment of the certificate, to
enforce such liabilities.
Even if a limited partner has rightfully received
the return in whole or in part of the capital of
his contribution, he is nevertheless liable to the
partnership for any sum, not in excess of such
return with interest, necessary to discharge its
liabilities to all creditors who extended credit or
whose claims arose before such return.
NOTE ALSO: A person who has contributed to
the capital of a business conducted by a person
or partnership erroneously believing that he has
become a limited partner in a limited
partnership, is not, by reason of his exercise of
the rights of a limited partner, a general partner
with the person or in the partnership carrying
on the business, or bound by the obligations of
such person or partnership; provided that on
ascertaining the mistake, he promptly
renounces his interest in the profits of the
business, or other compensation by way of
income.
RIGHTS OF A LIMITED PARTNER
A limited partner shall have the same rights as a
general partner to:
1. Have the partnership books kept at the
principal place of business of the
partnership, and at a reasonable hour
to inspect and copy any of them;
2. Have on demand true and full
information of all things affecting the
partnership, and a formal account of
partnership affairs whenever
circumstances render it just and
reasonable; and
3. Have dissolution and winding up by
decree of court;
4. to receive a share of the profits or other
compensation by way of income, and to
the return of his contribution.
5. Loan money to, and transact other
business, with the partnership, and,
unless he is also a general partner,
receive on account of resulting claims
against the partnership, with general
creditors, a pro rata share of the assets.
DISSOLUTION OF LIMITED PARTNERSHIP
The retirement, death, insolvency, insanity or
civil interdiction of a general partner dissolves
the partnership, unless the business is
continued by the remaining general partners:

1. Under a right so to do stated in the

certificate, or
2. With the consent of all members.

NOTE: The estate of a deceased limited partner

shall be liable for all his liabilities as a limited
partner.
 THE LAW ON CORPORATIONS
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.
ESSENTIAL ATTRIBUTES OF A CORPORATION
1. Artificial Being – exists by fiction of law
and can only act through its directors,
officers, and employees.
2. Created by Operation of Law (“Creature
of the Law) – The consent of the State is
necessary either through a special law31
or a general law32.
3. Right of Succession (“Strong Juridical
Personality”) – Has the capacity for
continuous existence despite changes in
stockholders/members or by any
transfer of shares by a stockholder to a
third person.
4. Has the Powers, Attributes, and
Properties Expressly Authorized by Law
and Incident to Its Existence (“A
Creature of Limited Powers”) – As a
mere creature of law, it can exercise
only such powers as the law may
choose to grant it, either expressly or
impliedly.
NOTE: Like Partnership, a Corporation has a
separate juridical personality distinct from the
stockholders or members composing it, as
opposed to the partners in the former.
CLASSIFICATION OF CORPORATIONS
31
Gives rise to a government corporation
32
i.e. the Revised Corporation Code. Gives rise to a
private corporation
1. Public - Formed or organized for the
government as a portion of the State.33
2. Private - A corporation is created by
operation of law under the Revised
Corporation Code.
NOTE: A government-owned or –controlled
corporation, when organized under the
Revised Corporation Code, is still a private
corporation. But being a government –
owned or –controlled corporation makes it
liable for laws and provisions applicable to
the Government of its entities and subject
to the control of the Government.
3. Quasi-Public - A cross between private
corporations and public corporations.34
4. De Jure - A corporation organized in
accordance with the requirements of
the law.
5. De Facto - A corporation claiming in
good faith to be a corporation under the
Revised Corporation Code. It exists with
a flaw in its incorporation: it falls short
of the requirements of law. It is the
result of an attempt to incorporate
under an existing law coupled with the
exercise of corporate powers.
6. Corporation by Estoppel - All persons
who assume to act as a corporation
knowing it to be without authority to do
so shall be liable as general partners for
all debts, liabilities and damages
incurred or arising as a result thereof.
Where a group of persons misrepresent
themselves as a corporation (ostensible
corporation), they are subsequently
estopped from claiming lack of
corporate life in order to avoid liability.
A third party who assumes an obligation
to an ostensible corporation cannot
33
E.g., barangay, municipality, city, and province
34
E.g. school districts, water districts
 resist performance by alleging the
ostensible corporation’s lack of
personality.
7. By Prescription – achieved corporation
status on account of the passage of
time.35
8. Stock - One which has a capital stock
divided into shares and is authorized to
distribute to the holders such shares,
dividends, or allotments of the surplus
profits.
9. Non-stock - A corporation where no
part of its income is distributable as
dividends to members, trustees, or
officers.
10. Close – the issued stock of all classes
shall be held of record by not more than
twenty persons; shall not list in any
stock exchange or make any public
offering any of its stocks.36
NATIONALITY OF CORPORATIONS
The following are the Tests to determine the
nationality of a Corporation:
1. Place of Incorporation Test - Principal
doctrine on the test of the nationality of
a corporate identity in the Philippines. A
corporation is a national of the country
under whose laws it has been organized
and registered.
2. Control Test - A corporation shall be
considered a Filipino corporation if the
Filipino ownership of its capital stock is
at least 60%, and where the 60-40
35
The Roman Catholic Church is a corporation by
prescription, with acknowledged juridical personality
inasmuch as it is an institution which antedated by
almost a thousand years any other personality in
Europe
36
Any corporation may be incorporated as a close
corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public
utilities, educational institutions and corporations
declared to be vested with public interest.
Filipino-Alien equity ownership is NOT
in doubt.
NOTE:
For Corporations engaged in the exploitation of
natural resources – Only Filipino citizens or
corporations whose capital stock are at least
60% owned by Filipinos can qualify to exploit
natural resources.
For Corporations engaged in Public Utilities –
No franchise, certificate or any other form of
authorization for the operation of a public utility
shall be granted except to citizens of the
Philippines or corporations organized under the
laws of the Philippines at least 60% of whose
capital is owned by such citizens.
For Corporations engaged in Mass Media –
“Ownership of mass media shall be limited to
the citizens of the Philippines, or to
corporations, cooperatives, or associations,
wholly-owned and managed by such citizens”.37
For Corporations engaged in Cable Industry –
CATV as “a form of mass media which must,
therefore, be owned and managed by Filipino
citizens, or corporations, cooperatives, or
associations, wholly-owned and managed by
such citizens pursuant to the mandate of the
Constitution.” 38
For Corporations engaged in Advertising
Industry – “xxx only Filipino citizens or
corporations or associations at least 70% of
whose capital is owned by such citizens is
allowed to engage in the advertising agency.”
3. Grandfather Rule - It is a method of
determining the nationality of a
corporation which in turn is owned in
part by another corporation by breaking
37
Hence, 100% owned and managed by Filipinos
38
Hence, 100% owned and managed by Filipinos
 down the equity structure of the
shareholder corporation.39
COMPONENTS OF A CORPORATION
1. Corporators – those who compose the
Corporation, whether as stockholders of
a stock corporation or
members/trustees of a non-stock
corporation.
2. Incorporators – those recorded in the
Articles of Incorporation as originally
forming the corporation.
3. Promoter – takes initiative in founding
and organizing the business or
enterprise and receives compensation
therefor. He is an agent of the
Incorporators but not the corporation.40
4. Subscribers – those who agreed to take
and pay for original, unissued shares of
a corporation formed or to be formed.
CLASSIFICATION OF SHARES
The classification of shares, their corresponding
rights, privileges, restrictions, and their stated
par value, if any, must be indicated in the
articles of incorporations.
Each share shall be equal in all respects to every
other share, except as otherwise provided in the
articles of incorporation and in the certificate of
stock.41
1. Common shares – basic class of stocks.
Owners of these are entitled to a pro
rata share in the profits of the
corporation and its assets upon
39
This test is used when there is doubt as to the
percentage of Filipino ownership of a Corporation
especially when there is Corporate Layering (i.e. a
Corporation owns shares of stock of another
Corporation)
40
He/She persuades people to subscribe (“invest”) to
future shares of stocks of a proposed Corporation.
This is a preparatory act in the process of
incorporation.
41
This is called the Doctrine of Equality of Shares
dissolution, and in the management of
its affairs, without any preference.
2. Preferred shares – issued with par value
and may be given preference in the
distribution of dividends and the
corporate assets during liquidation, or
such other preferences.
3. Par Value shares – have a value fixed in
the certificates of stock and the articles
of incorporation.
4. No Par Value shares – do not have par
value but are issued for a consideration
of at least P5.00 per share.42
5. Voting shares – have the right to vote.
6. Non-voting shares – do not have the
right to vote.
NOTE: The Revised Corporation Code only
authorizes the denial of voting rights (hence
non-voting rights) in the case of redeemable
shares and preferred shares, provided, that
there shall always be a class or series of shares
that have complete voting rights.
Holders of non-voting shares shall, nevertheless,
be allowed to vote on the following matters:
a. Amendment of the articles of
incorporation;
b. Adoption and amendment of bylaws;
c. Sale, lease, exchange, mortgage,
pledge, or other disposition of all or
substantially all of the corporate
properties;
d. Incurring, creating, or increasing
bonded indebtedness;
e. Increase or decrease of authorized
capital stock;
f. Merger or consolidation of the
corporation with another corporation
or other corporation;
g. Investment of corporate funds in
another corporation or business
42
These cannot be issued as preferred shares
 purpose in accordance with the Revised
Corporation Code; and
h. Corporate dissolution.
7. Founders’ shares – issued to organizers
and promoters of a corporation in
consideration of some supposed right or
property.
8. Redeemable shares – those permitted
to be redeemed or repurchased by a
corporation and may be issued by the
corporation when expressly provided in
the articles of incorporation. They may
be repurchased from the holders upon
the expiration of a fixed period,
whether or not there are unrestricted
retained earnings.
9. Treasury shares – those issued and fully
paid for, but subsequently reacquired by
the issuing corporation through
purchase, redemption, donation, or
some other lawful means. Such shares
may again be sold for a price fixed 43 by
the Board of Directors.
NOTE: Treasury shares have no voting rights and
are not entitled to dividends or assets as long as
they remain in the Treasury.
DOCTRINE OF PIERCING THE VEIL OF
CORPORATION FICTION
Piercing the corporate veil is warranted when
“the separate personality of a corporation is
used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to
confuse legitimate issues.”44
It is also warranted in alter ego cases “where a
corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or
where the corporation is so organized and
43
Not necessarily par value, as long as it is the best
price obtainable and reasonable.
44
This is the first kind.
controlled and its affairs are so conducted as to
make it merely an instrumentality, agency,
conduit or adjunct of another corporation.”45
When corporate veil is pierced, the corporation
and persons who are normally treated as
distinct from the corporation are treated as one
person, such that when the corporation is
adjudged liable, these persons, too, become
liable as if they were the corporation.46
The following is the test to determine whether a
corporation is a mere alter ego (The Three-
Pronged Test):
1. Control47, not mere majority or
complete stock control, but complete
domination, not only of finances but of
policy and business practice in respect
to the transaction attacked so that the
corporate entity as to this transaction
had at the time no separate mind, will
or existence of its own;
2. Such control must have been used by
the defendant to commit fraud or
wrong48, to perpetuate the violation of a
statutory or other positive legal duty, or
dishonest and unjust act in
contravention of plaintiffs legal right;
and
3. The aforesaid control and breach of
duty must have proximately caused the
injury or unjust loss49 complained of.
NOTE: Piercing is also warranted when a
corporation ceased to exist only in name as it
re-emerged in the person of another
corporation to evade its unfulfilled financial
obligations.
45
This is the second kind.
46
General Rule: The corporation shall pay for its own
liabilities as such. Exception: The persons composing
it committed fraud, bad faith, etc. to the prejudice of
third persons.
47
Also known as the Instrumentality test
48
Also known as the Fraud test
49
Also known as the Harm test
INCORPORATION AND ORGANIZATION OF coordination with the proper
PRIVATE CORPORATIONS authorities.
2. Incorporation – which includes:
Capital Stock – is the amount fixed in the
a. Drafting and execution by the
articles of incorporation to be subscribed and
incorporators of the articles of
paid in cash, kind, or property at the
incorporation and such other
organization of the corporation or afterwards,
documents required for
which fund is used to conduct its operation.
registration of the corporation;
Capital – the value of the actual property of the b. Filing with the SEC of the
corporation. The corporation’s net worth articles of incorporation;
(stockholder’s equity) is arrived at afgter c. Payment of filing and
deducting the liabilities from its assets. publication fees; and
d. Issuance by the SEC of the
Authorized Capital Stock – is the capital stock certificate of incorporation.
divided into shares with par values.50 3. Formal Organization and
Subscribed Capital Stock – is the total amount of Commencement of Transactions –
the capital stock subscribed whether fully paid which includes:
or not. a. Adoption of by-laws and its
filing with the SEC;
Outstanding Capital Stock – is the portion of the b. Election of the Board of
capital stock issued to subscribers minus the Diretors/Trustees and officers;
treasury stocks. c. Establishment of principal
Stated Capital – is the capital stock divided into office; and
no-par value shares. d. Providing for subscription and
payment of capital stock.
Paid-up Capital – is the amount paid by the
stockholders on subscriptions from unissued NUMBER AND QUALIFICATION OF
shares of the corporation. INCORPORATORS

1. Any person, partnership, association, or

Steps in the creation of a corporation:
1. Promotion – the act of bringing a
corporation into existence by
determining the corporate purpose,
evaluating the potentiality of the
proposed business, developing plans,
and financing the expenses related to
putting up the corporation, and
50
Par value shares are required in case of
corporations issuing preferred shares, as well as in
the case of banks, trust companies, insurance
companies, building and loan associations, and
public utilities.
corporation;
2. Singly51 or jointly with others but not
more than 15 in number;
3. For lawful purpose;
4. Natural persons who are licensed to
practice a profession, and partnerships
or associations organized for the
purpose of practicing a profession, shall
not be allowed to organize as a
corporation unless otherwise provided
under special laws;
5. Incorporators who are natural persons
must be of legal age; and
51
In case of a single incorporator, it shall be a One-
Person Corporation (OPC)
 6. Each incorporator of a stock corporation
must own or be a subscriber to at least
one (1) share of the capital stock.
TERM OF CORPORATE EXISTENCE
A corporation shall have perpetual existence
unless its articles of incorporation provides
otherwise.
A corporate term for a specific period may be
extended or shortened by amending the articles
of incorporation:
Provided, that no extension may be
made earlier than three (3) years prior
to the original or subsequent expiry
date(s) unless there are justifiable
reasons for an earlier extension as may
be determined by the Commission:
Provided further, that such extension of
the corporate term shall take effect only
on the day following the original or
subsequent expiry date(s).
CAPITAL STOCK REQUIREMENTS
Stock corporations shall not be required to have
a minimum capital stock, except as otherwise
specifically provided by special law.52
THE ARTICLES OF INCORPORATION
Articles of incorporation – is the document
prepare by the persons establishing a
corporation and filed with the SEC containing
the matters required by the Revised Corporation
Code, i.e.:
1. The name of the corporation;
2. The specific purpose or purposes for
which the corporation is being formed.
Where a corporation has more than one
stated purpose, the articles of
52
With minimum capital stock: 1. Insurance
companies (P1 billion); Investment house (P300
million); pawnshops (P100k); and mining companies
(P100 million).
incorporation shall indicate the primary
purpose and the secondary purpose or
purposes: Provided, That a nonstock
corporation may not include a purpose
which would change or contradict its
nature as such;
3. The place where the principal office of
the corporation is to be located, which
must be within the Philippines;
4. The term for which the corporation is to
exist, if the corporation has not elected
perpetual existence;
5. The names, nationalities, and residence
addresses of the incorporators;
6. The number of directors, which shall
not be more than fifteen (15) or the
number of trustees which may be more
than fifteen (15);
7. The names, nationalities, and residence
addresses of persons who shall act as
directors or trustees until the first
regular directors or trustees are duly
elected and qualified in accordance with
this Code;
8. If it be a stock corporation, the amount
of its authorized capital stock, number
of shares into which it is divided, the
par value of each, names, nationalities,
and residence addresses of the original
subscribers, amount subscribed and
paid by each on the subscription, and a
statement that some or all of the shares
are without par value, if applicable;
9. If it be a nonstock corporation, the
amount of its capital, the names,
nationalities, and residence addresses
of the contributors, and amount
contributed by each; and
10. Such other matters consistent with law
and which the incorporators may deem
necessary and convenient.
NOTE: An arbitration53 agreement may be
provided in the articles of incorporation.

AMENDMENT OF THE ARTICLES OF

INCORPORATION

53
This is an alternative manner of settling disputes
amicably