LAW NOTES
• There must be a mutual contribution of money, property
GENERAL PROVISIONS-PARTNERSHIP
Article 1767
• 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.
• Two or more persons may also form a
partnership for the exercise of a profession.
CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP
• Consensual- it is perfected by mere consent, that is,
upon the express or implied agreement of two or more
persons;
• Nominate- it has a special name or designation in our
law;
• Bilateral- it is entered into by two or more persons and
the rights and obligations arising therefrom are always
reciprocal;
• Onerous- each of the parties aspires to procure for
himself a benefit through the giving of something;
• Commutative- the undertaking of each of the partners is
considered as the equivalent of that of the others;
• Principal- it does not depend for its existence or validity
upon some other contracts; and
• Preparatory- it is entered into as a means to an end, i.e.,
to engage in business or specific venture for the
realization of profits with the view of dividing them among
the contracting parties. A partnership contract, in its
essence, is a contract of agency. (see Art. 1818.)
ESSENTIAL REQUISITES OF A PARTNERSHIP
• There must be a valid partnership contract.
or industry to a common fund.
• It must have a lawful object or purpose.
• The partnership must be established for the common
benefit or interest of the partners which is to obtain profits
and to divide the profits among the partners.
FORM SHOULD BE FOLLOWED
General Rule:
• No special form is required for the validity or existence
of the contract of partnership.
Exceptions:
1. Where immovable property or real rights are
contributed, the partnership contract shall be void unless:
• It is reduced to writing in a public instrument (Art.
1771).
• An inventory of the property contributed is made,
signed by the parties and attached to the public
instrument. (Art.1773)
2. Where the contract is by its terms not to be performed
within a year from the making thereof, such partnership
contract is covered by the statute of frauds and thus
requires a written agreement to be enforceable.
3. Where the contract of partnership has a capital of 3,000
pesos or more, in money or property, it shall appear in a
public instrument and must be recorded in the SEC.
Article 1768
• The partnership has a juridical personality separate and
distinct from that of each of the partners, even incase of
failure to comply with the requirements of article1772,
first paragraph. (n

CONSEQUENCES OF BEING A JURIDICAL PERSON
• Can sue and be sued
• Acquire any kind of property
• Insolvency of a partnership does not mean that
the partners themselves are insolvent
PARTNERSHIP AS A JURIDICAL PERSON AND ITS
IMPLICATIONS
• A partnership has a juridical personality which is separate
and distinct from that of the partners.
• A partnership may sue and be sued in its name or by its
duly authorized representatives.
LEGAL ENTITY
• Can enter into contracts, own property, and engage in
legal activities. It has the capacity to sue and be sued
in its own name. This allows the partnership to
conduct business, hold assets, and incur liabilities
independently of its individual partners.
LIMITED LIABILITY
• It can provide limited liability protection to its individual
partners. This means that the personal assets of the
partners are generally protected from the
partnership's debts & obligations.
PERPETUAL EXISTENCE
• Can continue to exist even if there are changes in the
composition of its partners. The death, withdrawal, or
addition of partners does not necessarily result in the
dissolution of the partnership.
TAXATION
• May have its own tax identification number and be
subject to specific tax regulations
LEGAL CAPACITY
• Can engage in various legal transactions, including
buying and selling assets, leasing property, and
borrowing money, without requiring individual partners
to act on its behalf.
RULES TO DETERMINE EXISTENCE OF PARTNERSHIP
Article 1769
1. General Rule: Persons who are not partners as to each
other are not partners as to third persons.
Exception: Estoppel
Example:
• If A & B say PUBLICLY that they are not partners,
then according to A1825, if they told C that they are
and Centers into a contract of partnership with them,
then A and B are in a PARTNERSHIP OF ESTOPPEL
2. Co-ownership of a property does not itself establish a
partnership, even though the co-owners share in the
profits derived from the incident of joint ownership.
Example:
• If A & B inherited land from their parents
and subsequently leased the land out for
P50,000/month, then it can be said that they share
profits, but are they in a partnership?
No, they are merely co-owners. The P50,000 profit ismerely
incidental and besides, it was not derived fromBUSINESS
OPERATIONS.
• If they bought the land for P1,000,000 each to build
ahouse but instead opted to sell it for P2,500,000
thenthey have a profit of P500,000 but are they
partners?
No, because even if there was a profit of P500,000, thisis
merely incidental to the sale and not from
businessoperations of A&B.
• If the land was instead used to build an apartment
thatis rented out?
Yes, because A & B share profits from RENTING, thiscan be
considered as ordinary business operations.
3. Sharing of gross returns alone does not indicate a
partnership, whether the persons sharing them have a
joint or common right or interest in any property from
which the returns are derived.
Example:
• If a person owns a big tract of land for planting rice
and entered into an agreement with a farmer that they
will divide the harvest, is the farmer partners with the
owner of the land?
No because of the following reasons:
(1) The farmer had no contribution
(2) The farmer has no say in the disposition of the land
(3) The farmer has no say in management
(4) In case of loss, the owner shall carry the entire
burden and the farmer need not pay anything
4. Receipt of share in the profits is a strong presumptive
evidence of partnership.
However, no such inference will be drawn if such profits
were received in payment:
a) As a debt by instalments 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; and
e) As the consideration for the sale of a goodwill of a
business or other property by instalments or otherwise
Example:
• A partnership borrowed P50,000 and instead of
givingthe creditor a specific amount to be repaid, they
agreedthat the creditor will receive 1% of the
partnership’sannual gross profit. Is the creditor a
partner?
No because the receipt of share in net income happensto be
because of an existing debt
A partnership is a type of business organization created by a
contract entered by two or more persons who contribute their
money, property, and industry to a common fund with the
intention of dividing the profits among themselves.
It has a personality separate and distinct from the partners. It
may acquire and possess all kinds of properties, incur
obligations and file cases in courts or become defendants in
cases.
Since a partnership is a consensual contract, it exists from the
moment of the execution of the contract, unless otherwise
stipulated by the partners.
As a general rule, a contract of partnership may be made orally
or in writing, unless the capital of the partnership is P3,000 or
more in which case it must be in a public instrument, or if real
property or rights are contributed, in which case it must be in a
public instrument with an inventory of the property contributed,
and in both cases, must be registered with the SEC.
As to its object, a partnership may either be a universal
partnership of all present property or of all profits, or a
particular partnership. As to duration, a partnership may either
be for a fixed term or particular undertaking or at will.
A partnership is best for a small number of people who know
each other and want to start a business. It is relatively easy to
put up, and having a juridical personality separate and distinct
from the partners, a partnership provides lesser liability as
compared to operating as a sole proprietorship.
A sole proprietorship is a business entity owned by the person
directly managing it whose personal funds co-mingle with the
funds and earnings of the business. In other words, in a sole
proprietorship, the owner and manager are one and the same -
the business is not considered as a separate legal entity and the
owner gets taxed as an individual who derives income from the
operations of his business. Since all the assets of the business
are owned by the proprietor, then all the debts of the business
are also his. The proprietor has unlimited liability - he is fully,
solely, and personally liable for costs, debts, and legal liabilities
of the business and must
pay for them even if it means using his personal funds for the
purpose.
Article 1776
• As to its object, a partnership is either universal or
particular.
• As regards to the liability of the partners, a
partnership may be general or limited. (1671a)
TYPES OF PARTNERSHIPS
1. According to object:
• Universal partnership of all present property- All
contributions become part of the partnership fund.
Define in Article 1778.
• Universal partnership of profits- All that the
partners may acquire by their industry or work
during the existence of the partnership and the use of
whatever the partners contributed at the time of
the institution of the contract belong to the
partnership. Defined in Article 1780
• Particular partnership- The object of the partnership
is determinate—its use or fruit, specific undertaking,
or the exercise of a profession or vocation. Defined in
Article 1783
2. According to liability:
• General- All partners are liable to the extent of their
separate properties.
• Limited- The limited partners are liable only to
the extent of their personal contributions. In a
limited partnership, the law states that there shall be
at least one general partner.
 3. According to duration:
• Partnership with a fixed term or for a particular
undertaking.
• Partnership at will- One in which no term is specified
and is not formed for any particular undertaking.
4. According to purpose:
• Commercial or trading partnership- One formed for
the transaction of business.
• Professional or non-trading partnership- One
formed for the exercise of profession.
• parties
5. According to legality of existence:
• De jure partnership- One which has complied with
all the legal requirements for its establishment.
• De facto partnership- One which has failed
to comply with all the legal requirements for its
establishment.
KINDS OF PARTNERS
UNDER THE CIVIL CODE:
1. General partner- One who is liable to the extent of his
separate property after all the assets of the partnership
are exhausted.
2. Limited partner- One who is liable only to the extent of
his capital contribution.
3. Capitalist partner- One who contributes money or
property to the common fund of the partnership.
4. Industrial partner- One who contributes his knowledge
or personal service to the partnership.
5. Managing partner- One whom the partners has
appointed as manager of the partnership.
6. Liquidating partner- One who is designated to wind up
or settle the affairs of the partnership after dissolution.
7. Dormant partner- One who does not take active
part in the business of the partnership and is not
known as a partner.
8. Silent partner- One who does not take active
part in the business of the partnership though may
be known as a partner.9.
9. Secret partner- One who takes active part in the
business but is not known to be a partner by outside
10. Nominal partner or partner by estoppel- one who is
actually not a partner but who represents himself as one
OTHER CLASSIFICATIONS
1. Ostensible – active, known to the public
2. Secret – active, unknown to the public
3. Silent – inactive, known to the public
4. Dormant – inactive, unknown to the public
5. Original – member at time of organization
6. Incoming – about to become a member
7. Retiring – about to withdraw
RIGHTS OF PARTNERS
• Management and Decision Making
- Each partner has the right to participate in the
management and decion making of the partnership’s
affairs
- Every partner, irrespective of the amount of capital
contribution, has an inherent right to take part in the
conduct of business of the firm. Although one may agree
not to
 participate in the management of the business the right of
participation should be available to each partner.
- Finding the right balance of good decision-making and
management among partners without burdening the
project with a further structure and bureaucracy is
essential for successful operation.
• Profit Sharing
- Partners have the right to share a of the partnership’s
profits.
- Every partner, irrespective of the amount of capital
contribution or business expertise, has a right to share
equally profits earned by the firm.
- Except for a share in profits, the law mandates partners
to share the profits and losses equally. Benefits or
allowances must be provided from the firm's profits, and
no payment is deductible. This allocation is shown in the
profit and loss appropriation account.
• Continuity of the Partnership
- Partners have the right to continue business.
- In the case of the General Partner's insolvency,
dissolution, retirement, or removal, the Partnership's
business will be carried on by the Partnership's remaining
general partners.
• Acting in Good Faith
- Partners have the right to expect that other partners will
act in good faith.
- The concept of good faith in contract law mandates
parties to negotiate in a reasonable and fair manner. If
one party refuses to negotiate in good faith, the contract
may be breached, perhaps resulting in a loss of benefits
or damages.
• Access to Partnership Records
• Partners have the right to access and inspect the
partnership’s books and records.
• Partners have a right to access and inspect the
partnership’s books and records.
• Every partner has a right to free access to all records,
books, and business accounts. Books and records of a
partnership a all files, documents, and papers relating to
the Business or Condition of the Company, including
without limitation financial statements, Tax Returns and
related work papers and letters from accountants,
budgets, pricing guidelines, ledgers, journals, deeds, title
policies, minute books, stock certificates and books,
stock transfer ledgers, Contracts, Licenses, customer
lists, computer files and programs, retrieval programs,
operating data and plans and environmental studies and
plans.
RIGHTS OF PARTNERS
Partners in a partnership shall have the following rights:
1. Property rights
Article 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management” (Article 1810,
Civil Code)
2. Rights in specific partnership property interest in the
partnership
Article 1812- A partner’s interest in the partnership is his share
of the profits and surplus.” (Article 1812, Civil Code)
 3. Rights to participate in the management
Article 1803- When the manner of management has not
been agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever any
one of them may do alone shall bind the partnership, without
prejudice to the provisions of article 1801.
(2) None of the partners may, without the consent of the others,
make any important alteration in the immovable property of the
partnership, even if it may be useful to the partnership. But if the
refusal of consent by the other partners is manifestly prejudicial
to the interest of the partnership, the court’s intervention may be
sought.” (Article 1803, Civil Code)
4. Right to associate with another person in his share
Article 1804- 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.” (Article
1804, Civil Code)
5. Right to inspect and copy partnership books
Article 1805- 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.” (Article 1805, Civil Code)
6. Right to demand a formal account
Article 1809. Any partner shall have the right to a formal
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and
reasonable.” (Article 1809, Civil Code)
7. Right to ask for the dissolution of the firm at the
proper time
Article 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
a) By the termination of the definite term or particular
undertaking specified in the agreement;
b) By the express will of any partner, who must act in good
faith, when no definite term or particular is specified;
c) By 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) By the expulsion of any partner from the business bona
fide in accordance with such a power conferred by the
agreement between the partners;
(2) In 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 will of any partner
at any time;
(3) 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;
(4) 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;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article.”
Article 1831. On application by or for a partner the court shall
decree a dissolution whenever:
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing
his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
(5) The business of the partnership can only be carried on at a
loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner’s interest
under article 1813 or 1814:
(1) After the termination of the specified term or particular
undertaking;
(2) At any time if the partnership was a partnership at will when
the interest was assigned or when the charging order was
issued. (Article 1830 and 1831, Civil Code)
OBLIGATIONS OF PARTNERS
1. Obligation to give his contribution
Article 1786. Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with
regard to specific and determinate things which he may have
contributed to the partnership, in the same cases and in the
same manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof from the
time they should have been delivered, without the need of any
demand. (Article 1786, Civil Code)
2. Obligation not to convert money or property of the
partnership for his own use
Article 1788. A partner who has undertaken to contribute a sum
of money and fails to do so becomes a debtor for the interest
and damages from the time he should have complied with his
obligation.
The same rule applies to any amount he may have taken from
the partnership coffers, and his liability shall begin from the time
he converted the amount to his own use.” (Article 1788, Civil
Code)
 3. Obligation not to engage in unfair competition with
his own firm
Article 1808. The capitalist partners cannot engage for their
own account in any operation which is of the kind of business in
which the partnership is engaged, unless there is a stipulation to
the contrary.
Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions,
and shall personally bear all the losses.” (Article 1812, Civil
Code)
4. Obligation not to account for and hold as trustees
unauthorized personal profits
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.” (Article 1807,
Civil Code)
5. Obligation to pay for damages caused by his fault
Article 1794. 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
partner’s extraordinary efforts in other activities of the
partnership, unusual profits have been realized.” (Article 1794,
Civil Code)
6. Obligation to credit to the firm payment made by a
debtor who owes him and the firm
Article 1792. 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 proportion 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.
The provisions of this article are understood to be without
prejudice to the right granted to the other debtor by article 1252,
but only if the personal credit of the partner should be more
onerous to him.” (Article 1792, Civil Code)
7. Obligation to share with the other partners the share
of the partnership credit which he has received from
an insolvent firm debtor
Article 1793. 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.” (Article 1793, Civil Code)
OBLIGATIONS OF PARTNERS
(Maam’s PPT)
• Fiduciary Duty -Partners owe a fiduciary duty to the
partnership and to each other.
• Capital Contribution- Partners are required to make a
contribution of capital or assets
•

• Participation in Management- Partners are obligated to
participate in the management and operation of the
partnership’s business.
• Sharing of Profit and Losses- Partners are obligated to
share in the profits and losses of the partnership.
• Business Care and Diligence- Partners are obligated to
exercise care and diligence in the conduct of the
• Compliance with Laws
• Contribution in Case of Loss
PROPERTY RIGHTS OF PARTNERS
(MAAM’S PPT)
• Ownership of partnership assets
• Use of Partnership Property
• Transferring Ownership
• Profit and Losses
• Capital Contribution
• Liquidation and Dissolution
• Access to Partnership Records
• Ownership Interest Transfer
GENERAL PARTNERSHIP
• General partnership is one which has no limited partner
• In general partnership, business partners share unlimited
liability for the debts and obligation of the partnership
• A general partner may contribute services, cash, or
property to the partnership
• In a general partnership, business partners share
unlimited liability for the debts and obligation of the
partnership. This is contrary to a limited partnership.
• A general partner in a general partnership may contribute
cash, property, or service (industrial partner). However,
an industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to
do so.
What is the extent of the liability of a partner in a general
partnership?
• 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 his
responsibility if through the partner’s extraordinary efforts
in other activities of the partnership, unusual profits have
been realized.
• Also, all partners, excluding industrial partners, shall be
liable pro rata with all their property and after all the
partnership assets have 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 contract.
How should the losses and profits of the partnership be
distributed?
• The losses and profits shall be distributed in accordance
with the partnership agreement. If only the share of each
partner has been agreed upon, the share of each in the
losses shall be in the same proportion.
• In the absence of such stipulation, the share of each
partner in the profits and losses shall be in the proportion
to what he may have contributed, but the industrial
 partners shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as
may be just and equitable under the circumstances.
However, if, besides his services, said industrial partner
has contributed capital, he shall also receive a share in
the profits in proportion to his capital.
• Clearly, among the differences of general and limited
partnership is that in the former, business partners share
unlimited liability for the debts and obligations of the
company while in the latter, some partners will have an
unlimited liability, while others have liability equal only to
the amount of their capital contribution.
• May a person be forbidden from denying that he is a
partner? In other words, may a partner be allowed or
permitted to deny the existence of a partnership? A
related article will be posted in a few days.
LIMITED PARTNERSHIP
• A partnership which has one or more general partners
and one or more limited partners.
Requirements for formation
Two or more persons desiring to form a limited partnership must
comply with the following requirements:
1. They must subscribe and swear to a certificate,
which shall state:
a. The name of the partnership, adding thereto the word
“limited”.
b. The character of the business.
c. The location of the principal place of business.
d. The name and place of residence of each member, general
and limited partners being respectively designated.
e. The term for which the partnership is to exist.
f. The amount of cash and a description of and the agreed value
of the other property contributed by each limited partner.
g. Additional contributions, if any to be made by each limited
partner and the times at which or events on the happenings of
which they shall be made.
h. The time agreed upon, when the contributions of each limited
partner is to be returned.
i. The share of the profits or the compensation by way of income
which each limited partner shall receive by reason of his
contribution.
j. The right, if given, of a limited partner to substitute an
assignee or contributor to his place and the terms and
conditions of the substitution.
k. The right, if given, of the partners to admit additional limited
partner.
l. The right, if given, of one or more of the limited partners to
priority over the other limited partners, as to contributions or as
to compensation by way of income and the nature of such
priority.
m. The right, if given, of the remaining general partner or
partners to continue the business on the death, retirement, civil
interdiction, insanity or insolvency of a general partner.
n. The right, if given, of a limited partner to demand and receive
property other than cash in return for his contribution
 2. They must file for record the certificate with the
Securities and Exchange Commission
Obligations of a limited partner
1. Not to allow the inclusion of his surname in the
partnership.Exceptions:
a) It is also the surname of a general partner.
b) The business had been carried on under a name in which
his surname appeared prior to his admission as a limited
partner.
2. To be liable as a general partner if he takes part in the control
of the business.
3. To be liable to the partnership for the following:
a) For the difference between his actual contribution and
that stated in the certificate.
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.
4. To hold as trustee for the partnership in the following:
a) Specific property stated in the certificate as contributed
by him, but which was not contributed.
b) Specific property which has been wrongfully returned to
him.
c) Money or property wrongfully paid or conveyed to him on
account of his contribution.
6. To be liable to the partnership after he has rightfully
received the return of his capital contribution, for any sum
not in excess of such return with interest, which is
necessary to discharge its
liabilities to all creditors who extended credit or whose claims
arose before such return.
6. Not to receive or hold as collateral any partnership property
on account of his claims for loan granted to or other business
transaction with the partnership.
7. Not to receive from a general partner or the partnership on
account of such claims any payment, conveyance or release
from liability. If at the time the assets of the partnership are not
sufficient to discharge partnership liabilities to persons not
claimingas general or limited partners.
RIGHTS OF A LIMITED PARTNER
a) To have the partnership books kept at the principal place
of business of the partnership.
b) To inspect and copy the partnership books or any of them
at a reasonable hour.
c) To have on demand true and full information of all things
affecting the partnership.
d) To have on demand a formal account of partnership
affairs whenever circumstances render it just and
equitable.
e) To have dissolution and winding up by decree of court.
f) To receive a share in the profits or other compensation by
way of income stipulated in the certificates.
g) To receive the return of his contribution provided
partnership assets exceed the liabilities.
h) To loan money to the partnership.
i) To transact business with the partnership.
j) To receive, unless he is also a general partner, on
account of resulting claims against the partnership, with
general creditors, a pro rata share of the asset.
k) To agree with other limited partners that one or more of
them shall have priority over other limited partners as to:
 • Return of their contribution
• Compensation by way of income
• Any other matter
ASSIGNMENT OF LIMITED PARTNER’S INTEREST
Rule: A limited partner’s interest is assignable.
Effect of assignment- The assignee does not become a
substituted limited partner
1. The assignee is only entitled to receive the following to
which the assignor partner would otherwise be entitled:
• Share of the profits
• Other compensation by way of income
• Return of the contribution
2. He has no right to:
• Require the information or account of partnership
transactions.
• Inspect partnership books
SUBSTITUTED LIMITED PARTNER
-is a person admitted to all the rights of a limited partner who
has died or has assigned his interest in the partnership.
• Requisites in order that assignee may become a
substituted limited partner
a) All the members of the partnership must consent to the
assignee becoming a substituted limited partner, unless the
assignor is empowered by the certificate to give the assignee
such right.
b) The certificate must be amended to reflect the substitution.
c) The certificate must be registered with the SEC.
• Rights and liabilities of the substituted limited partner
-He has all the rights and powers, and is subject to all
restrictions and liabilities of the assignor, except those liabilities
of which he is ignorant at the time he became a limited partner
and which could not be ascertained from the certificate.
• Liabilities of the assignor
-The substitution of the assignee as a limited partner does not
release the assignor from the following liability:
1) To persons who rely on a false statement in the certificate
2) To creditors who extended credit or whose claims arose
before the assignment.
RETIREMENT, DEATH, CIVIL INTERDICTION, INSANITY, OR
INSOLVENCY OF A PARTNER
• Effect
a) Partner is a general partner – partnership is dissolved.
b) Partner is a limited partner – partnership is not dissolved
except if there is no more limited partner because in such a
case, the requirement that there must be at least one limited
partner in a limited partnership is no longer complied with.
• Continuation of business-The business may be
continued by the remaining general partners if:
1. The right to do so is stated in the certificate; or
2. All members consent.
ORDER OF PAYMENT OF LIABILITIES
-the liabilities of the partnership shall be entitled to payment in
the following order:
 1. Those to creditors, including limited partners, in the order
several limited partners for the purpose of contributing
of priority as provided by law10
funds to purchase the real estate, as long as there is at
2. Those to limited partners by way of their share of the
least one general partner. The benefit of being a limited
profits and other compensation by way of income on their
partner vs a general partner is that your liability is limited,
contributions.
while the downside is that a limited partner will not have
3. Those to limited partners in respect to the capital of their
the decision-making powers that a general partner has.
contributions.
4. Those to general partners other than for capital and • Similarly, limited partnerships are an extremely popular
choice for private equity firms, which purchase privately-
profits.
owned companies in the hopes of increasing their value.
5. Those to general partners in respect to profits.
Often, the private equity company’s name is not
6. Those to general partners in respect to capital.
particularly well-known compared to the companies it
invests in. For example, the Roark Capital Group is a
large private equity firm and limited partnership that has
STATE THE REQUIREMENTS FOR THE AMENDMENT OR
invested in companies such as Arby’s, Jamba Juice,
CANCELLATION OF A CERTIFICATE
Sonic, Maaco and Meineke.
a) The amendment or cancellation must be in writing; • There have been cases where a limited partner has
b) It must be signed and sworn to by all the members, unintentionally given up his limited liability status by being
including the new members, and the assigning limited involved in the organization’s management. This
partner in case of substitution or addition of a limited or determination can be made by a court if a lawsuit is filed
general partner; and alleging that the limited partner has participated in the
c) The certificate, as amended, must be filed for record in day-to-day activities.
the Securities and Exchange Commission. • It is important to note that the General Partner’s name
and address are listed on the Certificate of Limited
GENERAL PARTNERSHIP VS LIMITED PARTNERSHIP
Partnership that is filed with the state, making the
• Limited partnerships will have at least one general General Partner public information. The General Partner
partner to man the day-to-day operations of the business. is often an LLC, but there are times when we have seen
A general partner may invest money into the company. clients choose to list a person as the General Partner.
However, a general partner may also be personally liable
for the debts of the company, while the limited partner is
not. Only a general partner’s personal assets (in addition
to the business assets) can come into play when it comes
to paying off the company’s debts.
• A common purpose of a limited partnership -- vs a
general partnership -- is for real estate. There may be