PARTNERSHIP

TOPIC OUTLINE:
1. Contract of Partnership, in general
2. Kinds of Partnership
3. Obligations of partners
a. To the partnership and to the partners
b. To the persons
4. Rights of a Partner
5. Dissolution and Winding up
6. Limited Partnership

CONTRACT OF PARTNERSHIP IN GENERAL

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.

CHARACTERISTICS:
1. Consensual - it is perfected by mere consent or the meeting of minds between parties
(Art. 1305);
2. Bilateral or Multilateral - it is entered into between two or more persons;
3. Nominate - it is designed by a specific name and there are specific rules applicable
only to it;
4. Principal - its existence does not depend on the existence of another contract;
5. Onerous - certain contributions have to be made to become a partner;
6. Preparatory - in the sense that after it has been entered into, other contracts essential
in the carrying out of its purposes can be entered into.

Principles applicable: There must be Affectio Societatis -the desire to formulate and
ACTIVE union with people among whom there exists mutual confidence and trust.

In connection thereto, the principle of Delectus Personae (Personal Choices), which pertains
to the right to choose who to associate with, is also applicable.

PURPOSE: can either be for the intention of dividing the profits among themselves, or in
order to exercise a profession. Nevertheless, it is required that a partnership must have a
LAWFUL object or purpose, otherwise it may be declared dissolved by judicial decree, and
the profits shall be confiscated in favor of the state. (Art. 1770)
 PARTNERSHIP VS. CORPORATION

PARTNERSHIP CORPORATION

Creation Voluntary agreement of parties Created by the state in the form of a

special character or by a general
enabling law (The Corporation Code)

Number of Two or more Not more than 15

organizers

Existence No time limit except agreement of Not more than 50 years (now with
parties perpetual existence under the Revised
Corporation Code)

Liability of May extend to private property Liable only up to their capital

owners distributions

Transferability of All partners need to consent to the Does not need the consent of the other
interest transfer of interest of another stockholders

Ability of owners Generally, partners acting on behalf Generally, stockholders cannot bind
to bind the firm of the partnership are agents corporations since its official acts are
thereof; through a board of directors

Remedies in case A partner can sure another partner A stockholder cannot sue a director
of who mismanages who mismanages, it must be in the
mismanagement name of the corporation, through
derivative suit

Nationality A partnership is a national of the Generally, under whose laws it was

country where it was created, and created as to whether domestic or
dependent on percentage of foreign, and as to nationality, on the
ownership ownership of the outstanding capital
stock

Legal Personality From the time the contract begins Generally from the issuance of COR

Right of None. Death, retirement, Yes. Such causes do not dissolve a

Succession insolvency, civil interdiction, or corporation
insanity of a partner dissolves the
partnership

SEPARATE JURIDICAL PERSONALITY: The partnership has a judicial personality

separate and distinct from that of each of the partners. The partnership can, in general:
1. Acquire and possess property in all kinds;
2. Incur obligations;
3. Bring civil or criminal actions;
4. Adjudged insolvent even if the individual members be each financially solvent.
RULES TO APPLY IN DETERMINING EXISTENCE OF PARTNERSHIP:
1. There is no partnership:
a. Between persons who are not partners as to each other are not partners as to third
persons; except a partnership by estoppel;
b. Co-ownership or co-possession of itself, whether such-co-owners or co-possessors do
or do not share any profits made by the use of the property;
c. The sharing of gross returns, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived;
2. Presumption: 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 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 of otherwise.

FORMAL REQUIREMENT:
General Rule: A partnership may be constituted in any form,

Except: A contract of partnership is void, whenever immovable property is contributed

thereto, if an inventory of said property is not made, signed by the parties, and attached to the
public instrument.

Capital is P3,000 or more - the contract of partnership must appear in a public instrument,
which must be recorded in the SEC. This does not in any way affect the validity of the
partnership as it is intended only to affect third persons.

KINDS OF PARTNERSHIPS
According to OBJECT:
1. Universal:

● ALL PROFITS VS. ALL PRESENT PROPERTY

ALL PROFITS ALL PRESENT PROPERTY

Only the USUFRUCT of the properties of the ALL the property actually belonging to the
partners become common property; partners are contributed both
NAKED OWNERSHIP is retained by each of the partnership and naked ownership.
partners.

ALL PROFITS acquired by industry or mere of As a rule, aside from the contributed
 the partners become common property (regardless properties, only the PROFITS OF THE
of whether or not said profits were obtained CONTRIBUTED PROPERTY.
contributed through the usufruct.
Profits from other sources may become
partnership property, but only if there is a
stipulation to such effect.

Properties subsequently acquired by

inheritance, legacy, or donation, cannot be
included in the stipulation, BUT the fruits
thereof can be included in the stipulation.

● In case of ambiguity: if the Articles of Universal Partnership does not specify the
nature of the Universal Partnership, it is deemed that what is constituted is only a
universal partnership of profits.

● Persons not allowed to form a universal partnership: those who cannot donate to
each other, namely:
a. Husband and Wife (Art. 133);
b. Those guilty of adultery and concubinage (Art. 739);
c. Those guilty of the same criminal offense, if the partnership was entered into
consideration of the same (Art. 739).

A universal partnership is virtually a donation to each other of the partner’s

properties (or at least their usufruct). Therefore, if persons are prohibited by law to donate to
each other, they should not be allowed to do indirectly what the law forbids directly.

2. Particular where the object are:

a. Determinate things, their use or fruits;
b. A specific undertaking;
c. The exercise of a profession or occupation.

QUESTION: May a husband and wife form or be partners in a general professional

partnership?

According to LIABILITY:
1. General where all the partners are general partners whose liability extends to their
individual properties, after the assets of the partnership have been exhausted;
2. Limited where at least one of the partners are liable only up to the extent of his
contribution.
According to TERM:
1. Partnership with a fixed term or particular undertaking - upon arrival of the fixed
term or fulfillment of a particular undertaking, partnership is dissolved, and if continued, it
will constitute a partnership at will and the rights and duties of the partners remain the same,
so far as is consistent with a partnership at will.

KINDS OF PARTNERS
ACCORDING TO CONTRIBUTION:
1. Capitalist Partners - contributes capital; and
2. Industrial Partners - furnishes industry or labor
3. Capitalist-Industrial Partners - furnishes both

AS TO LIABILITY:
1. General Partners - liable up to his personal assets
2. Limited Partners - liable up to his capital contributions only

OTHER KINDS OF PARTNERS:

1. Silent Partners - one who does not participate in the management of the partnership.
2. Secret Partner - one who is not known to third persons as a partner.
3. Dormant Partner - one who is both silent and a secret partner.
4. Ostensible Partner - direct opposite of a dormant partner or one who participates in the
management and is known to third parties as a partner.
5. Managing Partner - one who undertakes the management of the partnership.
6. Liquidating Partner - one who undertakes the winding-up of partnership affairs after its
dissolution.
7. Incoming Partner - one who is admitted to the partnership after it has already been
constituted.

OBLIGATIONS OF A PARTNER: TO THE PARTNERSHIP AND OTHER

PARTNERS

1. To give his contribution

a. Unless there is a stipulation to the contrary, the partners shall contribute equal shares
to the capital of the partnership.
b. As a rule, the contribution must be provided upon perfection of the contract, except if
the partners stipulate otherwise.
c. 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. Thus, no demand shall be necessary since the law specifically
provides for the liability in case of delay.
d. A partner is likewise liable similar to a vendor:
i. He is bound to deliver the fruits thereof from the time they should have been
delivered, without need of demand (Art. 1786).
 ii. A partner must exercise due diligence in preserving the thing promised to be
contributed; otherwise, he shall be liable for loss and deterioration.
iii. Warrant the thing delivered against eviction

Risk of Loss:
LOSS BORNE BY THE PARTNER:
a. Thing contributed is specific and determinate which is NOT fungible and only their use
and fruits may be for the common benefit; and
b. There is stipulation that he shall bear the loss of the thing brought and appraised in the
inventory.

LOSS BORNE BY THE PARTNERSHIP:

a. Things contributed are
i. fungible;
ii. cannot be kept without deteriorating; or
iii. they were contributed to be sold; and
b. Here was appraisal in the inventory and no stipulation that partner will bear the loss.

2. To give additional contribution in case of imminent losses: In case of an imminent

loss of the business of the partnership, any partner who refuses to contribute an
additional share to the capital to save the venture, shall be obliged to sell his interest to
the other partners. Except:
a. Industrial partners except if there is stipulation that he will likewise contribute
b. If there is stipulation to the contrary

3. Prohibition to engage in other businesses:

a. Industrial Partners - cannot engage in business for himself except when the
capitalist partners permit him to do so.

Effect of non-compliance: The capitalist partners may either

i. Exclude him from the firm;
ii. Avail themselves of the benefits which he may have obtained in violation of this
provision.

b. Capitalist Partners - the prohibition is limited to businesses in the same industry as

that of the partnership which may result in competition. Exceptions:
i. When it is expressly stipulated that the capitalist partner can engage himself;
ii. When the other partners allow him to do so, whether expressly or impliedly;
iii. During the period of liquidation and winding up, when the partnership is already
non-existent;
iv. When the general-capitalist partner becomes a limited partner in a competitive
enterprise.
 Effect of non-compliance:
i. He shall bring to the partnership all the profits illegally obtained;
ii. He is liable, personally, for all the losses;
iii. He may be ousted for loss of trust and confidence.

4. Credit to the firm the payment made by a debtor who owes both the partnership
and the managing partner (Art. 1792)

MANAGING PARTNER COLLECTING FROM A COMMON DEBTOR: To prevent

the managing partner from furthering this personal interest to the detriment of the firm, if
such managing partner collects a sum from a common debtor who owes money both to said
partner and to the partnership.
a. If the managing partner issued a receipt in the name of the partnership: the payment
shall be applied to the partnership credit;
b. If the managing partner issued a receipt in his name: the payment shall be applied
proportionate to the amounts of the two debts. EXCEPT: When the debt owed by the
debtor to the managing partner is more onerous, the debtor may choose to apply the
payment exclusively to such.
5. Other obligations of partners to the partnership and to other partners:
a. Not to convert partnership funds/ property for his own use (Art. 1788)
b. To account for and hold as trustee, unauthorized (or secret) personal profits (Art.
1807)
c. Pay for damages caused by his fault (Art. 1794)
d. Share with other partners the share of the partnership credit which he has received
from an insolvent firm debtor
e. Keep the partnership books in the principal office (except when otherwise agreed) and
allow other partners to have access, inspect and copy the same
f. Reimburse the partnership of damages is not compensable with profits and benefits
earned for the partnership;
g. To inform the other partners on all matters affecting the partnership or relative to
partnership affairs.
h. To observe the diligence of a good father of a family in all his dealings
i. To adhere to the partnership agreement and decisions of appointed managing
partner(s)

OBLIGATIONS OF PARTNERS: TO THIRD PARTIES

1. 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.

Strangers who include their name in the firm are liable as partners because of estoppel
but do not have the rights of partners - this is to protect customers from being misled.
 Under Art. 1846, if a limited partner included his name in the firm name, he shall be
liable as a general partner.

2. LIABILITY AFTER EXHAUSTION OF PARTNERSHIP ASSETS: All

partners, including industrial ones, shall pro rata with all their property and after all
the partnership assets have been exhausted, for the contra may be entered into in the
name and for the account of the partnership, under its signature and by a person a to
act for the partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.

Any stipulation to the contrary shall be void, except as to the partners.

3. AUTHORITY TO ACT FOR AND IN BEHALF OF THE PARTNERSHIP:

Every partner is an agent of the pa for the purpose of its business.

The authority of the partner to act in behalf of the partnership may be:
a. Express - those expressly granted to the partner, or
b. Implied- those which may be implied from the express authority, or
c. Apparent - when he apparently carries on the usual business of the partnership and
the person to when dealing has no knowledge of the fact that he has no such authority.

If the partner is not carrying on the usual business of the partnership, the act will not bind the
partnership unless it is authorized by the other partners.

Consent of ALL partners necessary to:

a. Assign the partnership property in trust for creditors or on the assignee's promise to pay the
debts of the part
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 partnership claim or
liability to arbitration;
f. Submit a g. Renounce a claim of the partnership.

Except when authorized by the other partners or unless they have abandoned the business.

Admission of Partners: an admission made by one partner within the scope of his authority
evidence against the partnership.

Notice to a Partner: operates as notice to the partnership, except in case of fraud committed
by such partner.
 4. EFFECTS OF CONVEYANCE OF REAL PROPERTY
Property is in Conveyance is in the Who conveyed Effect
the name of name of the property

Partnership Partnership Partnership Valid conveyance but

partnership may recover except
One or more One or more partners One or more (no night to recover)
partners partners a. When the transfer binds the
partnership
b. Transferee the had no
knowledge of lack or excess of
authority
Partnership Partner Partner Passes only equitable interest of
the partnership if within the
One or more Partner/Partnership Partner authority (not apparently nothing
partners/Third transfers)
persons (in
trust)
All partners All partners All partners Valid transfer

5. SOLIDARY LIABILITY FOR TORTS/QUASI-DELICT: Where by any

wrongful act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of co-partners ices or injury is caused to any
person not being a partner in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so acting or omitting to
act

6. SOLIDARY LIABILITY FOR MISAPPROPRIATION: The partnership is bound

to make good the loss, in two situations
a. Pertains to partner as receiver Where one partner acting within the scope of
his apparent authority receives money or property of a third person and
misapplies it
b. Pertains to partnership as receiver. Where the partnership in the course of its
business receives money or property of a third person and the money or
property so received is misapplied by any partner while it is in the custody of
the partnership

In both 5 and 6 above, all partners are solidarily liable with each other and the
partnership.

7. PARTNER BY ESTOPPEL
a. One who represents himself as a partner of an existing partnership with or
without consent of the partnership
 i. When the partnership consented a partnership by estoppel is created
between the original members and the deceiver. A partnership liability
results

ii. When the partnership dis NOT consent deceiver becomes a partner by
estoppel where he is liable as a partner but does not acquire the rights
thereof. No partnership liability exists. Only those who consented shall
be liable

b. One who represents himself as a partner of a NON-existent partnership

Liability of parties is pro rata, since there is no partnership liability

This applies whenever the third person is misled by the representation

8. LIABILITY OF NEW (or INCOMING) PARTNER

a. Debts incurred prior to admission, liable up to his contribution (Except if there
is stipulation)
b. Debts incurred after admission liable up to his personal assets

RIGHTS OF A PARTNER

1. Right to share in the profits

DISTRIBUTION OF PROFITS:

a. In accordance with the agreement as to the distribution of profits.

b. If there was no such agreement, in proportion to contribution and the industrial partner
shall receive such share as may be just and equitable.

DISTRIBUTION OF LOSSES:

a. In accordance with agreement as to distribution of losses.

b. If there was no agreement as to losses same proportion as to the agreement as to profits.
c. If no agreement as to losses and profits, in proportion to contribution but the industrial
partner shall not be liable for losses.

An industrial may be made liable for losses only if there was stipulation to that effect.

Void Stipulation: A stipulation which excludes one or more partners from any share in the
profits or losses is void, this s otherwise known as Pactum Leonina.

2. Property rights (Art. 1810)

PROPERTY RIGHTS OF A PARTNER:
a. His rights in specific partnership property a partner is a co-owner with his partners of
specific partnership property. The incidents of such co-ownership are:
 i. A partner, subject to any agreement between the partners, has an equal right with
his partners to possess specific partnership property for partnership purposes, but he
has no right to possess such property for any other purpose without the consent of
his partners.
ii. A partner’s right in specific partnership property is not assignable except in
connection with the assignment of rights of all the partners in the same property.
iii. A partner’s right in specific partnership property is not subject to legal support.

b. His interest in the partnership – A partner’s interest in the partnership is his share of
the profits and surplus

Effect of conveyance of a partners whole interest

i. Does not, in itself dissolve the partnership The partnership is deemed dissolved only if
there is stipulation to that effect
ii. The conveyee does not necessarily become a partner and such has no right to
1) Demand accounting and settlement,
2) Interfere in the management or administration of the partnership business, or
3) Demand information, accounting and inspection of the partnership books

Rights of the assignee/conveyee

i. To get profits the assignor-partner would have obtained.
ii. To avail of the usual remedies in case of fraud in the management.
iii. Receive assignor’s interest in the event of a dissolution.

Partner's interest may be subject to a charge or attachment by the court:

i. Only the interest, that is profits and surplus of the partner and not his share in the
specific properties of the partnership
ii. Priority is still given to creditors of the partnership
iii. Such interest may be redeemed prior to foreclosure with ii
1) The separate property of any one or more of the partners, or
2) partnership property with the consent of ALL the other partners

Note: for limited partners, their interest may only be redeemed with the separate property of
the general partners and not with the property of the partnership.

c. His right to participate in the management.

RULES ON MANAGEMENT
i. ONE MANAGING PARTNER
MANAGING PARTNER in the ARTICLES OF PARTNERSHIP: May
execute all acts of administration, in good faith, even with opposition from the
other partners.

The power to execute all acts of administration can only be revoked if (a) with just
or lawful cause, and (2) by a vote of the partners representing the controlling interest.
 MANAGING PARTNER AFTER PARTNERSHIP HAS BEEN
CONSTITUTED: The power as manager may be revoked by a vote of the
partners representing the controlling interest EVEN WITHOUT just or lawful
cause.

ii. MULTIPLE MANAGING PARTNERS:

1) With stipulation that no Managing Partner may act without the consent of the others
no one can perform an act of administration without the others' consent.
2) With Specification of Duties - each Managing Partner can perform an act of
administration within their respective duties
3) Without specification of their respective duties, or without a stipulation that one
of them shall not act without the consent of all the others.
a) Each managing partner may separately execute all acts of administration.
b) Should one of the managing partners oppose the act of another, the matter shall
be decided by a majority of the managing partners per head count.
c) Should there be a tie in the votes of the managing partners, the controlling
interest of ALL the partners shall prevail.

iii. NO MANAGING PARTNER; WITH STIPULATION THAT NO PARTNER

CANNOT ACT WITHOUT THE SUPPORT OF PARTNERS: the concurrence of
all shall be necessary for the validity of the acts, and the absence or disability of any
one of them cannot be alleged.

Except: if there is imminent danger of grave or irreparable injury to the

partnership.

iv. NO AGREEMENT AS TO MANAGEMENT OF PARTNERSHIP:

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 (on Multiple Managing Partners).

Except: 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.

Exception to the exception: 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.

OTHER RIGHTS OF A PARTNER:

1. To associate with another person in his share (Art. 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.
2. To inspect and copy partnership books (Art. 1805) - the partnership books shall be
kept in the principal place of business unless otherwise agreed.
3. To demand a formal account (Art. 1809) in the following cases:
a. A partner was wrongfully excluded from the partnership business or possession of
its property by his co-partners;
b. When there is a stipulation granting such right
c. As to information affecting partnership affairs, such as secret profits earned by other
partners
d. Whenever just and reasonable.

4. To ask for a dissolution of the firm at the proper time (Art. 1830-31) and the right
to return of capital and advancements - subject to the rules of distribution of
partnership assets during liquidation.
5. Right to compensation - exists only when there is an agreement or stipulation granting
such right or entitlement.
6. Right to reimbursement - the partnership is 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 expense was made.

DISSLUTION AND WINDING-UP

Dissolution of a partnership is the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on as distinguished from the winding up of the
business.

On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.

Winding up on the other hand, is the process of settling business affairs after dissolution.

Termination: is the point where all the partnership affairs have been wound up

CAUSES OF DISSOLUTION:

Extrajudicial causes: without intervention of the court.

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;

Note: that the partnership may be dissolved with or without contravention to the
agreement of the parties, but if it is dissolved in contravention to the agreement, the partner
who causes the dissolution will be liable for damages. In Ortega vs. CA, it was held by the
SC that "neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will
of a partner. Among partners, mutual agency arises and the doctrine of delectus personae
allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action
for damages (GR No. 109248 July 3, 1995).

3. By operation of law:
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

Judicial causes: where the dissolution of the partnership is decreed by the court:
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 willfully 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

Note that in all the above judicial causes, a trial will be necessary to prove the facts necessary
to dissolve the partnership.

EFFECTS OF DISSOLUTION:
1. The mutual agency is terminated. As a rule, the partners can no longer act to bind the
partnership, subject to the following rules:
a. If the cause of the dissolution is Acts, Insolvency or Death (AID) - NOTICE should
be given by the partners to terminate the mutual agency
b. If the cause is NOT AID-the mutual agency is terminated and the dissolution is
binding even without notice
2. The following acts are still binding even after dissolution:
a. Acts to for winding-up of the affairs of the partnership
b. Contracts with creditors who had no notice of the dissolution

3. The partners may continue the partnership after dissolution of the old partnership Such
continuation still dissolves the old partnership and a new partnership is created. The
creditors of the old partnership are also creditors of the person or partnership continuing
the business.

WINDING UP OR LIQUIDATION

This is the process of liquidating the partnership assets and the distributing the proceeds to
satisfy the claims against the partnership.

Liquidator: the liquidator shall be:

1. A party who has not wrongfully caused the dissolution;
2. The legal representative of the last surviving partner (if all are dead), if not insolvent;
3. The court, upon cause shown by a partner his legal representative or assignee.

Distribution of Assets: will be done in the following order:

1. Those owing to creditors other than partners;
2. Those owing to partners other than for capital and profits;
3. Those owing to partners in respect of capital;
4. Those owing to partners in respect of profits.

Note: that in the distribution of a Limited Partnership's assets priority is given to the share of
partners as to the profits over their share as to capital.

Partner's Liability: in case the assets of the partnership are not sufficient to cover the
liabilities the remaining claims may be satisfied against the separate assets of the partners.
However, where a partner has become insolvent, the claims against his separate property
shall be satisfied in the following order:
1. Those owing to separate creditors;
2. Those owing to partnership creditors;
3. Those owing to partners by way of contribution.

LIMITED PARTNERSHIP

Limited Partnership: is one formed by two or more persons having as members one or more
general partners and one or more limited partners.

Limited liability: a limited partners liability is limited only to his capital contribution Such
that, after exhaustion of partnership assets he cannot be made to contribute to answer the
remaining liabilities to third parties.

FORMATION: Two or more persons desiring to form a limited partnership shall:

Sign and swear to a certificate, which shall state -

a. The name of the partnership, adding thereto the word "Limited", - absence of the
word Limited or "LTD" in the firm name, the partnership will be treated as a general
partnership.
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. The additional contributions, if any to be made by each limited partner and the times
at which or events on the happening of which they shall be made;

(f) and (g) are important because as to any difference (in amount stated in the
certificate and actual contributions, or failure to provide additional contributions), the
limited partner will be liable as a debtor to the partnership.
h. The time, if agreed upon, when the contribution of each limited partner is to be
returned;

Note, however, that the limited partner may nevertheless demand the return of
his contribution:
i. After he has six months notice in writing to all other members, if no time is
specified in the certificate, either for the return of the contribution or for the
dissolution of the partnership; or
ii. On the dissolution of a partnership;
 The above, however, is still subject to availability of funds after partnership
debts are paid.
i. The share of the profits or the other 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 as contributor in his
place, and the terms and conditions of the substitution;

However, the assignee does not necessarily become a substitute limited partner.
i. Substitute Limited Partner: A Substituted Limited Partner is a person admitted to
all the rights of a limited partner who has died or has assigned his interest in a
partnership: Provided:
1) All the partners consent;
2) The assignor (Limited Partner), being thereunto empowered by the certificate,
gives the assignee that right.

ii. The substitute has all the rights and powers and is subject to all the restrictions
and liabilities of his assignor except those liabilities of which he was ignorant at
the time he became a limited partner and which could not be ascertained from the
certificate
1) The substitution does not release the original limited partner from liability
to the partnership.
2) If the assignee does not become an substitute, he has no right to require any
information or account of the partnership books, he is only entitled to
receive the share of the profits or other compensation by way of income or
the return of his contribution to which his assignor would otherwise be
entitled: The assignee is still an OUTSIDER to the Partnership.

Limited Partners’ Interest: or his share in the profits and surplus may likewise be the subject
of assignment or attachment/execution. However, unlike the interest of a general partner, a
limited partners interest may only be redeemed with the general partners property and not
with partnership property. (see Rights of a Partner)
a. The right, if given, of the partners to admit additional limited partners;
b. The right if given, of one or more of the limited partners to priority over other limited
partners, as to contributions or as to compensation by way of income, and the nature of
such priority;
c. 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;
and
d. The right, if given, of a limited partner to demand and receive property other than cash in
return for his contribution.

The said certificate will be filed with the SEC and a limited partnership is formed if there has
been substantial compliance in good faith with the foregoing requirements. If such certificate
is not filed, the partnership may be liable in the same manner as a general partnership.
LIMITATIONS ON A LIMITED PARTNER:
1. A limited partner cannot be an industrial partner. His contribution must always be money
or property;
2. The surname of a limited partner shall not appear in the partnership name unless:
a. It is also the surname of a general partner, or
b. Prior to the time when the limited partner became such, the business has been carried
on under a name in which his surname appeared.
3. The limited partner cannot take part in the management of the partnership.

If a limited partner contributed industry, or his name appears in the partnership name (except
for the above exceptions) and/or took part in the management of the partnership, he shall be
liable as if he is a general partner.

RIGHTS OF A LIMITED PARTNER:

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. Receive a share of the profits or other compensation by way of income, and to the return
of his contribution. However, a limited partner shall not receive any part of his
contribution until:
a. All liabilities of the partnership except liabilities to general partners and to limited
partners on account of their contributions, have been paid or there remains property of
the partnership sufficient to pay them;
b. The consent of all members is had, unless the return of the contribution may be
rightfully demanded as provided in number 5; and
c. The certificate is canceled or so amended as to set forth the withdrawal or reduction.
5. Rightfully demand for his contribution:
a. On the dissolution of a partnership; or
b. When the date specified in the certificate for its return has arrived; or
c. After he has six months notice in writing to all other members, if no time is specified
in the certificate, either for the return of the contribution or for the dissolution of the
partnership.
6. Have his written consent or ratification be sought by the general partners in order to:
a. Do any act in contravention of the certificate;
b. Do any act which would make it impossible to carry on the ordinary business of the
partnership;
c. Confess a judgment against the partnership;
d. Possess partnership property, or assign their rights in specific partnership property,
for other than a partnership purpose;
e. Admit a person as a general partner;
 f. Admit a person as a limited partner unless the right so to do is given in the
certificate;
g. 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.
7. A limited partner may loan money and to transact other business with the partnership,
subject to the following restrictions:
a. He cannot receive or hold as collateral security any partnership property;
b. He cannot receive 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 claiming as general or limited partners.

Any violation of the above restrictions would be in fraud of creditors and may thus be treated
as a rescissible contract.

GENERAL-LIMITED PARTNER: A person may be a general partner and a limited

partner in the same partnership, provided that this fact is stated in the certificate.

He shall have the nights and powers and be subject to all the restrictions of a general partner.
Except that, in respect of his contribution, he shall have the rights against the other partners
which he would have had if he were not also a general partner.

DISSOLUTION AND WINDING-UP

Grounds: The retirement, death insolvency insanity or civil interdiction of a GENERAL

PARTNER dissolves the partnership. Except: If the partnership business is continued by the
remaining general partners under a right to do so as stated in the Certificate of Limited
Partnership OR with the consent of all the partners.

A limited partner may have the partnership dissolved and its affairs wound up when he
rightfully but unsuccessfully demands the return of his contribution.

Distribution of Assets of a Limited Partnership: will be done in the following order:

1. Those owing to creditors other than partners;
2. Those owing to the limited partners, other than capital and profits;
3. Those owing to the limited partners in respect of profits;
4. Those owing to the limited partners in respect of capital;
5. Those owing to general partners other than for capital and profits;
6. Those owing to general partners in respect of profits;
7. Those owing to general partners in respect of capital.

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