170. 171. 172. 173. 174, Requisites in the formation of a limited partnersliip. a. The certificate must be signed and sworn to by all the partners. ; : b. The certificate must be registered in the office of the Securities and exchange Commission. Non-fuifillment of the requisites If the proposed ‘limited partnership has not complied’ substantially with the requirements of the law the same will not be considered as a limited partnership, but a general partnership, in which all the members are liable to the extent of their separate property. Effect of omitting the word “Limited” or “Ltd.” in the firm name. The law requires that the word “Limited” shall appear in the firm’s name. If this is violated, it cannot be considered as a firm name, and the partnership will be treated as.a general partnership. i Effect if only the aggregate contribution is stated. The law says that the contribution of each limited partner must be stated. Hence, if the aggregate sum given by two or more limited partners is given, the law has not been complied with. (Spencer Optical Mfg, Co. vs. Johnson, 53 S. C. 533) Contribution of limited partner A limited partner is not allowed to contribute industry or services; it must be cash or property.175. 176. 177. Status of a partner contributing industry in a limited partnership A partner contributing industry .in a limited partnership is considered a general industrial partner because a limited partner cannot contribute industry. Liability of limited partner whose surname appears in the partnership name. A limited partner whose name is included in the firm name of the partnership is liable as a general partner except: a. When the surname of the limited partner is the same as the surname of a general partner. b. When before the limited partner became -as such, the business had been carried on under a name in which his surname appeared. c. When the third person extended credit to the partnership with the knowledge that he is limited partner. Limited partner without right of management A limited partner is excluded from any voice in the control of the affairs of the firm. If he takes part in the control and management of the partnership he is liable as a general partner. His non-participation, in fact and in name, in the transaction of the business of the firm, is essential to his exemption from liability for the debts of the fitm, (47. C. J. 1303)a. The following act does not constitute taking “part in the control of the business”. ° 1. Mere dealing with a customer 2. Mere consultation on one occasion with the general partners b. Acts constituting taking “part in the control of the business”. ‘1, Selection of who will be the managing partner. 2. Supervision over a superintendent of the business of the firm. i (78, Limited partner cannot perform acts of administration Limited partners may not perform acts of administration with respect to the interests of the partnership, not even in the capacity of agents of the managing partners. (Antonio Goquioloy vs. Washington Sycip, et. al No. L-11840) Examples: 1. When the general partners abandon the business, and the limited-partner was.compelled to sell the assets and distributed them among the creditors of the firm does not imply taking part in the control and management of the firm. 2. Assisting in the winding up of the affairs. of the firm after dissolution will not make him a general partner because this is not considered as taking part in the control and management.179. Rights and liabilitics of general partners. 180. A general partner shall have all the rights and powers and is subject to all the restrictions and liabilities of a partner ina : general partnership. However, without the written consent or ratification by all the limited partners, the general partners have no authority to execute any of the seven (7) acts under Article 1850. The reason why they cannot perform the seven (7) acts without the aforementioned consent or ratification is because they are acts of strict dominion and not merely routinary in the ordinary conduct of the business of the partnership. Rights of a limited partner The following are the tights of a limited Partner: a. Torequire that the partnership books be kept at the principal place of business of the partnership, and to inspect and to copy any of them at any reasonable hour ona business day. b.. To demand true.and full information of all thi i the partnership. things affecting ¢. To demand formal accou i nting of ¢ ‘ partnership whenever it is j . he affairs of the just and reasonable. To ask for dissolution and winding up by court decree €. To receive a share Of the profits ol b r i ; : other Compensation by181. Contributor who erroneously believes he has become a limited partner, Example: A, B, C, D, and E agreed to form a:limited partnership, with the first two as general partners and the latter as limited . partners, but as recorded in the Securities and Exchange Commission and in the certificate, A and B were really named general partners, but C and D were included as limited (special) partners; E, who had contributed money, was LEFT OUT. If E erroneously believes that he has become a limited partner (erroneously, for clearly, he is not) and thereupon exercises the tights ofa limited partner, he should not generally be considered as liable.as'a general partner (general because the public cannot ~ be blamed for not considering him a limited partner). ‘When he becomes liable as a general partner. In the example given however, he can still be liable as a general partner. a. Unless on ascertaining the mistake, he promptly renounces his interest in the profits of the business, or other compensation by way of income; or b. Unless, even if no such renouncement was madé, partnership creditors are NOT prejudiced.182, 183. Rights and liabilities of general-limited partner. A general-limited partner have all the rights and power and is subject to all the liabilities of a general partner. Therefore, he has the right to participate in the management of the business of the partnership, his separate properties are liable for the payment of partnership debts. With respect to his contribution; like the right to have it returned on the proper occasion, he is considered as.a limited partner. Also, a general-limited partner if compelled to pay the creditors of the partnership, his pro- tata share.remains to be the rule, but later on he can ask reimbursements from his co-partrer. Limited partner’s right to deal with the partnership. A limited partner may: Loan money to the partnership. Transact business with the partnership. c. Receive a pro-rata share of the Partnership: assets with general creditors, unless he is a general-limited partner. SP Example: A, B, and C are partners in Y Partnership limited with A and B as general partners and C as limited partner, each contributing P10,000. Tae partnership : incurred an obligation to X, a stranger, for P12,000, and to C the limi for P6,000. » the limited partner fo Upon dissolution, the partnershi s iP estate unts to P203,000, a parcel of land valued P200,000 and Pay 000 cash.184. 1. QUESTION: If X‘and.C will proceed against the partnership, with respect to the P3,000 cash, who will be paid first? Answer: Both, in proportion to their right because the partnership is solvent and C is a limited partner. 2. QUESTION: Supposing the partnership is insolvent, that is, no parcel of land but only the cash of P3,000. Who will be paid first? Answer: X, because the partnership is insolvent. Paying C or pro-rata between X and C will be considered fraudulent because the assets of the partnership are not sufficient to discharge partnership liabilities. 3. QUESTION: Supposing C is a general partner and it is a general partnership, the partnership is solvent, who will be paid first? Answer: X, because he is an outside creditor. Apply only the rule on pro-rata if the following requisites are present: a) Partnership is solvent. b) One of the creditors is a limited ‘parler Prohibition against limited partners 1. To receive or hold as collateral security any partnership property, such as pledge, mortgage or antichresis of partnership property. 2. Toreceive payment, conveyance or release from liability if the partnership assets are not sufficient to discharge its liabilities to third person.185. 186. 187. Preferred limited partners The partners in a limited partnership may agree that one or more limited partners may be given priority over other limited partners. However, this agreement must be stated in the certificate, and in the absence of such a statement all the limited partners shal] stand upon equal footing. Nature of preference This preference may involve: a, The retum of the contribution b. Compensation c. Other matters When limited partner may rightfully demand return of contribution. A limited partner may demand as matter of right the retum of the capital contribution: a. On dissolution of the Partnership b. Upon arrival of the date specified return, c. If no time js fixed, after six given to all other partaers, in the certificate of its months notice in writing is ’ Be itnoted that irrespective of, the nature ot his contribution. a limited partner has only the Tight to demand and receive i! cash retum of his contribution, except if stated inth ificate or consented by all partners, in the certific:188. Liability of a limited partner who has withdrawn. ~ Ifa limited party withdraws rightfully his contribution, all conditions for withdrawal being fulfilled, he is still answerable to previous creditors if later on the firm becomes insolvent. His contribution if returned to him shall be treated as trust fund for the discharge of partnership liabilities including interest earned. 189. Limited partner’s liability for contribution: A limited partner is liable to the partnership: For the difference between the amount of his actual _contributiori and what he should have contributed as stated in the certificate. b.. Forany additional contribution which he agrees to make at a future time. ao Example: A and Bare limited partners. In the certificate it was stated that: : A to contribute P50,000, but actually contributed only P30,000. B tocontribute P 100,000 five days after the partnership formation. In this case the obligation of A is to give to the partnership the difference of P20,000, and B to contribute the P100,000 five days after the formation.190. Limited partner’s liability as a trustee. ' 191. 192. 193. A limited partner holds as trustee for the partnership. a. - Specific property stated in the certificate as contributed by him but which was not actually contributed. Specific property which has been wrongfully returned to him. . Money or other property wrongfully paid or conveyed to him on account of his contribution Assigninent of limited partner’s interest The interest of a limited partner in a limited partnership is assignable. But the assignee does not become a substituted limited partner unless certain specified conditions are met. Rights of assignee The assignee, who is not admitted as a'substituted limited partner is only entitled to receive the share of the profits or other compensation by way. of income or the return of the contribution in which the assignor would otherwise be entitled. Be it noted that he has no right to require any information of accounting of partnership affairs or to inspect the book of the partnership. pees Requisites of substitution a. The substitution must be with the consent ofall the partners: b. The certificate of amendment must be signed and sworn t0 by all partners including the substituted limited partner. c, The amended certificate must be filed with the SEC.194. 195. 196. 197. Substitute limited partner _ A substitute limited partner is a person admitted to all the tights of a limited partner who has died or has assigned his interest in a pattnership. Righis and liabilities of a substituted limited partner A substituted limited partner has all the rights and powers, and is subject to all the liabilities of his assignor, except those liabilities which were unknown to him at the time of substitution 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 liability: a. To person suffering losses by relying ¢ on a false statement in the certificate. b. To creditors who extended credit or whose claim arose before the substitution. Some of thé causes of dissolution of a limited partnership: Retirement of a general partner Death of a general partner Insolvency of a general partner Insanity of a general partner Civil interdiction of a general partner saegp“ 198, 199, 200. 201. 202. Instances when dissolved partnership may be continueg a. Ifthe right to do so is stated in the certificate b. Ifall the partner’s consent Effect of insanity of a general partner- a. If partnership is a general partnership the insanity ofa partner is a ground for judicial dissolution, but the firm is not automatically dissolved. : If partnership is limited the insanity of a’ general partner will automatically dissolve the partnership. Death or retirement of limited partner Upon the death of a limited partner, his executor or administrator shall be admitted as a limited partner for the purpose of settling the estate of the deceased partner. Attachment and execution, including rédemption of limited partner’s interest. The limited partner’s interest in the partnership may, by order of the court, be attached 1 and executed by his separate creditors. The interest charged may be redeemed by the separate property of any general Partner, but not with partnership property. Order of preference, liquidation of a limited partnership: 1. Outside creditors and limit ship is insolvent 4 partners unless pa 2. Limited partner’s share in the profitLimited partner’s return of capital contribution General partners aside from profits.and capital General partner’s profit General partner’s return of capital contribution DP 203. Illustrative Cases: Liquidation of a limited partnership a. A, Band C formed Y Partnership contributing P60,000. A and B are general partners, while C is a limited partner. The gross capital upon dissolution is P300,000, and the liabilities are as follows: xX - P60,000 C — P20,000 (limited partner) W —- P30,000 A — P10,000 (general partner) - Liquidate the partnership observing the order of preference, step by'step. Liquidation of limited partnership: P300,000 (Gross) No.1 — Pay outside creditors X — P60,000 W — P30,000 C — P20,000 -110,000 P190,000 No.2 — Profit of limited partner C - P40,000 40,000 P150,000No.3 - Capital of limited partner Cc — 20,000 -20,000 P130,000 No.4 — General partners aside . Srom profit and capital A — P10,000 -10,000 ' 120,000 No.5 — Profit of general partners A — P40,000 B —- P40,000 -80,000 : P40,000 No.6 — Capital of general partners A — P20,000 B — 20,000 -40,000 Note: C is included in No. 1 enumeration because if the partnership is solvent, a limited partner enjoys the same preference as an outside creditor. . A, Band C formed A and B Partnership Ltd. A and B are general partners who contributed P45,000 each; and C, the limited partner contributed P60,000. The Partners sliare profits and losses equally. The tot: 3 f e al assets consisting of cash upon dissolution is P430,000 and the liabilities are the following: A (general partner) P. 20,000 C (limited partner) P 50,000 D (outside creditor) P100,000 E (outside creditor) P 50,000REQUIRED: Liquidate the A and B Partnership Ltd. Show the step-by-step distribution of the P430,000 cash. A — Liquidation of Limited Partnership P430,000 (gross) No. 1 — Pay outside:creditor D - P100,000 E - P 50,000 -C - P_50,000 ‘-200;000 P230,000 No: 2 — Profit of Limited Partner* C —. P20,000 -20,000 P210,000 No. 3 — Capital of Limited Partner C = P60,000 ~ __-60,000 P150,000 No. 4 — General Partner aside from profit and capital A — P20,000 -20,000 P130,000 No. 5 — ‘Profit of general partner* A ~. P20,000 B — 20,000 40,000 P90,000 No. 6 = Capital of general partners A — P45,000 B — P45,000 -90,000 *Computation of Profit: Total assets P430,000 Less liabilities 220,000 Balance 210,000 — Less partners capital 150,000 Profit, to be divided equally at 20,000 each P60,000204, 205. 206. 207. ‘the partnership. ‘When certificate is cancelled a.” When the partnership is dissolved ey b. When all limited partners cease to be limited partners, Requisites for amendment of certificate a. It must be in writing. b. It must be signed and swom to by all members. c. It must be filed with the SEC. Requisites for cancellation a. It must be in writing. : b. It must be signed by all members, c. “It must be filed with the SEC, Limited partner is not a Party to an action by or against Allaction by or against the Partnership must be prosecuted and defended in the name of the Partnership. Limited partner’s a part actions except where its object is to enforce a limited partner's tight or liability to the partnership. .