Law on

Partnership
• a contract wherein 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. (see Art.
1767, CC)

A General Professional Partnership, Art.1767is

where two or more persons form a partnership
for the exercise of a profession

Definition
Informal/Consensual juridical personality
Mutual Agency
Delectus Personae
Partners are burdened with Unlimited
Liability (except for limited partners in
limited partnership)

Attributes/
Characteristics
Consent – that is, there is a meeting of the
minds
 Subject Matter – creation of a common
fund
Consideration – contribution of money,
property, or industry with the intention of
dividing the profits among themselves

Elements
GENERAL RULE: Persons who are NOT
partners as between themselves, CANNOT be
partners as to third persons. (Art. 1769(1))

EXCEPTION:
Partnership by Estoppel under Article 1825

Rules to Determine
Existence of Partnership
 Co-ownership or co-possession does not of itself establish a
partnership
 The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which
the returns are derived;
 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,
UNLESS such were received in payment:
• As debt by installments or otherwise;
• As wages or rent;
• As annuity;
• As interest on loan;
• As consideration for sale of goodwill of business/other
property by installments

Other Rules
 See Art 1825 CC
 One who is not really a partner but is liable as a
partner for the protection of innocent 3rd persons. By
his words or conduct, he directly or indirectly
represents himself to anyone as a partner in an
existing partnership or in a non- existing partnership

 *If 3rd party relied on such statements, partner or

even partnership can be held liable

Partnership by estoppel
Joint venture, within the concept of Philippine law, is
organized or established only for some transient or
temporary business objective. It is often characterized as
being similar to a partnership in the sense that there exists
among the joint venturers, commonality of interest and
mutual right of control, not to mention the mode by which
profits or losses are shared. Joint ventures are usually
resorted to by corporations - domestic or foreign-based -
which are not allowed to form partnerships or become
partners in a partnership. Only individual, natural persons
are permitted to form partnerships.

Partnership vs JV
 Partnership Co-Ownership Corporation
Creation By agreement By law By law
Juridical Yes None Yes
Personality
Purpose Realization of none Dependent on the
profits AoI
Duration None 10 years (max) None
Transferability Partner may Co-owner may Stockholders can
of Interest not dispose of freely transfer his transfer without
his individual interest consent of other
interest unless stockholders
other partners (subject to right of
concur first refusal)

Partnership vs Co-ownership vs
Corporation
 Partnership Co-Ownership Corporation
Power to act In general, yes None, co-owner None,
with 3rd party pursuant to cannot management is
principle of represent the vested with the
mutual agency co- ownership BoD
Effect of death Dissolves the does not does not
partnership dissolve dissolve
Dissolution May be May be Can only be
dissolved at any dissolved dissolved with
time by the will anytime by the the consent of
of any or all of will of any or all the state
the partners  of the co-
owners
Number of Minimum of 2 Minimum of 2 one
persons to
create
As to OBJECT
As to DURATION
As to EXTENT OF PARTNERS’
LIABILITIES
As to LEGALITY OF EXISTENCE
As to PURPOSE

Kinds of Partnerships
General Rule: Any person capacitated to contract may enter into
a contract of partnership.
Exceptions:
Persons who are prohibited from giving each other any donation
or advantage cannot enter into a universal partnership. (Art. 1782)
Persons suffering from civil interdiction.
Persons who cannot give consent to a contract:
• Minors
• insane persons
• deaf-mutes who do not know how to
• write

Who can be Partners

USUAL BAR QUESTION(S): What about
Spouses? Corporations? Can they form a
Partnership?

Who can be Partners

Rights and obligations of
partnership and partners
Co-ownership – rights in a specific partnership property
Equity – right to profits [and share in the losses] of the
partnership
Management – right to manage partnership affair s
General Rule: Mutual Agency (Doctrine of Apparent Authority)
Limitation: only with respect to those in the ordinary course of business, that
is, those apparently done to carry out partnership (1818)
Exception: agreement

Property Rights
 Right to be reimbursed for expenses incurred for the
partnership
 Right to inspect
 Right to demand true and full information
 Right to demand accounting
 Right to dissolve partnership

Other Rights
Obligation to Contribute to the Common
Fund
Personal Obligation for Partnership Debts
– Doctrine of Unlimited Liability
Fiduciary Duties

Duties and Obligations

of Partners
DISSOLUTION, WINDING UP &
termination
1. Without violation of the agreement between the
partners
a. By termination of the definite term/ 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 undertaking is specified
c. By the express will of all the partners who have not assigned their
interest/ charged them for their separate debts, either before or after
the termination of any specified term or particular undertaking
d. By the bona fide expulsion of any partner from the business in
accordance with power conferred by the agreement

Dissolution
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 business to be
carried on/for the members to carry it on for the partnership
4. Loss of specific thing promised by partner before its delivery
5. Death of any partner6. Insolvency of a partner/partnership
7. Civil interdiction of any partner

Dissolution
8. Decree of court under art 1831
a. Partner declared insane in any judicial proceeding or shown to
be of unsound mind
b. Incapacity of partner to perform his part of the partnership
contract
c. Partner guilty of conduct prejudicial to business of partnership
d. Willful or persistent breach of partnership agreement or conduct
which makes it reasonably impracticable to carry on partnership
with him
e. Business can only be carried on at a loss
f. Other circumstances which render dissolution equitable

Dissolution
1. Termination of authority of partner to bind
partnership
2. Existing liability of partner not discharged
except by agreement
3. Settlement of accounts between partners
4. Continuation of business of dissolved
partnership

Effects of Dissolution