Partnership (Part1)

Coverage of Discussion:
•Concept
•Characteristics of a contract of partnership`
•Essential requisites of partnership
•Form of a partnership contract
•Who may become partners
•Rules to determine whether a partnership exists
Concept:
�A partnership is a contract of two or more persons
who 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. (Art. 1767)
◦ A contract (Art. 1768)
◦ A business organization.
● Has a juridical personality (separate and distinct from that of each
partners).
Characteristics of a contract of
partnership
� Consensual – perfected by mere consent
� Principal – does not depend upon any other contract for its
validity or existence
� Bilateral or multilateral – entered into by two or more
persons whose rights and obligations are reciprocal
� Nominate – it has a special name given by the law
� Preparatory – means by which other contracts will be
entered into as the partnership pursues its business
� Onerous – partners contribute money, property or industry
to a common fund.
Essential requisites of partnership
� There must be a valid contract
◦ (Doctrine of delectus personae/personarum) a person is free to
choose those whom he wants to be associated with in partnership.
� There must be a mutual contribution of money, property or
industry to a common fund
◦ Property (real, personal, tangible or intangible – goodwill or
incorporeal rights e.g credit rights)
◦ Industry (physical manual efforts or intellectual industry)
� Is must have a lawful object or purpose
� The partnership must be established for a common benefit
or interest of the partners which is to obtain profits and to
divide the profits among the partners)
Form of a partnership contract
�A partnership contract may be constituted in any form,
i.e., oral or written, except as follows:
◦ Where immovable property or real rights are contributed to
the partnership (regardless of the amount thereof)
A. The partnership contract must be in a public instrument; and
B. An inventory of the said property must be made, signed by the
parties and attached to the public instrument.
Effect if the above requirements are not complied with
C. The partnership contract is void.
D. The partnership will not have any juridical personality.
o Where the capital of the partnership is 3,000,000 or more, in
money or property
A. The partnership contract must be in a public instrument, and
B. Registered with the Securities and Exchange Commission (SEC)
Effect if the above requirements are not complied with
C. The partnership contract is valid. Accordingly, the partnership still
acquires juridical personality.
D. The liability of the partnership and the members thereof to third
persons are not affected.
o If the partnership is a limited partnership, a certificate
signed under oath by the partners and recorded with the
Securities and Exchange Commission is required.
o Effect if requirements are not complied with
o The partnership will be considered as a general partnership.
Who may become partners
�Any natural persons who is capacitated may become a
partner.
�Artificial persons like partnership and corporation may
likewise form a partnership with individuals or other
partnerships or corporations.
◦ Joint venture (which may be entered into between two
corporations) – is a form of partnership and shall be governed
by the laws on partnership.
Rules to determine whether a
partnership exists
�Persons who are not partners as to each other are not
partners as to third persons except when a person
represents himself or consents to another representing
him to anyone, as a partner in an existing partnership or
with one or more persons not actual partners.
�Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property.
� 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 a prima facie evidence that he is a partner in the
business.
◦ Exceptions: No such inference shall be drawn if such profits were
received in payment:
a. As a debt by installment or otherwise.
b. As wages of an employee or rent to a landlord.
c. As annuity to a widow or representative of a deceased partner.
d. As interest on loan, though the amount of payment vary with the
profits of the business.
e. As the consideration for the sale of goodwill of a business or other
property by installment or otherwise.