PARTNERSHIP

& CORPORATION

2 N D SEMESTER 2020-2021
LEGAL DEFINITION
Article 1767 of the New Civil Code of the Philippines defines partnership as 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 form a partnership for the exercise of their professions like that of CPAs, doctors,
attorneys, engineers, etc. This is called General Professional Partnership and is income tax-exempt.

Commercial partnership/co-partnership is formed for the purpose of engaging in trade or business and
subjected to a 30% income tax.
CHARACTERISTICS OF A
PARTNERSHIP
1.MUTUAL AGENCY - every partner is an agent or manager of the business.

2. LIMITED LIFE - partnership life depends on the change of relations of the partner or its
composition. Retirement, admission or withdrawal of the partner,death, insolvency or incapacity of a
partner will dissolve the partnership but will not necessarily terminate the business.

3. UNLIMITED LIABILITY - If the partnership assets are not enough to pay the partnership
creditors, each partners must pay using their personal assets. However it is not prejudicial to their
separate creditors.
Example:

Partnership Assets = Partnership liabilities = Lacking= P200,000-

P100,000 P200,000 100,000= P100,000 (to be
paid equally by solvent
partners)
Partner A assets = 100,000 Partner A liabilities = Assets - Liabilities
50,000 100,000-50,000= 50,000
(solvent)
Partner B assets = 50,000 Partner B liabilities = 50,000-75,000= (25,000),
75,000 insolvent
Partner C assets = 150,000 Partner C liabilities = 150,000-75,000 = 75,000
75,000 (solvent)
Since A & C are the only solvent partners, they will contribute P50,000 each to
pay partnership creditors.
4. CO-OWNERSHIP - when the property of a partner is contributed or invested to the partnership, it will
now belongs to the partnership. Each partner of the partnership can use it even without permission from the
partner investing the property as long as its for business purpose.

5. PLURALITY OF CAPITAL AND DRAWING ACCOUNTS - the higher the no. of the partners in the
partnership, the more capital accounts and drawing accounts must be set up.

6. PROFIT AND LOSS DISTRIBUTION - every partner will be given share in their profit or loss of the
business.
PROS AND CONS OF A
PARTNERSHIP
ADVANTAGES DISADVANTAGES

1. Better management 1. Unlimited liability

2. Bigger pool of capital 2. Misunderstanding and disputes may arise among

partners

3. Exempted from paying of income tax 3. Limited source of capital compared to

corporations
4. Interest cannot be shared without consent from 4. Possible divisiveness in reaching a decision.
other partners

5. Limited life of existence

 KINDS OF PARTNERSHIP
1. According to its activities

a. Trading = for business purposes

b. Non-trading = for exercise of profession

2. According to the liability of the partners

a. General Partnership - every partner has unlimited liability.

b. Limited Partnership - at least one partner (general partner) not all will have unlimited liability. The rest is only
based on their capital.
 CLASSIFICATION OF
PARTNERS
1. As to contribution

a. Capitalist partner - money and/or property is invested.

b. Industrial partner - only services (physical or mental) are invested.

c. Capitalist-Industrial partner - money, property, and/or services are invested.

2. As to liability

a. General partner - unlimited liability

b. Limited partner - capital only.

CLASSIFICATION OF PARTNERS
3. Other classifications

a. Nominal partner - name only

b. Secret partner - Not known as a partner, but active in the partnership

c. Silent partner - May be known as a partner but is not active in the partnership

d. Dormant partner - Not known as a partner and is also not active in the partnership (both silent and
active partner)
 PARTNERSHIP CONTRACT
1. It can be verbal or written and only those who can enter into contract can form.

2. However, written is advised if:

a. The total capital contributed reached P3,000 or more in money or property.

b. If an immovable property is contributed regardless of the amount such as land, otherwise the contract
will be void.

The partnership contract shall govern the formation, operation, division of profits and losses and
dissolution of partnership
 ARTICES OF CO-PARTNERSHIP
Minimum contents:
1. Name of partnership, nature and place of business
2. Names of partners, including whether they are general or limited partners, their
corresponding addresses and contributions.
3. Effectively date and duration of the partnership
4. Accounting period to be adopted
5. Profit and loss sharing
6. Rights, powers and duties of the partners
7. Treatment of partners' additional investment and withdrawals
Sample Articles of Co-Partnership
Show the sample articles of Co-Partnership
TO BE CONTINUED