Law On Partnership

Topic #03
Law on Partnership
(Article 1767- 1867, Civil code of the Philippines)
LAW ON PARTNERSHIP 2
CONSENT TRUST CONFIDENCE SHARING PERSONAL CHOICE
PARTNERSHIP KEY TERMS

PARTNERSHIP DEFINITION
By the contract of partnership two or more persons bind themselves together

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,CCP)
Topic Outline
01 Nature and as distinguished from Corporation
02 Formalities required
03 Kinds of Partnerships / kinds of partners
04 Obligations of Partners
05 Rights of a Partner
Topic Outline
06 Rules of Management
07 Dissolution and Winding up
08 Limited Partnership
01 Nature and as Distinguished
from Corporation
Partnership 7
There must be a valid contract
should have a lawful objects or

purpose
There must be a contribution
Essential
Requisites The partnership should have a
There must be a contribution of lawful objects or purpose and
money, property, or industry to a must be established for the
common fund. common benefit or interest of
the partners
must be organized for profits
The partnership must be organized

for profits
Characteristics of a Partnership 8
Consensual Bilateral, or multilateral

because it is perfected by because it is entered into
mere consent. between two or more
persons.
C N B P
Nominate Principal
because it has a specific because its existences does
name. not depend on another
contract.
Characteristics of a Partnership 9
Onerous Commutative
because money, property or because the undertaking of
industry are contributed by each is considered as
the parties. equivalent of that of the
others
O P C F
Preparatory Fiduciary
because it is entered into a because it is based on trust
carry out a business or and confidence.
specific venture.
Partnership 10
Affectio Societatis Delectus Personae
There must be Affectio Societatis – the In connection thereto, the principle of

desire to formulate an active union Delectus Personae, (Personal
with people among whom there exist Choices) which pertains to the right to
mutual confidence and trust. choose who to associate with is also
applicable. 。
Purpose 11
For the intention of Dividing the

profits among themselves
01
In order to exercise of Profession

02
Partnership VS Corporation 12
As to Creation
Voluntary agreement of parties (mere consent)
Number of Organizers
Partnership
Two or More
Liability of Owners
May extend to private property (Unlimited)

As to Creation
Created by the state in the Form of Special Character or by
a general enabling law (Corporation Code)
Number of Organizers
C o r p o r a ti o n
Not more than 50 years (Now with perpetual existence
under the Revised Corporation Code)
Liability of Owners
Liable only up to their capital Contribution

Transfer of Interest
All partners need to consent to the Transfer of interest to

another
Ability of owners to bind the firm

Partnership
Generally, Partners acting on behalf of the partnership are the
agents thereof;
Remedies in case of mismanagement
A partner can sue another partner who mismanage

Transfer of Interest
Does not need the consent of the other stockholders
Ability of owners to bind the firm

Generally, Stockholders cannot bind corporation since its
official acts are through Board of directors
Remedies in case of mismanagement

A stockholder cannot sue a director who mismanage, it must
be in the name of the corporation, through a derivative suit.
Nationality
A partnership is a national of the country where it was

created, and dependent on percentage of ownership
Legal Personality
Partnership
From the time the contract Begins. (mere consent)
Rights of Succession
None. Death, retirement, insolvency. Civil interdiction or insanity

of a partner dissolves the partnership
Nationality
Generally, under whose laws it was created as to whether domestic or
foreign, and as to nationality, on the ownership of the outstanding capital
stock
Legal Personality
Generally, from the issuance of COR
Rights of Succession
Yes. Such causes do not dissolve a corporation (strong juridical
personality)
RULES TO DETERMINE EXISTENCE OF PARTNERSHIP 18
• When the intent of the parties is clear, it shall govern. When it does not clearly
appear, the following rules apply as provided by Art. 1769:
(1) Persons who are not partners to each other are not partners as to third
persons. Exception: Partner by estoppel. (Art. 1825)
Q2 点击输入您的问题标题文本内容 ?
(2) Co- ownership or co-possession does not itself establish a partnership, even
when there is sharing o profits in the use of the property.
(3) 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.
• 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.
EXCEPT:
no such inference shall be As a debt by installment or otherwise
drawn if such profits were
received in payment:
As a wage of an employee or rent to a landlord
Except As an annuity to a widow or representative of a deceased partner
As interest on loan, through the amount of payment vary with

the profits of the business
As the consideration for the sale of a good will

In general, to show the existence of a partnership, all of its essential requisites must
be proved; in a particular, must be proved that there was:
A) An intention to create a partnership
B) A common fun obtained from contributions
C) A joint interest in the profits.

02 Formal Requirements
FORMAL REQUIREMENTS 22
As a General Rule, a partnership may be construed in any form
Exception: where immovable property or real rights are contributed thereto, the
.
following shall be necessary:
• Public Instrument with an inventory of said Property signed by the parties and
attached to the public instrument (Art. 1771,Art 1773)
• Every contract of partnership having a capital of three thousand pesos 3000, or
more, money or property, shall appear in a public instrument, which must be
recorded in the office of Securities and Exchange Commission.
Failure to comply with the requirements of the proceeding paragraph shall not affect
the liability of the partnership and the members thereof to third persons.
03 Kinds of Partnerships &
Kinds of Partners
KINDS OF PARTNERSHIPS 24
As to object
Universal Partnership
Particular Partnership
UNIVERSAL PROPERTY 25
ALL PROFITS ALL PRESENT PROPERTY
Only the USUFRUCT of the properties ALL the property actually belonging
of the partners become common to the partners are contributed
property; NAKED OWNERSHIP is bother ownership and naked
retained by each of the partners ownership.
Universal
Partnership
ALL profits acquired by industry or As a rule, aside from the
work of the partners become a contributed properties, only the
common property (regardless of PROFITS OF THE CONTRIBUTED
whether or not said profits were PROPERTY
obtained through the usufruct
contributed)
UNIVERSAL PROPERTY 26
ALL PRESENT PROPERTY
Profits from other sources may become partnership property, but only if there is stipulation to such effect.
Properties subsequently acquired by inheritance, legacy or donation (gratitiously acquired properties) cannot
be included in the stipulation BUT the fruits thereof can be included in the stipulation.
In case of ambiguity: If the Articles of the 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.
27
Those who cannot donate to each other, namely
Husband and Wife (Art. 133 Family Code)
Person not
allowed to form
a universal
partnership: Those guilty of adultery and concubinage (Art. 739)
Those guilty of the same criminal offense, if the partnership

was entered into in consideration of the same (Art. 739)
PARTICULAR PARTNERSHIP 28
Those who cannot donate to each other, namely
Determinate things, their use or fruits
Particular
Partnership A specific undertaking or
The exercise of a profession or occupation

29
Q1 : May a husband and wife form or be a partners in general

professional partnership?
ANSWER: Yes. Since a general professional partnership is

only a particular partnership for the exercise of a common
profession or occupation. Universal partnership is only
prohibited
KINDS OF PARTNERSHIP 30
As to liability
General Partnership Limited Partnership
where all the partners are general where at least one of the partners
partners whose liability extend to are liable only up to the extent of
their individual properties, after his contribution
the assets of the partnership have
been exhausted
KINDS OF PARTNERSHIP 31
As to term
Partnership with a fixed term or

particular undertaking Partnership at will
upon arrival of the fixed term or when there is no fixed term or

fulfilment of a particular particular undertaking
undertaking, the 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
is consistent with a partnership at
will.
KINDS OF PARTNER 32
Capitalist partners
Industrial partners
As to Contribution
Capitalist-Industrial
General
As to Liability Limited
KINDS OF
PARTNER
Silent Partner
Secret Partner
Dormant Partner
Other Kinds of Partners Ostensible Partner
Managing partner
Liquidating partner
Silent Partner
KINDS OF PARTNER 33
Capitalist Partner
Contributes capital, money or property
Industrial partners
As to
C o n t r i b u ti o n
Furnishes industry or labor
Capitalist-Industrial Partners
Furnishes both
KINDS OF PARTNERS 34
General partners
Liable up to his personal assets
As to
Liability
Limited Partners
Liable up to his capital contributions only
OTHER KINDS OF PARTNERS 35
Silent Partner
one who does not participate in the
Incoming partner management or the partnership
one who is admitted to the
partnership after it has
already been constituted 1 Secret Partner
one who is not known to third
7 2 persons as a partner
Liquidating partner 6 3 Dormant Partner

one who undertakes the
winding up of partnership one who is both a silent and
affairs after its dissolution
5 4 Secret Partner
Ostensible Partner
Managing partner Direct opposite of a dormant
one who undertake the partner or one who participates in
management of the the management and is known to
partnership third parties as a partner.
04 OBLIGATIONS OF PARTNERS
OBLIGATIONS OF PARTNERS 37
LIABILITIES TO THE PARTNERSHIP

AND TO THE PARTNERS LIABILITIES TO THE THIRD PERSONS
1. To give his contribution 1. Firm Name

2. Loss Borne by the Partner
2. Liability After Exhaustion Of Partnership Asset
3. Loss Borne by the Partnership
4. To Give Additional contribution in 3. Authority To Act For And In Behalf Of The
case of Imminent loss
Partnership
5. Not to engage in another business
6. Credit to the firm made by a 4. Admission and Notice
common debtor to the managing
partner 5. Effects of Conveyance of the Property
6. Solidary Liability
7. Partner by Estoppel
8. Liability of New (Incoming) Partner
LIABILITIES TO THE PARTNERSHIP AND TO THE PARTNERS 38
Q1 Amount
unless there is a stipulation to the contrary, the partners shall contribute

equal shares to the capital of the partnership.
Q2 When?
as a rule, the contribution must be provided upon perfection of the contract,

except if the partners stipulate otherwise.
Q3 Delay
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.
A partner is likewise liable similar to a vender:
 He is bound to deliver the fruits thereof from the time they should have been delivered,
without need of demand (Article 1786)
 A partner must exercise due diligence (diligence of a good father of a family) in preserving
the thing promised to be contributed; otherwise, he shall be liable for loss and
deterioration.
 Warrant the thing delivered against eviction

Risk of Loss
LOSS BORNE BY THE PARTNER LOSS BORNE BY THE PARTNERSHIP
1. Thing contributed is a specific and 1. Things contributed are

determinate which is NOT fungible a. Fungible
and only their use and fruits may be
for the common benefit and b. Cannot be kept without deteriorating or
c. They were contributed to be sold and;
2. There is a stipulation that he shall
bear the loss of the thing brought
and appraised in the inventory. 2.There was appraisal in the inventory and no
stipulation that partner will bear the loss.
TO GIVE ADDITIONAL CONTRIBUTION INCASE OF IMMINENT LOSS 41
A partner is likewise liable similar to a vender

 In case of an imminent loss of the business of the partnership,
partners are required to give additional contribution. Who are
required?
a. capitalist partner (Unless there are stipulation to the contrary)
b. Industrial partners if there is a stipulation to that effect
 Consequence of failure: 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
NOT TO ENGAGE IN ANOTHER BUSINESS 42
INDUSTRIAL PARTNER CAPITALIST PARTNER
Industrial partners – cannot engage in Capitalist partners – the prohibition is limited to

business for himself except when the business in the same industry as that of the partnership
capitalist partners permit him to do so. which may result in competition
 Exception:
 Effect of non-compliance–the
capitalist partners may either: 1.When it is expressly stipulated that the capitalist
partner can so engage himself
1.Exclude him from the firm or 2. When the other partners allow him to do so, whether
expressly or impliedly
2.Avail themselves of the benefits which
he may have obtained in the violation 3.During the period of liquidation and winding up, when
of this provision. the partnership is already non -existent.
4.When the generalist-capital partner becomes a limited
partner in a competitive enterprise
NOT TO ENGAGE IN ANOTHER BUSINESS 43
EFFECTS OF NON COMPLIANCE
1.he shall bring to the partnership all the profits illegally obtained
2.he is liable, personally, for all the losses
3.he may be ousted for the loss of trust and confidence.
CREDIT TO THE FIRM PAYMENT MADE BY A COMMON DEBTOR TO THE
MANAGING PARTNERS 44
 Managing Partner who collects the debt

 As a general rule, a managing partner who collects
a demandable sum owed to him in his own name
from a person who also owes the partnership a
demandable sum, is obliged to apply the sum
collected to both credits pro rata, even if he issued
the receipt for his own credit only
MANAGING PARTNER WHO COLLECTS THE DEBT 45
REQUISITES: EXCEPTION:
a) There is at least two debts, one 1. In case the receipt was issued for the account of
where the collecting partner is a the partnership only, however, the sum shall be
creditor and the other where the
partnership is the creditor applied to the partnership credit alone.
b) Both debts are demandable

2. When the debtor declares, pursuant to art. 1252,
c) the partner who collects is at the time of making the payment, to which
authorized to manage and actually debt the sum must be applied, it shall be so
manage the partnership
applied (Art. 192)
CREDIT TO THE FIRM PAYMENT MADE BY A COMMON DEBTOR TO THE
MANAGING PARTNERS 46
ILLUSTRATION:
 D owed ABC partnership and A, the managing partner P7000 and P3000,
respectively A was able to collect P5000 from D.
1. If A issue a receipt in the name of the partnership, the whole amount of P5000
will be applied to the partnership credit
2.If A issued a receipt in his own name, the P5000 shall be applied as follows:
P3500 = (5000*7000/10,000) to the partnership Credit
P1500 = (5000*3,000/10,000) to A’s Credit
3.The above, however, will not apply if the debt to the managing partner is more
onerous to the debtor and the latter chooses to apply the payment to such debt.
OTHER OBLIGATIONS OF A PARTNER TO THE PARTNERSHIP AND THE
OTHER PARTNERS 47
 Not to convert partnership funds/property for his own use (1788)

 To account for and hold as trustee, unauthorized (secret) personal profits(1807)
 Pay for damages cause by his fault (1794)
 Share with other partners the share of the partnership credit which he has received
from an insolvent firm debtor (1743)
 Keep the partnership books in the principal office
 Reimburse the partnership of damages suffered by it through his fault.
 To inform the other partners on all matters affecting the partnership or relative to the
partnership affairs
 To observe the diligence of a good father of a family in all his dealings
 To adhere to the partnership agreement and decision od appointed managing partner
LIABILITIES TO THE THIRD PERSONS 48
FIRM NAME
 Every partnership shall operate under a firm name, which may or
may not include the name of one or more 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
 If a limited partner included his name in the firm name, otherwise.
He shall be liable as general partner.
LIABILITY AFTER EXHAUSTION OF PARTNERSHIP ASSET

• All partners, including the industrial ones shall be liable pro rata
with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature ang
by a person authorized 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
partner
LIABILITY AFTER EXHAUSTION OF PARTNERSHIP ASSET

ILLUSTRATION:
A, B, C, and D, partners of the ABCD Partnership agreed on equal distribution
of profits. As Regards third parties, however, they exempted C, an industrial
partner. Total assets of the partnership amounted to 200,000 while the
remaining liabilities to X amounts to 800,000, in this case:
1. The liabilities can be settled first through the remaining partnership assets
of 200,000
2. The 600,000 shall be borne by all the partners: =A,B,C, and D and they
shall share pro-rata, but since nothing in the problem indicated a different
sharing agreement, or capital contributions, it shall be presumed equal. so
each may be made liable by the creditor for 150,000 each
AUTHORITY TO ACT FOR AND IN BEHALF OF THE

PARTNERSHIP
Every partner is an agent of the partnership for the purpose of its business.
The authority of the partner to act in behalf of the partnership may be:
1. Express – those expressly granted to the partner; or
2. Implied – those which may be implied from the express authority or
3. Apparent - when he carries on the usual business of the partnership and
the person to whom he is dealing has no knowledge of the fact that he has no
such authority.
• If the partner is not carrying on the usual business if the partnership, the
act will not bind the partnership unless it is authorized by the other
partners.
CONSENT of ALL partners necessary to:

1. Assign the partnership property in trust for creditors or on the asignee’s
promise to pay the debts of the partnership.
2. Dispose of the good-will of the business
3. Do any other act which would make it impossible to carry on the ordinary
business of the partnership.
4. Confess a judgement
5. Enter a compromise concerning a partnership claim or liability.
6. Submit a partnership claim or liability arbitration
7. Renounce a claim of the partnership
EXCEPT: when authorized by the other partners or unless they have

abandoned the business.
ADMISSION AND NOTICES
Admission of Partners: an admission made by one partner within the scope

of his authority is evidence against the partnership.
Notice to a partner: operates as notice to the partnership, except in case of

fraud committed by such partner.
EFFECTS OF CONVEYANCE OF PROPERTY
TITLE IS IN THE NAME EXECUTED IN THE

CONVEYED BY OF NAME OF EFFECT
Title passes to the buyer

but the partnership may
recover except:
Any partner Partnership Partnership 1. if in the usual way of
business except when the
buyer has knowledge of
partner’s lack of authority
2. Real Property was
One or more partners One or more partners One or more partners transferred to a innocent
buyer
EFFECTS OF CONVEYANCE OF PROPERTY

TITLE IS IN THE NAME EXECUTED IN THE
CONVEYED BY OF NAME OF EFFECT

Any partner Partnership Partner Passes the equitable
interest of the partnership
provided the conveyance
was in the usual way of
business
One or more partners Partner/Partnership Partner

Passes all the rights in
All Partners All Partners All Partners such Property
 SOLIDARY LIABILITY
FOR TORTS OR QUASI DELICTS FOR MISAPPROPRIATION
Where, by any wrongful act or omission of any The partnership is bound to make good the loss, in two
partner acting in the ordinary course of business situations:
of the partnership or with the authority of co- 1. Pertains to partner as receiver: Where one partner
acting withing the scope of his apparent authority
partners, loss or injury is caused to any person, receives money or property of a third person and
not being a partner in the partnership or any misapplies it
penalty is incurred, the partnership is liable
therefor to the same extent as the partner so
acting or omitting to act.
2. Pertains to partnership as receiver: where the
partnership in the course of its business receives money
or property to a third person and the money or
property so received is misapplied by any partner while
it is in the custody of the partnership.
PARTNER BY ESTOPPEL
One who represent himself as a partner of an existing partnership with or
without consent of the partnership
 When the partnership consented – a partnership by estoppel is created
between the original members and the deceiver. A partnership liability
results.
 When the partnership did 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 exist.
One who represent himself as a partner of a NON-existent partnership.

Liability of parties is pro-rata, since there is no partnership liability.
LIABILITY OF NEW (INCOMING) PARTNER
 Debts incurred prior to admission: Liable up to his contribution

(except if there is stipulation)
 Debts incurred after admission: liable up to his personal assets.

05 RIGHTS TO A PARTNER
RIGHTS TO A PARTNER 60
. The Right To Share In Profits
Rights
of A
Property Rights Of A Partner
Partner
His Right To Rules Of Management

THE RIGHT TO SHARE IN PROFITS

 DISTRIBUTION OF PROFITS
 In accordance with the agreement
 In proportion to contribution and the industrial partner shall receive such
share as may be just and equitable
 DISTRIBUTION OF LOSSES:
 In accordance with the agreement
 If there was agreement as to profits but not losses. Same proportion
 In proportion to contribution but the industrial partner shall not be liable for
losses.
Industrial partner: An industrial may be made liable for losses only if there was stipulation
to that effect
Pactum Leonina – A stipulation which excludes one or more partners from any share in the
profits or losses – void
THE RIGHT TO SHARE IN PROFITS

ILLUSTRATION:
A,B,C, and D are partners with equal contribution of 25,000 each they agreed to share
losses 1:1:2:2 but no agreement as to profits. In the year 2020, the partnership earned
profits amounting to 30,000. How much should A get?
ANSWER:
7,500. since there was no agreement as to the distribution of profits, the Profits will
be distributed according to the capital distribution. Note that the agreement provided in
the problem is for losses, which is not used as basis to distribute profits, unless otherwise
indicated. Unlike in the absence of agreement as to distribution of losses where there is
none, the agreement as to profits may be used as basis.
PROPERTY RIGHTS OF A PARTNER

 His rights in specific partnership property
 His interest in the partnership
 His right to rules of Management
•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:

 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
the right to possess such property for any other purpose without the consent of his
partners.
 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.
 A partner’s right in specific partnership property is not subject to attachment or
execution except on claim against the partnership
 A partner’s right in specific partnership property is not subject to legal support

•His interest in the partnership - – a partner’s interest in the partnership is his share
of the profits and surplus.

Effects of conveyance of a partner’s whole interest
a. Does not, in itself, dissolve the partnership. The partnership is deemed dissolve
only if there is stipulation to that effect.
b. The conveyee did not necessarily become a partner and such has no right to
i. Demand accounting settlement
ii. Interfere in the management or administration of the partnership
business
iii. Demand information, accounting and inspection of the partnership
books
Rights of the assignee/conveyee

 To get profits the assignor-partner would have obtained
 To avail of the usual remedies in case of fraud in the management
 Receive assignors interest in the event of a dissolution

Partner’s interest may be subject to a charge or attachment by the court:
1. Only the profits and surplus of the partners and not his share in the specific properties
of the partnership but priority is still given to creditors of the partnership.
2. Such interest may be redeemed prior to foreclosure with:
 The separate property of any one or more of the partners; or
 Partnership property with the consent of ALL the other partners’.

06 RULES ON MANAGEMENT
SCENARIOS 68
1 2 3 4
There is no managing
When there are two partners appointed No managing
One managing
or more managing and there is a partners and no
partner
partners stipulation requiring stipulations
the consent of the
partners
ONE MANAGING PARTNER 69
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;
 With just or lawful cause
 By a vote of the partners representing the controlling interest
MANAGING PARTNER AFTER THE PARTNERSHIP HAS BEEN CONSTITUTED:

The power as a manager may be revoked by a vote of the partners representing the
controlling interest EVEN WITHOUT just or lawful case.
MULTIPLE MANAGING PARTNER 70
1. With stipulation that no Managing partner may act without the consent of the
others. – No one can perform an act of administration without each other’s
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, and with no stipulation.

 Each Managing partner may separately execute all acts of administration
 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.
 should there be a tie in the votes of the managing partners, the controlling
interest of ALL the partners shall prevail.
NO MANAGING PARTNERS APPOINTED AND THERE IS A
STIPULATION REQUIRING THE CONSENT OF THE PARTNERS 71
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.

 the managing partners, the controlling interest of ALL the partners shall prevail.
NO AGREEMENT AS TO MANAGEMENT 72
All the partners shall be considered as agents and whatever any one of them may do
alone shall bind the partnership. Without prejudice to the provisions of Articles 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 in 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 73
1. To associate with another person in his share (Article. 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 the partnership books (Art. 1805) - the partnership books
shall be kept in the principal place of the business unless otherwise agreed.
3. To demand a formal account (Art. 1809) in the following cases
 A partner was wrongfully excluded from the partnership business or
possession of its property by his co-partners
 When there is a stipulation granting such right
 As to information affecting partnership affairs, such as secret profits earned
by other partners.
 Whenever just an reasonable
OTHER RIGHTS OF A PARTNER 74
4. To ask for a dissolution of the firm at a proper time (Art 1830-1831) and the right
to return of capital and advancements – subject to the rules of distribution of
partnership assets during liquidation
5. Rights to compensation – exist only when there is an agreement or stipulation

granting such right or entitlement
6.Right to reimburse – 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
07 DISSOLUTION AND WINDING UP
Topic Flowchart 76
EXTRAJUDICIAL WINDING UP DISTRIBUTION

JUDICIAL EFFECTS OF PARTNER’S
CAUSES CAUSES
OR OF ASSETS LIABILITY
DISSOLUTION LUQUIDATION
1 2 3 4 5 6
Discuss about the Discuss about the Discuss about the Discuss the Discuss the order Discuss the
extrajudicial causes judicial causes of a effects of process of of asset remaining claims
of a dissolution of dissolution of Dissolution in the liquidating the distribution may be satisfied
partnership partnership partnership partnership assets against the
and the separate assets of
distributing the the partners.
proceeds to satisfy
the claims against
the partnership.
DISSOLUTION AND WINDING UP 77
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.
01
On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed.
02 03 Termination
is the point where all the partnership
Winding up: affairs have been wound up
on the other hand, is the process of
settling business affairs after dissolution.
EXTRAJUDICIAL CAUSES
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 interest 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 power conferred by the agreement between 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 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.

3. By operation of Law
A. by any event which make it lawful 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
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
carry on of the business
4. A partner wilfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relation to the
partnership business that 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 loss
6. Other circumstances render a dissolution equitable
EFFECTS OF DISSOLUTION
1. The mutual agency is terminated. As a rule, the partners can no longer act to binf
the partnership, subject to the following rules:
 If the cause of dissolution is Acts, Insolvency or Death (AID) – NOTICE should be
given by the partners to terminate the mutual agency
 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
 acts to for winding- up of the affairs of the partnership
 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 LUQUIDATION
1. 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 partner 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
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

08 LIMITED PARTNERSHIP
Topic Flowchart 87
LIMITED LIMITED PARTNER’S LIMITATION ON A

PARTNERSHIP FORMATION INTEREST LIMITED PARTNER
Discuss the definition Discuss about the Discuss the limited Discuss the limitations
and limited liability of formation of Limited partner’s interest and violations of
limited partnership Partnership included in the limitations on a
certificate limited partner of a
limited partnership
LIQUIDATION OF A GENERAL LIMITED DISSOLUTION RIGHTS OF A

LIMITED PARTNERSHIP PARTNER AND WINDING UP LIMITED PARTNER
Discuss about the Discuss the Discuss the right of a
Discuss the
general-limited dissolution and limited partner in a
distribution of
partners winding up partnership
partnership asset
LIMITED PARTNERSHIP 88
Limited Partnership – a limited partnership is a partnership which has

one or more general partners and one or more limited partners. The
limited partners as such shall not be bound by the obligations of the
partnership (Art, 1843) Except up to the extent of their contribution.

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.
LIMITED PARTNERSHIP - FORMATION 89
Formation – two or more persons desiring to form a limited shall sign and swear to a
certificate, which shall be filled with SEC and which state:
1. 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.
2. The character of the business
3. The location of the principal place of business
4. The name and place of residence of each member, general and limited partners being respectively
designated
5. The term for which the partnership is to exist
6. the amount of cash and a description of anf the agreed value of the other property contributed by
each limited partner
7. 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:
 (6) And (7) are important 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
8. 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
 After he has 6 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
 On the dissolution of a partnership

9. The share of the profits or the other compensation by way of income which
each limited partner shall receive by reason of his contribution
10. The right, if given, of a limited partner to substitute and assignee as
contributor in his place, and the terms and condition of the substitution:

However, the assignee does not necessarily become a substitute limited partner.
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 the right
LIMITED PARTNERS INTEREST (included in the certificate) 92
Limited partner’s interest or his share in the profits and surplus may likewise be
the subject of assignment or attachment/execution. However, unlike the interest o
fa general partner, a limited partner’s interest may only be redeemed with the
general partners property and not with the partnership property.
1. The right, if given of the partnership to admit additional limited partnership

2. The right, if given of one or more limited partners to priority over other
limited partners, as to contributions or as a compensation by way of income
and the nature of such priority.
3. The right, if given of the remaining general partners or partners to continue
the business on the death, retirement, civil interdiction, insanity or insolvency
of a general partners and
4. The right, if given, of a limited partner to demand and receive property other
than cash in return for his contribution
LIMITATION ON A LIMITED PARTNER 93
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 unless:
 It is also the surname of a general partner or
 Prior to the time when the limited partner become 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.

Note: if the limitation if violated, the limited partner will be treated as general
partner.
RIGHTS OF A LIMITED PARTNER 94
1. Have the partnership books kept at the principal place of business of the
partnership; and at 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
3. Have dissolution and winding up by decree of court
4. Receive a share in the profits or by other contribution by way of income, and

to the return of his contribution. However, a limited partner shall not receive any
part of his contribution until:
 All liabilities of the partnership, except liabilities to general partners and
to limited partners on account of their contribution have been paid or
there remains property of the partnership sufficient to pay them.
 The consent of all members is had, unless the return of the contribution
may be rightfully demanded as provided in number 5 and
 The certificate is cancelled or so amended as to set for the withdrawal or
reduction.
5. Rightfully demand for his contribution

 On the dissolution of a partnership
 When the date specified in the certificate for its return has arrived or
 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 partner’s in

order to
 Do any act in contravention of the certificate
 Do any act which would make it impossible to carry on the ordinary
business of the partnership
 Confess a judgement against the partnership
 Possess partnership property, or assign their rights in specific partnership
property, for other that the partnership purpose
 Admit a person as a general partner
 Admit a person as a limited partner, unless the right so to do is given in
the certificate
 Continue the business with partnership property on the death,
retirement, insanity, civil interdiction or insolvency of a general partner,
unless the right 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:
 He cannot receive or hold as a collateral security any partnership property
 He cannot receive any payment, conveyance or release from liability if at
the time assets of the partnership are not sufficient to discharge
partnership liabilities to person not claiming as general or limited
partners.
Any violation of the restrictions would be in fraud of creditors

and and may thus be treated as a rescissible contract.
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 dissolve and its affairs
wound up when he rightfully but unsucessfully demands the return
of his contribution
GENERAL LIMITED PARTNER 101
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 rights and powers and be subject to all the
restrictions of a general partner. Except that, in respect of his
contribution, he shall have the right against the other partners which
he would have had if he were not also a general partner.
LIQUIDATION OF A LIMITED PARTNERSHIP 102
The distribution of the partnership assets shall be as follows:
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.

THE END
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Topic #03

CONSENT TRUST CONFIDENCE SHARING PERSONAL CHOICE

PARTNERSHIP KEY TERMS

By the contract of partnership two or more persons bind themselves together

01 Nature and as distinguished from Corporation

03 Kinds of Partnerships / kinds of partners

07 Dissolution and Winding up

There must be a valid contract

should have a lawful objects or

must be organized for profits

The partnership must be organized

Consensual Bilateral, or multilateral

Affectio Societatis Delectus Personae

There must be Affectio Societatis – the In connection thereto, the principle of

For the intention of Dividing the

In order to exercise of Profession

Voluntary agreement of parties (mere consent)

May extend to private property (Unlimited)

Liable only up to their capital Contribution

All partners need to consent to the Transfer of interest to

Ability of owners to bind the firm

Remedies in case of mismanagement

A partner can sue another partner who mismanage

Ability of owners to bind the firm

Remedies in case of mismanagement

A partnership is a national of the country where it was

None. Death, retirement, insolvency. Civil interdiction or insanity

• Presumption: the receipt by a person of a share of the profits of a business is

As a wage of an employee or rent to a landlord

Except As an annuity to a widow or representative of a deceased partner

As interest on loan, through the amount of payment vary with

As the consideration for the sale of a good will

A) An intention to create a partnership

B) A common fun obtained from contributions

C) A joint interest in the profits.

As a General Rule, a partnership may be construed in any form

ALL PROFITS ALL PRESENT PROPERTY

ALL PRESENT PROPERTY

Those who cannot donate to each other, namely

Husband and Wife (Art. 133 Family Code)

Those guilty of the same criminal offense, if the partnership

Those who cannot donate to each other, namely

Determinate things, their use or fruits

The exercise of a profession or occupation

Q1 : May a husband and wife form or be a partners in general

ANSWER: Yes. Since a general professional partnership is

General Partnership Limited Partnership

Partnership with a fixed term or

upon arrival of the fixed term or when there is no fixed term or

Other Kinds of Partners Ostensible Partner

Contributes capital, money or property

Liable up to his personal assets

Liquidating partner 6 3 Dormant Partner

LIABILITIES TO THE PARTNERSHIP

1. To give his contribution 1. Firm Name

unless there is a stipulation to the contrary, the partners shall contribute

as a rule, the contribution must be provided upon perfection of the contract,

A partner is likewise liable similar to a vender:

 Warrant the thing delivered against eviction

LOSS BORNE BY THE PARTNER LOSS BORNE BY THE PARTNERSHIP

1. Thing contributed is a specific and 1. Things contributed are

A partner is likewise liable similar to a vender