OVERVIEW OF PARTNERSHIP

A partnership is defined in Article 1767 of the Civil Code of the Philippines as

 "A contract whereby two or more persons bind themselves to contribute money,
property or industry into a common fund with the intention of dividing profits among
themselves."
 Two or more persons may also for a partnership for the exercise of the profession .

CHARACTERISTICS OF A PARTNERSHIP
Characteristics Explanation
1. Mutual Agency Any partner may act as agent of the partnership in conducting its
affairs
2. Unlimited liability The personal assets (assets not contributed to the partnership) of
any partner may be used to satisfy the partnership creditors’
claims upon liquidation, if partnership assets are not enough to
settle the liabilities to outsiders.
3. Limited life A partnership may be dissolved at any time by action of the
partners or by operation of law (Death, Admission of new partner,
Withdrawal, Retirement or incapacity of the partner or when the
purpose of the partnership has been achieved)

4. Mutual Participation in A partner has the right to share in partnership profits

Profits
5. Legal Entity Has legal personality separate and distinct from that of each of
the partners
6. Co-ownership of Assets Property contributed to the partnership are owned by the
partnership by virtue of its separate legal personality

7. Co-ownership of Profits Profits/Loss Based on agreement

• If no agreement, based on the capital contribution by the
partners
With Profit sharing agreement but no loss sharing, it will be the
same as profit sharing
Any agreement to exclude any partner from profit or loss sharing
is VOID.
Only the industrial partner may be exempted from liability in case
of loss

8. Voluntary Association Partners are responsible under the law for the actions committed
of Individuals by other partners within the scope of the business. As such, one
must be allowed to choose the people with whom he/she will be
associated.
UNDERLYING EQUITY THEORY
1. PROPRIETARY THEORY
- Salaries to partners are viewed as distribution of income rather than a component of
income
- Unlimited liability of general partners extends beyond the entity to the individual
partners
- Income of the partnership is not taxed at the partnership level but, rather, is included as
part of the partners’ individual taxable income
- An original partnership is dissolved upon the admission or withdrawal of a partner
2. ENTITY THEORY
- Partnership may enter into a contract by its own name (the business is treated as a unit
separate and distinct from the owner/s)
- The business has its own financial health irrespective of the personal finances of the
owner/s

ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP

ADVANTAGES

1. EASE OF FORMATION
2. GREATER SOURCE OF CAPTAL
3. BETTER MANAGEMENT
4. FLEXIBILITY OF OPERATION

DISADVANTAGES

1. UNLIMITED LIABILITY
2. LIMITED LIFE OF THE BUSINESS
3. DIFFICULTY IN TRANSFER OF
4. PARTNERS INTEREST
5. LIMITED CAPITAL

ESSENTIAL FEATURES OF PARTNERSHIP

a. There must be a valid contract
- Articles of Co-Partnership
b. The parties must have the legal capacity to enter into a contract
- Any person who cannot give consent to a contract cannot be a partner
c. There must be a mutual contribution of Money, Property or Industry to a common fund
- Money- currency that is legal tender in the PH
- Property- Real or personal/corporeal or incorporeal properties
- Industry - active cooperation
 d. The purpose must be LAWFUL
- No partnership can arise as the contract is void from the beginning (void ab initio)
e. Primary purpose must be to obtain profits and divided the same among the partners
- Dividing profit as the fruit of business operation

CLASSIFICATIONS OF PARTNERSHIP
I. As to Liability of Partners

A. General Partnership - consists of general partners who are liable pro rata and subsidiarily and
sometimes solidarily with their separate property for partnership debts. In simpler words, it is a
partnership in which all the members are general partners and are liable to the whole extent of their
separate properties.

B. Limited Partnership - one formed by two or more persons having as members one or more general
partners having unlimited liability and one or more limited partners, the latter not being personally liable
for the obligations of the partnership. Simply stated, a limited partnership much have at least one
general partner.

Il. As to Duration

A. Partnership at Will - one in which no time is specified and is not formed for a particular undertaking
or venture which may be terminated anytime by mutual agreement.

B. Partnership with a Fixed Term or Particular Undertaking - the term for which the partnership is to
exist is fixed or agreed upon or one formed for a particular undertaking.

III. As to the Extent of its Subject Matter

A. Universal Partnership

1. Universal Partnership of All Present Property - the properties, which belong to each of the partners
at the time of the constitution of the partnership, becomes the common property of all the partners as
well as all the profits which they may acquire therewith.

A stipulation for the common enjoyment of any other profits may also be made (there must be a
stipulation. e.g. salary that may be earned by the partner), but the property which the partners may
acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except
the fruits thereof.

2. Universal Partnership of Profits - only those properties that the partners may acquire by their
industry or work during the existence of the partnership becomes the common properties. Movable or
immovable property, which each of the partners may possess at the time of the celebration of the
contract, shall continue to pertain exclusively to each - the partnership shall acquire only the use of
these properties.

Articles of universal partnership, entered into without specification of its nature, only constitute a
universal partnership of profits.
B. Particular Partnership - object determinate things, their use or fruits, or specific undertaking, or the
exercise of a profession vocation.

IV. As to Representation to Others

A. Ordinary or Real Partnership- one which actually exists among the partners and also as to 3rd
persons.

B. Ostensible or Partnership by Estoppel- one which in reality is not a partnership but is considered a
partnership only in relation to those who, by their conduct or omission, are precluded to deny or
disprove its existence.

V. As to Legality of Existence

A. De Jure Partnership- a partnership that complies with all requirements of the law.

B. De Facto Partnership-a partnership that falls to comply with all requirements of the law

VI. As to Publicity

A. Secret Partnership - one wherein the existence of certain persons as partners is hot avowed or made
known to the public by any of the partners.

B. Open or Notorious Partnership - one whose existence is avowed or made known to the public by the
members of the firm.

VII. As to Purpose

A. Commercial or Trading Partnership - one formed for the transaction of business

B. Professional or Non-Trading Partnership - one formed for the exercise of a profession

OTHER CLASSIFICATIONS

1. As to Contribution
a. Capitalist partner – one who contributes money or property
b. Industrial partner – one contributes only his industry and personal services
c. Capitalist - Industrial
2. As to Liability
d. General partner – a partner whose liability to third parties extends to his personal or
separate property
e. Limited partner – liable only to the extent of his capital contribution
3. As to Management
f. Managing partner – one who manages the partnership
g. Silent partner – one who does not participate in the management
4. Other Classifications
a. Ostensible partner - active & known to third persons
b. Secret partner - active but unknown to third persons
c. Dormant partner - both silent & secret
d. Liquidating partner - winding up
e. Partner by Estoppels or Nominal partner - no realy a partner/name used/quasi-partner
f. Retiring Partner - one who retires from the partnership
g. Incoming partner - newly admitted partner
h. Continuing partner
i. Surviving partner