NATURE AND FORMATION

The partnership
- A partnership is a business owned by 2 or more persons.
- A contract of partnership, two or more individuals bind themselves to contribute
money, property, or industry to a common fund with the intention of dividing the
profits among themselves. (Civil Code of the Philippines, Article 1767)

Elements of a partnership
1. A valid contract, whether oral or written, is necessary. Article 1772 of the Law
on Partnership provides that when the capital is P3,000 or more, it must be in
a public instrument; Article 1773 likewise provides for a written contract when
the investment is in the form of immovable property.
2. There must be two or more persons having legal capacity to enter into a
contract.
3. Contributions may be in the form of money, property, or service.
4. The purpose of the business is to divide the profits among themselves.

Characteristics of a partnership
1. Voluntary association - individuals, by their own free will, agree to join together
and form a partnership
2. Legal entity - it has a juridical personality separate and distinct from the
partners (Articles 1768) it can acquire, sell or dispose properties, incur
obligations and transact business in its name.
3. Co-ownership of Property - Partnership assets are jointly owned by partners.
Once assets are invested and or acquired by the partnership, these cease to
become personal properties and instead become joint property of all partners.
Partners have a claim on all partnership assets based on their capital accounts
and share in partnership earnings.
4. Taxable entity - the income of an ordinary partnership is taxable like a
corporation at a rate of 30%. Exempted from tax is a general professional
partnership. A general professional partnership is one which is formed for the
sole purpose of exercising their common profession, such as accounting, tax,
law, medicine, and engineering. (NIRC, Sections 20 and 24)
 5. Mutual Agency - each partner is a fully authorized agent of the partnership.
Acts of the partners within the scope of the partnership are binding when
transacting partnership business. The partnership can be sued, together with
the partners, by third parties when a partner commits a wrongful act or a breach
of trust. (Article 1818)
6. Limited Life - Legally, a partnership can operate for an indefinite period of
time. However, in practice, it can easily be dissolved or terminated with the
mere withdrawal, incapacity or death of a partner. (Articles 1830-1831)
7. Unlimited Liability - each partner is personally and individually liable for all
partnership liabilities. In the event that cash flow problems occur and
partnership assets are not sufficient to liquidate partnership liabilities, the
personal assets of the partners should be used to help settle the company’s
obligations. (Articles 1791 and 1835)

Advantages of a partnership
- The personal liability of a partner for firm debts deters many from investing
capital in a partnership.
- A partner may be subject to personal liability for the wrongful acts or omissions
of his/her associates.
- It is less stable because it can easily be dissolved.
- There is divided authority among the partners.
- There is constant likelihood of dissension and disagreement when each of the
partner has the same authority in the management of the firm.

Foundation of a partnership
- Individual has the right to choose the person to associate with, consequently
individual partners are natural person who have developed TRUST and RESPECT
for each other, enough contribute their assets to a common fund in order to
achieve business objectives.

REQUISITES OF A PARTNERSHIP
- A voluntary and valid agreement among the parties.
- A lawful purpose for which the partnership is organized.
- Contributions of money, property or industry.
- An association for a profit to be divided among the partners.
- Mutual agency among the partners.
- A practice of transparency on the records and transaction of the partnership.
KINDS OF PARTNERSHIPS
- As to activity
o Trading Partnership - one whose main activity is the manufacture and sale
of the purchase and sale of goods.
o Non-trading Partnership - one which is organized for the purpose of
rendering services.
- As to liability:
o General Partnership - one where all partners are general partners with
unlimited liability and are therefore liable to partnership creditors even up
to the extent of their personal properties especially when partnership
becomes insolvent.
o Limited Partnership - composed of at least one general partner with the
others as limited partners who are liable to partnership creditors only to
the extent of their investment in the partnership. This type of partnership
has two classes of partners: general and limited. (Articles 1816, 1843)
The word “limited” or “LTD” is added to the name of the partnership
to inform the public that it is a limited partnership.
- As to property/object:
o Universal Partnership
▪ Universal Partnership of all present property - one where all the
partners contribute all their properties into a common fund. (Article
1778 of the New Civil Code). One in which the partners contribute,
at the time of the constitution of the partnership, all the properties
which actually belong to each of them into a common fund with the
intention of dividing the same among themselves as well as the
profits which they may acquire therewith. All assets contributed to
the partnership and subsequent acquisitions become common
partnership assets.
▪ Universal Partnership of all profits - one where the partners
contribute all what they will receive as a result of their work or
service rendered during the lifetime of the partnership. The
partners retain ownership over their present or future property.
(Article 1780). One which comprises all that the partners may
acquire by their industry or work during the existence of the
partnership and the usufruct or movable or immovable property
which each of the partners may possess at the time of the institution
of the contract. Partnership assets consist of assets acquired
during the life of the partnership and only the usufruct or use of
assets contributed at the time of partnership formation. The original
 movable or immovable property contributed do not become common
partnership assets.
o Particular Partnership - one which has for its objects determine things,
their use or fruits, or a specific undertaking or the exercise of a profession
or vocation.
- As to duration
o Partnership at will - one for which no term is specified and is not formed
for a particular undertaking or venture and which may be terminated any
time by mutual agreement of the partners or the will of one partner alone.
o Partnership with a fixed term - one in which the term or period for which
the partnership is to exist is agreed upon. It may also refer to a partnership
formed for a particular undertaking and upon the expiration of that term
or completion of the particular undertaking the partnership is dissolved;
unless continued by the partners.
- As to representation to others
o Ordinary partnership - one which actually exists among the partners and
also as to third persons.
o Partnership by estoppel - one which in reality is not a partnership but is
considered as one only in relation to those who, by their conduct or
omission are precluded to deny or disprove the partnership’s existence.
- As to legality of existence
o De jure partnership - one which has complied with all the requirements for
its establishment.
o De facto partnership - one which failed to comply with one or more of the
legal requirements for its establishment.
- As to publicity
o Secret partnership - one wherein the existence of certain persons as
partners is not made known to the public by any of the partners.
o Open partnership - one wherein the existence of certain persons as
partners is made known to the public by the members of the firm.

KINDS OF PARTNERS
- As to liability
o A general partner - one who manages the partnership, contributes
property or service and has unlimited liability assuming risk of loss of
personal property in the event partnership becomes insolvent.
o A limited partner - one who invests cash or property, has no unlimited
liability and has no active role in the management of the partnership.
- As to contribution
 o Capitalist partner - one who contributes capital in cash (money) or
property.
o Industrial partner - one who contributes industry, labor, skill or talent or
service.
o Capitalist-industrial partner - one who contributes cash, property and
industry.
- As to management:
o Managing partner - one who manages actively the business of the
partnership. Appointed as the manager of the partnership. The highest
formal job title given to a senior partner in charge of a firm's overall
practice, management and day-to-day operations. A managing partner is
roughly equivalent to a chief executive officer of a corporation in terms of
duties and responsibilities, but in a partnership or small firm and not a
corporation. This job title is commonly used in accounting and law firms.
o Silent partner - one who does not participate in the management of the
partnership affairs
o Real partner - one who is an actual partner,
o Nominal partner - a partner in name only.
▪ One who is actually not a partner but who represents himself as one.
The one that does not contribute capital neither does he take active
part in the management. His contribution in a partnership is limited
to allowing the partners to make use of his name.
▪ Usually paid a fee for his service
▪ Lends his name and reputation/credibility to the firm
o Ostensible partner - one who is known to the public that he is a partner.
o Secret partner - one who is not known as such to the public. One who takes
active part but is not known to be a partner by outside parties. A secret
partner, unlike a silent partner, has a say in the business' operations, but
the public is not aware that the secret partner is involved in the business.
Her name is not associated with the business in any way. A secret partner
may have a tarnished reputation from a previous business failure and does
not want that reputation to taint the new business, or she simply may
prefer to operate anonymously.
o Universal partner - one whose participation extends to the entire business
whereas a particular partner whose participation is limited to a unit or part
of a business. Liquidating partner is one who takes charge of the winding
up to partnership affairs upon dissolution.
o Dormant partner - one who does not take active part in the management
of the business and is not known to the public as a partner; he is both a
silent and a secret partner. One who does not take active part in the
 business and is not known as a partner. The one who only contributes
capital but does not take active part in the business and may not be known
to the outsiders. A dormant partner shares profits and losses with other
partners but (if he or she is not a signatory to the loan agreements)
generally may withdraw from the firm without notice to the lenders.

RIGHTS OF A PARTNER
1. A partner has a right over specific partnership property.
2. A partner has a right to share in the profits resulting from business operation.
3. A partner has a right to share in the remaining assets upon partnership
liquidation after the partnership creditors have been paid.
4. A partner has a right to co-manage the partnership.
5. A partner has a right to ask that the books be kept in the principal place of
business subject to inspection at a reasonable time.

ARTICLES OF CO-PARTNERSHIP
- An agreement concerning formation, operation, dissolution, and liquidation of the
partnership.
- Although a verbal agreement is valid, it is advisable to put it in writing as conflicts
and disagreements may easily arise because of the number of persons involved.
- The contract will act as a form of governance of partnership activities and will
clearly reflect the relationships of the partners among each other and with third
parties.
- The partnership agreement is a written document that states how the business
will be organized.
- Contract of partnership includes:
a. Names of the partnership
b. Name of the partners; their address and community tax receipt number
c. Purpose and nature of the partnership business
d. Amount of investment by each partner
e. Duties, rights, and responsibilities of each partner
f. Procedures for sharing profits and losses
g. How assets will be divided when and if the partnership is dissolved

PARTNERSHIP WITH CAPITAL OF P3000.00 OR MORE