Documente Academic
Documente Profesional
Documente Cultură
American Partnership
Relation
Partnership is a result of contract / agreement
No recognition of separate personality, and considered as extension of its
members
Strictly speaking, the practice of a profession is not a an enterprise for profit (mainly for
public service. However, the law allows the joint pursuit thereof by two or more persons
as partners. (that the exercise of profession could be an object of partnership)
Still the individual partners exercises the profession and liable for their individual acts.
- The law does not allow individuals to practice a profession as a corporate entity.
- Corp vs Partnership
Corporation – consist of at least 5 – 15 incorporators, each must hold at least 1 share
Governed by Corporation Code
It has right of succession
Acquires juridical personality from issuance of incorporation
Corporation as an entity may only exercise those powers granted by law
Members may transfer their interest to another without prior consent of stockholders
Corporation may adopt any name, not similar to any other name
Rojas, RG 1
May be dissolved with consent of the state
Exist for 50 years, may be extended for another 50 years
Partnership
Governed by Civil Code
No right of succession
Acquires juridical entity from the execution of contract of partnership
May exercise power authorized by the partners, not contrary to law
Partners may not transfer interest without the unanimous consent of all the existing
partners
Limited partnership – law requires to add Ltd
Dissolves by agreement of the parties
Exist as stipulated by partners
i. Public Service
ii. Lawyers are officers of the court, to help in the administration of justice
- Articles of partnership must not be kept secret among the members; otherwise, the
association shall have no legal personality and shall be governed by the provision of
the Civil Code relating to co-ownership. (Art. 1775.)
Rojas, RG 2
- Existence of Valid Contract
1. Partnership relation is basically contractual
It is created by agreement of the parties, there is no such thing as partnership by
operation of law (conjugal partnership / religious society).
Articles of Partnership
Partnership relation may be informally created, its existence may be proved by
manifestation of the parties
Articles of Partnership – where the terms of association is written; defining the
rights, duties, and liabilities of the partners; contribution; manner of sharing the
profit; manner of dissolving the partnership.
Requisites – of a valid contract
Object – property, skills, labor
Consideration – e.g. to maintenance labor in exchange of half of the purchase;
should the laborer failed to comply – no partnership relation was formed, in the
absence of consideration (a requisite for contract of partnership)
Rojas, RG 3
Article 1782 - persons who are prohibited from giving each other any donation
or advantage cannot enter into a universal partnership
Partnership exists even if it is shown that the partners have not contributed any
capital of their own to a “common fund’’ for the contribution may be in the
form of credit or industry not necessarily cash or fixed assets.
LIMITED
Liability extends only to his capital contributions
No participation in management
Contribute cash or property only, not industry
Not proper party to proceedings by/against partnership
Interest is freely assignable
Name must appear in firm name
No prohibition against engaging in business
Does not have same effect; rights transferred to legal representative
2. Proof of Contribution
To acquire the right and liabilities of a co-partner, it is necessary that a contribution
must be furnished; otherwise there can be no partnership relation.
The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry (e.g. boats purchased by money loaned by one
partner)
Law on estoppel, knowing it to be those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid existence, are held liable as
general partner.
Rojas, RG 4
General Banking Law of 2000 (R.A. No. 8791, Sec. 8.), only stock corporations
may undertake.
- Purpose to obtain profits
The very reason for the existence of partnership is to carry on a business
All that is needed is a profit motive. Hence, even an unprofitable business can
be a partnership provided the goal of the business is to generate profits.
- Sharing of profits:
1. Not essentially equal sharing
2. Not conclusive evidence of partnership
- Sharing of losses
1. Necessary corollary (consequence) of profit sharing
2. Agreement to share the losses is not necessary – the obligation is implied
If only the share of each partner in the profits has been agreed upon, the share
of each in the losses shall be in the same proportion.
A stipulation which excludes one or more partners from any share in the
profits or losses is void. (Art. 1799.)
Only the stipulation is void, the contract of partnership is valid.
ART. 1768.
The partnership has a juridical personality separate and distinct from that of each of the partners even
in case of failure to comply with the requirements of Article 1772, first paragraph
Having a separate juridical entity, the partners cannot be held liable for the obligations of the
partnership. Unless otherwise the partners intended the separate juridical personality of the
partnership to be utilized in fraudulent / unlawful purpose.
- Event when partnership does not acquire juridical personality because of void contract:
1. Art 1773 – contract of partnership is void , whenever an immovable property is
contributed thereto, inventory of such property was not made, not signed by the
parties and not attached to public instrument.
2. Art 1775 – Association whose articles of partnership are kept secret among the
members, and wherein one members may contract in his own name with 3rd
persons – no juridical personality and shall be governed by co-ownership.
To organize a partnership not an absolute right but a mere privilege and may be enjoyed only
under such terms as the State may deem necessary.
Rojas, RG 5
(4) 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, but no such inference shall be drawn if such profits were
received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise. (n)
Persons not partners as to each other, cannot be partners as to the 3rd persons.
1. Intension to create partnership
- Each party given consent to become partner.
- Where the partners clearly express that they are not partners – no partnership, because
it is formed by consent of the members thereof.
2. Partnership by Estoppel
- This is an exception to the general rule that no partnership is formed without the
express / implied consent of the member or formed through contract of partnership.
- where persons by their acts, or representations have misled third persons that the
former are partners in a non-existing partnership, such persons become subject to
liabilities of partners to all who, in good faith, deal with them in their apparent
relations. (they shall be deemed as partners as to the 3rd persons)
Co-ownership or co-possession
- Co-ownership – the ownership of undivided thing / right belong to different persons
1. Two or more persons may become co-owners without contracts
But they cannot become partners in the absence of a contract.
In the event that the member merely transfers the possession / enjoyment of
property he contributed – partnership is NOT formed, but merely a co-ownership. In
partnership, the ownership of the contribution becomes the property of the
partnership.
The mere sharing of returns does not establish partnership, even if they form a
common fund; there must be a clear intent to establish a partnership. Thus 2
persons buying parcels of land, and sold the same and divide the profits, does not
make them partners.
The proceeds becomes a common funds and thereafter divided; should the
proceeds be directly received by the member in accordance with the proceeds of his
own interest / undivided interest – partnership.
If, after such partition, an heir allows his shares to be held in common with his co-
heirs under a single management to be used with the intent of making profit
thereby in proportion to his share, there can be no doubt that, even if no document
or instrument were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed
Rojas, RG 6
Receipt of share in the profits
1. Strong presumptive evidence of partnership
Agreement to share profits and losses – prima facie evidence of partnership, but not
conclusive.
2. When no such inference will be drawn.
(1) Y, creditor of partnership X, is entrusted by the partners to manage the business, and Y
shall receive, in addition to his compensation, a share in the net profits of the business in
settlement of his credit; no contribution from creditor; what he received from the
partnership are compensation as an employee and payment for loan.
(2) Y, an employee of partnership X, shall receive instead a fixed salary, or being the
owner of a building rented by the partnership, Y shall receive as rent a certain percentage of
the monthly net profits of the business. Did no make any contribution; he was a lessor not a
partner.
4) Y, creditor of partnership X, agreed that the payment of interest shall be taken from the
net profits to be realized by the partnership; and creditor not partner
(5) Y sold property to partnership X, and he agreed that the purchase price shall be paid out
of the net profits of the business. Creditor
Rojas, RG 7
Partnership distinguished from co-ownership
- (1) Creation. — Co-ownership is generally created by law. It may exist even without a
contract, but partnership is always created by a contract
- (2) Juridical personality. — A partnership has a juridical personality separate and
distinct from that of each partner (Art. 1768.), while a co-ownership has none.
- (3) Purpose. — The purpose of a partnership is the realization of profits (Art. 1767.),
while in co-ownership, it is the common enjoyment of a thing or right (not necessary
involves realization of profit.
- (4) Duration. — Under the law, there is no limitation upon the duration of a
partnership (see Arts. 1767, 1785.) while in coownership, an agreement to keep the
thing undivided for more than ten years is not allowed.
- (5) Disposal of interests. — A partner may not dispose of his individual interest in the
partnership (Art. 1812.) so as to make the assignee a partner unless agreed upon by all
of the partners (see comments under Art. 1814.), while a co-owner may freely do so.
- (6) Power to act with third persons. — In the absence of any stipulation to the
contrary (Art. 1803.), a partner may bind the partnership, while a co-owner cannot
represent the co-ownership (see Arts. 491, 492.); hence, a judgment secured against
only one of the co-owners will not bind the other co-owners.
- (7) Effect of death. — The death of a partner results in the dissolution of the
partnership (Art. 1830[5].), but the death of a co-owner does not necessarily dissolve
the co-ownership.
Rojas, RG 8