Partnership 2.
As to object
Terms:
Partnership – 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.
Characteristics of a Partnernship
 Mutual Agency – any partner may act as an
agent of the partnership.
 Unlimited Liability – personal assets may be
used to satisfy the partnership creditors’ claims.
 Limited Life – may be dissolved at any time.
 Mutual Participation in Profits – has the right to
share in partnership profits.
 Legal Entity – separate legal personality and
distinct from other partners.
 Co-ownership of Contributed Assets – property
contributed to the partnership are owned by the
partnership corresponding to its separate legal
personality.
 Income Tax – except GPP (General Professional
Partnership) are subject to 30% income tax.
Advantages of Partnership
 Easy and inexpensive to organize
 Unlimited liability
 Combined personal credits offer better
opportunity for obtaining additional capital
 More than one person makes it possible for a
closer supervision of all activities
 Direct gain is an incentive = give closer
attention to the business
 Personal elements are retained.
Disadvantages of Partnership
 Personal liability deters many from investing
capital
 Partner may subject to a personal liability when
a partner did something wrong
 Less stable, easily dissolved
 Divided authority
 Constant likelihood of dissension and
disagreement
Kinds of Partnerships
1. As to Activity
 Trading Partnership – main activity is the
manufacture and sales or the purchase and sale
of goods.
 Non-trading partnership – organized for the
purpose of rendering services.
a. Universal Partnership
 Universal partnership of all present
property – partners contribute, all assets
contributed will become common
partnership assets
 Universal partnership of all profit –
comprises all that the partners may acquire
by their industry or work during the
existence of the partnership and the
usufruct of movable and immovable
property do not become partnership assets.
b. Particular Partnership – the exercise of a
profession or vocation
3. As to liability partners
 General Co-Partnership – consisting of
general partners
 Limited Partnership – one or more general
partners and one or more limited partners. “LTD
or Limited”
4. As to duration
 Partnership at will – no term is specified and
not formed for a particular undertaking or
venture
 Partnership with a fixed term – the term of
period for which the partnership is to exist is
agreed upon. Formed for a particular
undertaking. Expiration = dissolved.
5. As to representation to others
 Ordinary Partnership – actually exists among
the partners and also as to the third persons
 Partnership by Estoppel – in reality is a not a
partnership but is considered as one only in
relation
6. As to legality of existence
 De jure Partnership – complied with all
requirements
 De facto Partnership – failed to comply with
one or more requirements
7. As to publicity
 Secret Partnership – existence of some
persons as partners is not made known
 Open Partnership – existence of certain
persons is made known to the public
 7. Manner of dividing net income and loss, including
salary, allowance, and interest on capital
Classes of Partners
8. Conditions wherein there were drawings for personal
1. As to contributions
use
 Capitalist Partner – contributes capital in cash 9. Manner of keeping the book of accounts
or property
 Industrial Partner – contributes industry, 10. Causes for dissolution
labor, skill, talent, or service
11. Provision for arbitration in settling disputes.
 Capitalist-Industrial Partner – contributes
cash, property, or industry

2. As to liability

 General Partner – liability to third persons

extends to own personal property
 Limited Partner – liability to third persons is
limited to only to the extent of contribution

3. As to management

 Managing Partner – who manages actively

the business
 Silent Partner – who does not participate in
the management of the business

4. Other Classifications

 Liquidating Partner – who takes charge of the

winding up of the partnership upon dissolution
 Nominal Partner – not really a partner, only
for the protection of the innocent third persons
 Ostensible Partner – takes active part in the
management and is known to the public
 Secret Partner – takes active part, but not
known to the public
 Dormant Partner - not active, not known,
both silent and secret partner

Partnership Contract

 Created by an oral or written agreement

 Written agreement among the partners
governing the formation, operations, and
dissolution of the partnership is referred to as
Articles of Co-Partnership

1. Name of the Partnership

2. Names and address of partners, classes of partners,

whether general or limited partner

3. Effective date of contract

4. Purpose and principal office of the business

5. Capital of the partnership and stated individual

contributions, description and agreed values

6. Rights and duties of each partner