LAW ON PARTNERSHIP

ATTY. TYRON KIM D. BACULO

PARTNERSHIP - by the contract of partnership, 2 or more persons bind themselves to

contribute money, property or industry to a common fund, with the intention of dividing
the profits among themselves
ESSENTIAL FEATURES:
1. There must be a valid contract
2. The parties must have legal capacity to enter into the contract
3. There must be a mutual contribution of money, property, or industry to a common
fund
4. The object must be lawful
5. The purpose or primary purpose must be to obtain profits and divide the same
among the parties
PARTNERSHIP DISTINGUISHED FROM CO-OWNERSHIP AND CORPORATION
Creation

Juridical
personality
Purpose

PARTNERSHIP
Created by a
contract, my mere
agreement of the
parties
Has a juridical
personality separate
and distinct from that
of each partner
Realization of profits

Duration/
Term of
existence

No limitation

Disposal/
Transferability
of interest

Partner may not

dispose of his
individual interest
unless agreed upon
by all partners
In absence of
stipulation to contrary,
a partner may bind
partnership (each
partner is agent of
partnership)
Death of partner
results in dissolution
of partnership

Power to act
with 3rd
persons

Effect of
deat
h
Dissolution

No. of
incorporators
Commencement of
juridical
personality

May be dissolved at
any time by the will of
any or all of the
partners
Minimum of 2
persons
From the moment of
execution of contract
of partnership

CO-OWNERSHIP
Created by law

CORPORATION
Created by law

None

Has a juridical
personality separate
and distinct from that
of each partner
Depends on AOI

Common enjoyment
of a thing or right
10 years maximum

Co-owner may freely

do so

Co-owner cannot
represent the coownership

Death of co-owner
does not necessarily
dissolve coownership
May be dissolved
anytime by the will of
any or all of the coowners
Minimum of 2
persons
From date of
issuance of certificate
of incorporation by
the SEC

50 years maximum,
extendible to not
more than 50 years in
any one instance
Stockholder has a
right to transfer
shares without prior
consent of other
stockholders
Management is
vested with the Board
of Directors

Death of stockholder
does not dissolve
corporation
Can only be dissolved
with the consent of
the state
Minimum of 5
incorporators

NO PRESUMPTION OF PARTNERSHIP FROM RECEIPT OF PROFITS:

1. As debt by installment
2. As wages or rent
3. As annuity
4. As interest on loan
5. As consideration for sale of goodwill of business/other property by installments
1

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

SIMILARITIES BETWEEN A PARTNERSHIP AND A CORPORATION

1. Both have juridical personality separate and distinct from that of the individuals
composing it
2. Both can only act through agents
3. Both organizations are composed of an aggregate of individuals (except corporation
sole)
4. Both distribute profits to those who contribute capital to the business
5. Both can only be organized when there is a law authorizing their organization
6. Both are taxable as a corporation
EFFECTS OF UNLAWFUL PARTNERSHIP
1. The contract is void ab initio and the partnership never existed in the eyes of the law
2. The profits shall be confiscated in favor of the government
3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of
the government
4. The contributions of the partners shall not be confiscated unless they fall under no. 3
FORM OF PARTNERSHIP CONTRACT
GENERAL RULE: No special form is required for the validity of the contract
EXCEPTIONS:
1. Where immovable property/real rights are contributed
a. Public instrument is necessary
b. Inventory of the property contributed must be made, signed by the parties and
attached to the public instrument otherwise it is VOID
2. Where capital is P3,000 or more, in money or property
a. Public instrument is necessary
b. Must be registered with SEC
CLASSIFICATIONS OF PARTNERSHIP
1. As to extent of its subject matter
a. UNIVERSAL PARTNERSHIP
i. UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY - comprises
the following:
a) Property which belonged to each of the partners at the time of the
constitution of the partnership
b) Profits which they may acquire from all property contributed
ii. UNIVERSAL PARTNERSHIP OF PROFITS - comprises all that the partners
may acquire by their industry or work during the existence of the partnership
Note: Persons who are prohibited from giving donations or advantage to
each other cannot enter into a universal partnership
b. PARTICULAR PARTNERSHIP - has for its objects:
i. Determinate things
ii. Their use or fruits
iii. Specific undertaking
iv. Exercise of profession or vocation
2. 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
b. LIMITED PARTNERSHIP - one formed by 2 or more persons having as
members one or more general partners and one or more limited partners, the
latter not being personally liable for the obligations of the partnership
3. 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

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

b. PARTNERSHIP WITH A FIXED TERM - the term for which the partnership is to
exist is fixed or agreed upon or one formed for a particular undertaking
4. As to legality of existence
a. DE JURE PARTNERSHIP - one which has complied with all the legal
requirements for its establishment
b. DE FACTO - one which has failed to comply with all the legal requirements for its
establishment
5. 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
6. As to publicity
a. SECRET PARTNERSHIP - one wherein the existence of certain persons as
partners is not avowed or made known to the public by any of the partners
b. OPEN OF NOTORIOUS PARTNERSHIP - one whose existence is avowed or
made known to the public by the members of the firm
7. 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
KINDS OF PARTNERS
1. CAPITALIST - one who contributes money or property to the common fund
2. INDUSTRIAL - one who contributes only his industry or personal service
3. GENERAL - one whose liability to 3rd persons extends to his separate property
4. LIMITED - one whose liability to 3rd persons is limited to his capital contribution
5. MANAGING - one who manages the affairs or business of the partnership
6. LIQUIDATING - one who takes charge of the winding up of partnership affairs upon
dissolution
7. PARTNERS BY ESTOPPEL - one who is not really a partner but is liable as a
partner for the protection of innocent 3rd persons
8. CONTINUING PARTNER - one who continues the business of a partnership after it
has been dissolved by reason of the admission of a new partner, retirement, death or
expulsion of one of the partners
9. SURVIVING PARTNER - one who remains after a partnership has been dissolved by
death of any partner
10. SUBPARTNER - one who is not a member of the partnership who contracts with a
partner with reference to the latter's share in the partnership
11. OSTENSIBLE - one who takes active part and known to the public as partner in the
business
12. SECRET - one who takes active part in the business but is not known to be a partner
by outside parties
13. SILENT - one who does not take any active part in the business although he may be
known to be a partner
14. DORMANT - one who does not take active part in the business and is not known or
held out as a partner
RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP
1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with 3rd persons with whom it contracts
4. Relations of the partners with such 3rd persons

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

OBLIGATIONS OF THE PARTNERS

A. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES
Obligations with respect to contribution of property:
1. To contribute at the beginning of the partnership or at the stipulated time the money,
property or industry which he may have promised to contribute
2. To answer for eviction in case the partnership is deprived of the determinate property
contributed
3. To answer to the partnership for the fruits of the property the contribution of which he
delayed, from the date they should have been contributed up to the time of actual
delivery
4. To preserve said property with the diligence of a good father of a family pending
delivery to partnership
5. To indemnify partnership for any damage caused to it by the retention of the same or
by the delay in its contribution
Effect of Failure to contribute property promised:
1. Partners becomes ipso jure a debtor of the partnership even in the absence of any
demand
2. Remedy of the other partner is not rescission but specific performance with damages
from defaulting partner
Obligations with respect to contribution of money and money converted to
personal use
1. To contribute on the date fixed the amount he has undertaken to contribute to the
partnership
2. To reimburse any amount he may have taken from the partnership coffers and
converted to his own use
3. To pay for the agreed or legal interest, if he fails to pay his contribution on time or in
case he takes any amount from the common fund and converts it to his own use
4. To indemnify the partnership for the damages caused to it by delay in the
contribution or conversion of any sum for his personal benefits
PROHIBITION AGAINST ENGAGING IN BUSINESS
PROHIBITION

REMEDY

INDUSTRIAL PARTNER
Industrial partner cannot engage
in business (w/n same line of
business with the partnership)
unless partnership expressly
permits him to do so
Capitalist partners may:
1. Exclude him from the firm, or
2. Avail themselves of the
benefits which he may have
obtained
3. Damages, in either case

CAPITALIST PARTNER
Capitalist partner cannot engage
in business (with same kind of
business with the partnership) for
his own account, unless there is
a stipulation to the contrary
Capitalist partner in violation
shall:
1. Bring to common fund any
profits accruing to him from
said transaction, and
2. Bear all losses

Note: It is believed that

industrial partners are also
entitled to the remedy granted
since
they
are
equally
prejudiced
Obligations with respect to contribution to partnership capital
1. Partners must contribute equal shares to the capital of the partnership unless there is
stipulation to contrary
2. Partners (capitalist) must contribute additional capital In case of imminent loss to the
business of the partnership and there is no stipulation otherwise; refusal to do so
shall create an obligation on his part to sell his interest to the other partners

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

Requisites:
a. There is an imminent loss of the business of the partnership
b. The majority of the capitalist partners are of the opinion that an additional
contribution to the common fund would save the business
c. The capitalist partner refuses deliberately to contribute (not due to financial
inability)
d. There is no agreement to the contrary
Obligation of managing partners who collects debt from person who also owed
the partnership
1. Apply sum collected to 2 credits in proportion to their amounts
2. If he received it for the account of partnership, the whole sum shall be applied to
partnership credit
Requisites:
a. There exist at least 2 debts, one where the collecting partner is creditor and the
other, where the partnership is the creditor
b. Both debts are demandable
c. The partner who collects is authorized to manage and actually manages the
partnership
Obligation of partner who receives share of partnership credit
1. Obliged to bring to the partnership capital what he has received even though he may
have given receipt for his share only
Requisites:
a. A partner has received in whole or in part, his share of the partnership credit
b. The other partners have not collected their shares
c. The partnership debtor has become insolvent
RISK OF LOSS OF THINGS CONTRIBUTED
Specific and determinate things which are not fungible
where only the use is contributed
Specific and determinate things the ownership of which
is transferred to the partnership
Fungible things (consumable)
Things contributed to be sold
Things brought and appraised in the inventory

Risk is borne by partner

Risk is borne by partnership
Risk is borne by partnership
Risk is borne by partnership
Risk is borne by partnership

RULES FOR DISTRIBUTION OF PROFITS AND LOSSES

DISTRIBUTION OF PROFITS
DISTRIBUTION OF LOSSES
With agreement
According to agreement
According to agreement
Without
1. Share of capitalist partner is 1. If sharing of profits is
agreement
in proportion to his capital
stipulated - apply to sharing
contribution
of losses
2. Share of industrial partner is 2. If no profit sharing
not fixed - as may be just
stipulated - losses shall be
and equitable under the
borne according to capital
circumstances
contribution
3. Purely industrial partner not
liable for losses
RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT
Partner is appointed
Power of managing partner Vote of partners
manager in the articles of
is irrevocable without
representing controlling
partnership
just/lawful cause;
interest necessary to
Revocable only when in
revoke power
bad faith
Partner is appointed
Power is revocable any
manager after constitution
time for any cause
of partnership
2 or more persons
Each may execute all acts
In case of opposition,
entrusted with
of administration
decision of majority shall
management of partnership
prevail; In case of tie,
5

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

without specification of
duties/stipulation that each
shall not act w/o the other's
consent
Stipulated that none of the
managing partners shall act
w/o the consent of others

decision of partners
owning controlling interest
shall prevail
Concurrence of all
necessary for the validity of
acts

Manner of management
not agreed upon

1. All partners are agents

of the partnership
2. Unanimous consent
required for alteration of
immovable property

Absence or disability of
any one cannot be alleged
unless there is imminent
danger of grave or
irreparable injury to
partnership
If refusal of partner is
manifestly prejudicial to
interest of partnership,
court's intervention may be
sought

Other rights and obligations of partners:

1. Right to associate another person with him in his share without consent of other
partners (subpartnership)
2. Right to inspect and copy partnership books at any reasonable hour
3. Right to a formal account as to partnership affairs (even during existence of
partnership):
a. If he is wrongfully excluded from partnership business or possession of its
property by his copartners
b. If right exists under the terms of any agreement
c. As provided by art 1807
d. Whenever other circumstances render it just and reasonable
4. Duty to render on demand true and full information affecting partnership to any
partner or legal representative of any deceased partner or of any partner under legal
disability
5. Duty to account to the partnership as fiduciary
B. PROPERTY RIGHTS OF A PARTNER
1. His rights in specific partnership property
2. His interest in the partnership
3. His right to participate in the management
Nature of partner's right in specific partnership property
1. Equal right to possession
2. Right not assignable
3. Right limited to share of what remains after partnership debts have been paid
Nature of partner's right in the partnership
1. Share of profits and surplus
C. OBLIGATION OF PARTNERS WITH REGARD TO 3RD PERSONS
1. Every partnership shall operate under a firm name. Persons who include their names
in the partnership name even if they are not members shall be liable as a partner
2. All partners shall be liable for contractual obligations of the partnership with their
property, after all partnership assets have been exhausted
a. Pro rata
b. Subsidiary
3. Admission or representation made by any partner concerning partnership affairs
within scope of his authority is evidence against the partnership
4. Notice to partner of any matter relating to partnership affairs operates as notice to
partnership except in case of fraud:
a. Knowledge of partner acting in the particular matter acquired while a partner
b. Knowledge of the partner acting in the particular matter then present to his
mind
c. Knowledge of any other partner who reasonably could and should have
communicated it to the acting partner

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

5. Partners and the partnership are solidary liable to 3rd persons for the partner's tort or
breach of trust
6. Liability of incoming partner is limited to:
a. His share in the partnership property for existing obligations
b. His separate property for subsequent obligations
7. Creditors of partnership preferred in partnership property & may attach partner's
share in partnership assets
8. Every partner is an agent of the partnership
POWER OF PARTNER AS AGENT OF PARTNERSHIP
Acts for carrying on in the usual way the business of the Every partner is an agent
partnership
and may execute acts with
binding effect even if he has
no authority
Except: when 3rd person
has knowledge of lack of
authority
1. Act w/c is not apparently for the carrying of business Does not bind partnership
in the usual way
unless authorized by other
partners
2. Acts of strict dominion or ownership:
a. Assign partnership property in trust for
creditors
b.

Dispose of good-will of business

c.

Do an act w/c would make it impossible to

carry on ordinary business of partnership

d.

Confess a judgement

e.

Enter
into
compromise
partnership claim or liability

concerning

f.

Submit partnership
arbitration

or

to

claim

liability

g. Renounce claim of partnership

Acts in contravention of a restriction on authority

Partnership not liable to 3rd

persons having actual or
presumptive knowledge of
the restrictions

EFFECTS OF CONVEYANCE OF REAL PROPERTY BELONGING TO PARTNERSHIP

Title in partnership name, Conveyance passes title but partnership can recover
Conveyance in partnership if:
name
1. Conveyance was not in the usual way of business,
or
2. Buyer had knowledge of lack of authority
Title in partnership name, Conveyance does not pass title but only equitable
Conveyance in partner's interest, unless:
name
1. Conveyance was not in the usual way of business,
or
2. Buyer had knowledge of lack of authority
Title in name of 1/ more Conveyance passes title but partnership can recover
partners, Conveyance in if:
name if partner/partners in
whose name title stands
1. Conveyance was not in the usual way of business,

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

or
2. Buyer had knowledge of lack of authority
Title in name of 1/more/all Conveyance will only pass equitable interest
partners or 3rd person in trust
for partnership, Conveyance
executed
in
partnership
name of in name of partners
Title in name of all partners, Conveyance will pass title
Conveyance in name of all
partners
PARTNER BY ESTOPPEL; PARTNERSHIP BY ESTOPPEL
Partner by estoppel - by words or conduct, he does any of the ff.:
1. Directly represents himself to anyone as a partner in an existing partnership or in a
non-existing partnership
2. Indirectly represents himself by consenting to another representing him as a partner
in an existing partnership or in a non existing partnership
Elements to establish liability as a partner on ground of estoppel:
1. Defendant represented himself as partner/represented by others as such and not
denied/refuted by defendant
2. Plaintiff relied on such representation
3. Statement of defendant not refuted
Liabilities in estoppel
All partners consented to representation
No existing partnership & all those represented
consented;
Not all partners of existing partnership consents to
representation
No existing partnership & not all represented consented;
None of partners in existing partnership consented

Partnership is liable
Person who represented
himself & all those who
made representation liable
pro-rata/jointly
Person who represented
himself liable & those who
made/consented
to
representation separately
liable

D. RESPONSIBILITY OF PARTNERSHIP TO PARTNERS

1. To refund the amounts disbursed by partner in behalf of the partnership +
corresponding interest from the time the expenses are made (loans and advances
made by a partner to the partnership aside from capital contribution)
2. To answer for obligations partner may have contracted in good faith in the interest of
the partnership business
3. To answer for risks in consequence of its management
DISSOLUTION AND WINDING UP
DISSOLUTION - change in the relation of the partners caused by any partner ceasing to
be associated in the carrying on of the business; partnership is not terminated but
continues until the winding up of partnership affairs is completed
WINDING UP - process of settling the business or partnership affairs after dissolution
CAUSES OF DISSOLUTION:
1. Without violation of the agreement between the partners
a. By termination of the definite term/ 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 undertaking is specified
c. By the express will of all the partners who have not assigned their interest/
charged them for their separate debts, either before or after the termination of
any specified term or particular undertaking

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

2.
3.
4.
5.
6.
7.
8.

d. By the expulsion of any partner from the business bonafide in accordance

with power conferred by the agreement
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 at any time
By any event which makes it unlawful for business to be carried on/for the members
to carry it on for the partnership
Loss of specific thing promised by partner before its delivery
Death of any partner
Insolvency of a partner/partnership
Civil interdiction of any partner
Decree of court under art 1831

GROUNDS FOR DISSOLUTION BY DECREE OF COURT (art 1831)

1. Partner declared insane in any judicial proceeding or shown to be of unsound mind
2. Incapacity of partner to perform his part of the partnership contract
3. Partner guilty of conduct prejudicial to business of partnership
4. Willful or persistent breach of partnership agreement or conduct which makes it
reasonably impracticable to carry on partnership with him
5. Business can only be carried on at a loss
6. Other circumstances which render dissolution equitable
Upon application by purchaser of partner's interest:
1. After termination of specified term/particular undertaking
2. Anytime if partnership at will when interest was assigned/charging order issued
EFFECTS OF DISSOLUTION:
A. AUTHORITY OF PARTNER TO BIND PARTNERSHIP
General Rule: Authority of partners to bind partnership is terminated
Exception:
1. Wind up partnership affairs
2. Complete transactions not finished
Qualifications:
1. With respect to partners a. Authority of partners to bind partnership by new contract is immediately
terminated when dissolution is not due to ACT, DEATH or INSOLVENCY (ADI) of
a partner (art 1833);
b. If due to ADI, partners are liable as if partnership not dissolved, when the ff.
concur:
i. If cause is ACT of partner, acting partner must have knowledge of such
dissolution
ii. If cause is DEATH or INSOLVENCY, acting partner must have knowledge/
notice
2. With respect to persons not partners (art 1834) a. Partner continues to bind partnership even after dissolution in ff. cases:
(1) Transactions in connection to winding up partnership affairs/completing
transactions unfinished
(2) Transactions which would bind partnership if not dissolved, when the other
party/obligee:
(a) Situation 1 i. Had extended credit to partnership prior to dissolution &
ii. Had no knowledge/notice of dissolution, or
(b) Situation 2 i. Did not extend credit to partnership
ii. Had known partnership prior to dissolution
iii. Had no knowledge/notice of dissolution/fact of dissolution not
advertised in a newspaper of general circulation in the place where
partnership is regularly carried on
b. Partner cannot bind the partnership anymore after dissolution:

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

(1) Where dissolution is due to unlawfulness to carry on with business (except:

winding up of partnership affairs)
(2) Where partner has become insolvent
(3) Where partner unauthorized to wind up partnership affairs, except by
transaction with one who:
(a) Situation 1 i. Had extended credit to partnership prior to dissolution &
ii. Had no knowledge/notice of dissolution, or
(b) Situation 2 i. Did not extend credit to partnership prior to dissolution
ii. Had known partnership prior to dissolution
iii. Had no knowledge/notice of dissolution/fact of dissolution not
advertised in a newspaper of general circulation in the place
where partnership is regularly carried on
B. DISCHARGE OF LIABILITY
Dissolution does not discharge existing liability of partner, except by agreement
between:
(1) partner himself
(2) person/partnership continuing the business
(3) partnership creditors
Rights of partner where dissolution not in contravention of agreement
1. Apply partnership property to discharge liabilities of partnership
2. Apply surplus, if any to pay in cash the net amount owed to partners
Rights of partner where dissolution in contravention of agreement
1. Partner who did not cause dissolution wrongfully:
a. Apply partnership property to discharge liabilities of partnership
b. Apply surplus, if any to pay in cash the net amount owed to partners
c. Indemnity for damages caused by partner guilty of wrongful dissolution
d. Continue business in same name during agreed term
e. Posses partnership property if business is continued
2. Partner who wrongly caused dissolution:
a. If business not continued by others - apply partnership property to discharge
liabilities of partnership & receive in cash his share of surplus less damages
caused by his wrongful dissolution
b. If business continued by others - have the value of his interest at time of
dissolution ascertained and paid in cash/secured by bond & be released from all
existing/future partnership liabilities
Rights of injured partner where partnership contract is rescinded on ground of
fraud/misrepresentation by 1 party:
1. Right to lien on surplus of partnership property after satisfying partnership liabilities
2. Right to subrogation in place of creditors after payment of partnership liabilities
3. Right of indemnification by guilty partner against all partnership debts & liabilities
C. SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS
Assets of the partnership:
1. Partnership property (including goodwill)
2. Contributions of the partners
Order of Application of Assets:
1. Partnership creditors
2. Partners as creditors
3. Partners as investors - return of capital contribution
4. Partners as investors - share of profits if any
D. WHEN BUSINESS OF DISSOLVED PARTNERSHIP IS CONTINUED:
1. Creditors of old partnership are also creditors of the new partnership which continues
the business of the old one w/o liquidation of the partnership affairs

10

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

2. Creditors have an equitable lien on the consideration paid to the retiring /deceased
partner by the purchaser when retiring/deceased partner sold his interest w/o final
settlement with creditors
3. Rights if retiring/estate of deceased partner:
a. To have the value of his interest ascertained as of the date of dissolution
b. To receive as ordinary creditor the value of his share in the dissolved
partnership with interest or profits attributable to use of his right, at his option
Right to Account - may be exercised by:
1. Winding up partner
2. Surviving partner
3. Person/partnership continuing the business
Manner of Winding Up
1. Judicially
2. Extrajudicially
Persons Authorized to Wind Up
1. Partners designated by the agreement
2. In absence of agreement, all partners who have not wrongfully dissolved the
partnership
3. Legal representative of last surviving partner
LIMITED PARTNERSHIP
CHARACTERISTICS
1. Formed by compliance with statutory requirements
2. One or more general partners control the business
3. One or more general partners contribute to the capital and share in the profits but do
not participate in the management of the business and are not personally liable for
partnership obligations beyond their capital contributions
4. May ask for the return of their capital contributions under conditions prescribed by
law
5. Partnership debts are paid out of common fund and the individual properties of
general partners
DIFFERENCES BETWEEN GENERAL AND LIMiTED PARTNER/PARTNERSHIP
GENERAL
LIMITED
Personally liable for partnership
Liability extends only to his capital
obligations
contributions
When manner of mgt. not agreed upon,
No participation in management
all gen partners have an equal right in the
mgt. of the business
Contribute cash, property or industry
Contribute cash or property only, not
industry
Proper party to proceedings by/against
Not proper party to proceedings
partnership
by/against partnership
Interest not assignable w/o consent of
Interest is freely assignable
other partners
Name may appear in firm name
Name must appear in firm name
Prohibition against engaging in business
No prohibition against engaging in
business
Retirement, death, insolvency, insanity of Does not have same effect; rights
gen partner dissolves partnership
transferred to legal representative
REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP
1. Certificate of articles of the limited partnership must state the ff. matters:
a. Name of partnership + word "ltd."
b. Character of business
c. Location of principal place of business
d. Name/place of residence of members
11

LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

e.
f.
g.
h.
i.
j.
k.
l.
m.

Term for partnership is to exist

Amount of cash/value of property contributed
Additional contributions
Time agreed upon to return contribution of limited partner
Sharing of profits/other compensation
Right of limited partner (if given) to substitute an assignee
Right to admit additional partners
Right of limited partners (if given) to priority for contributions
Right of remaining gen partners (if given) or continue business in case of
death, insanity, retirement, civil interdiction, insolvency
n. Right of limited partner (if given) to demand/receive property/cash in return
for contribution
2. Certificate must be filed with the SEC
WHEN GENERAL PARTNER NEEDS CONSENT/RATIFICATION OF ALL LTD
PARTNERS:
1. Do any act in contravention of the certificate
2. Do any act which would make it impossible to carry on the ordinary business of the
partnership
3. Confess judgement against partnership
4. Possess partnership property/assign rights in specific partnership property other than
for partnership purposes
5. Admit person as general partner
6. Admit person as limited partner - unless authorized in certificate
7. Continue business with partnership property on death, retirement, civil interdiction,
insanity or insolvency of gen partner unless authorized in certificate
SPECIFIC RIGHTS OF LIMITED PARTNERS:
1. Right to have partnership books kept at principal place of business
2. Right to inspect/copy books at reasonable hour
3. Right to have on demand true and full info of all things affecting partnership
4. Right to have formal account of partnership affairs whenever circumstances render it
just and reasonable
5. Right to ask for dissolution and winding up by decree of court
6. Right to receive share of profits/other compensation by way of income
7. Right to receive return of contributions provided the partnership assets are in excess
of all its liabilities
LOAN AND OTHER BUSINESS TRANSACTIONS WITH LIMITED PARTNERSHIP
1. Allowed
a. Granting loans to partnership
b. Transacting business with partnership
c. Receiving pro rata share of partnership assets with general creditors if he is
not also a general partner
2. Prohibited
a. Receiving/holding partnership property as collateral security
b. Receiving any payment, conveyance, release from liability if it will prejudice
right of 3rd persons
REQUITES FOR RETURN OF CONTRIBUTION OF LIMITED PARTNER:
1. All liabilities of partnership have been paid/if not yet paid, at least sufficient to cover
them
2. Consent of all members has been obtained
3. Certificate is cancelled/amended as to set forth withdrawal /reduction of contribution
LIABILITY OF LIMITED PARTNER
AS CREDITOR
1. Deficiency in contribution
2. Unpaid contribution

AS TRUSTEE
Specific property stated as contributed but
not yet contributed/wrongfully returned
Money/other property wrongfully paid/
conveyed to him on account of his
contribution

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LAW ON PARTNERSHIP
ATTY. TYRON KIM D. BACULO

DISSOLUTION OF LIMITED PARTNERSHIP

Priority in Distribution of Assets:
1. Those due to creditors, including limited partners
2. Those due to limited partners in respect of their share in profits/compensation
3. Those due to limited partners of return of capital contributed
4. Those due to general partner other than capital & profits
5. Those due to general partner in respect to profits
6. Those due to general partner for return of capital contributed
AMENDMENT/CANCELLATION OF CERTIFICATE
Cancelled:
1. Partnership is dissolved other than by reason of expiry of term
2. All limited partners cease to be such
Amended:
1. Change in name of partnership, amount/character of contribution of ltd. partner
2. Substitution of ltd. partner
3. Admission of additional ltd. partner
4. Admission of gen. partner
5. Death, insolvency, insanity, civil interdiction of gen. partner & business is
continued
6. Change in character of business
7. False/erroneous statement in certificate
8. Change in time as stated in the certificate for dissolution of partnership/return of
contribution
9. Time is fixed for dissolution of partnership. Return of contribution if no orig. time
specified
10. Change in other statement in certificate

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