Partnership

A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.

Article 1767 of the Civil Code of the Philippines. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.

CHARACTERISTIC OF PARTNERSHIP

• Existence of an agreement: Partnership is the outcome of an agreement between two or more persons to carry on business
• Existence of business
• Sharing of profits
• Agency relationship
• Membership
• Nature of liability
• Fusion of ownership and control
• Non-transferability of interest

A partnership is different from a corporation in many ways.

First, there is no time limit for the existence of the partnership as this depends on the agreement of the parties. On the other hand, a corporation can exist for a period not exceeding fifty (50) years.

Second, as to the beginning of juridical a partnership becomes a juridical person from the time the contract begins while in a corporation, it only becomes a juridical person upon registration with the Securities & Exchange Commission (SEC).

Third, although a partner may transfer his interest in a partnership to another, the transferee does not automatically become a partner unless all the other partners give their consent. However, in corporations, when the shares of stock are transferred to another, the transferee becomes a stockholder of the corporation.

Fourth, as to liability to third persons, partners may be held liable with their private and personal property while in corporations, the stockholders are generally liable only to the extent of their subscribed capital stock.

Lastly, a partnership may be dissolved due to the insolvency, civil interdiction, death, insanity or retirement of any of the partners while such grounds do not dissolve a corporation.

Like a corporation, a partnership has a separate juridical personality. Even if the partnership failed to register with the SEC, it still has a separate juridical personality. Thus, the partnership, as a separate person can acquire its own property, bring actions in court in its own name and incur its own liabilities and obligations. A partnership action is embodied in a Partners’ Resolution which is similar to a corporation’s Board Resolution.

Partnerships are recorded with the Securities & Exchange Commission (SEC). The following requirements must be submitted with the SEC:

1. Name Verification Slip with the reservation of the partnership   name:
2. Articles of Partnership:
3. Registration Data Sheet:
4. Affidavit of a partner undertaking to change partnership name
5. Certificate of Bank Deposit

If a partnership has foreign partners, the following additional requirements must be filed:

1. SEC Form No. F-105
2. Bank certificate on the capital contribution of the partners
3. For foreign partners who want to register their investments with the Bangko Sentral ng Pilipinas, proof of the remittance:

The following information should also be provided:

1. Name of the partnership
2. Principal office address
3. Telephone number of the partnership
4. Name, citizenship, address, birthday and TIN of the partners
5. Capital contribution of the partners
6. Purpose of the partnership

A partner has certain rights in the partnership. Thus, he has a share in the profits of the partnership and has the right to a specific partnership property. As a partner, he has a right to participate in the management, inspect partnership books and can in fact, demand for a formal accounting.

However, rights have corresponding obligations. Hence, a partner is obligated to give his contribution and share in the losses.

There are many types of partners, the common types of which are:

1. General partner:
2. Industrial partner (one who furnishes labor or industry):
3. Capitalist partner (one who give capital):
4. Limited partner (one who is liable only to the extent of his contribution)

Anent the liability, all partners are liable to third persons. However, as between the partners, the industrial partner is not liable for losses while a limited partner is liable only to the extent of his contribution

ESSENTIAL FEATURES OF PARTNERSHIP

1. There must be a valid contract (delectus personae – “Choice of the person”)
2. Legal capacity of the parties (Art 1327-1329)
3. 3. Mutual contribution of money, property and industry – MONEY – currency (medium of exchange) w/c is legal tender in the Philippines – PROPERTY – tangible/intangible, real/personal, movables/immovables, res alicujus – INDUSTRY – physical or mental ESSENTIAL FEATURES OF PARTNERSHIP
4. Lawful purpose/object – subject to the “Freedom to contract” clause – ART 1770 par 2 – Effects of an unlawful partnership • Contract is void ab initio • Profits will be confiscated in favor of the government • Instruments/proceeds/tools of the crime shall be forfeited in favor of the gov’t unless belonging to a 3rd person who did not participate but those not within the commerce of man will be destroyed
5. Lawful purpose/object – subject to the “Freedom to contract” clause
6. Primary purpose is to divide profits; carries with it the obligation to share in loss except for industrial partners but NOT in liabilities (Art 1769 vs Art 1816)

Advantages of a partnership include that: two heads (or more) are better than one. your business is easy to establish and start-up costs are low. more capital is available for the business.

Reference: ndvlaw.com