Partnerships Flashcards
What is a partnership?
By the contract of partnership, two or more persons bind themselves to contribute money, property and industry to a common fund, with the intention of dividing the profits among themselves.
Does partnership has a juridical personality separate and distinct from that of each partners? What are its implications?
Yes. As an independent juridical person, a partnership may enter into contracts, acquire and possess property of all kinds in its name, as well as incur obligations and bring civil or criminal actions in conformity with the laws and regulations of its organizations.
The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for a fraudulent, unfair, or illegal purpose.
What are the characteristics of partnership?
P3-C3-BON
Principal- does not depend for its existence
Preparatory- entered as a means to an end
Profit-oriented- purpose is for profit and not just common enjoyment
Commutative- undertaking of each one is considered equal with the others
Consensual- perfected by mere consent
Capable of suit- endowed with legal personality, unless it is an unlawful partnership. It can be sue and be sued.
Bilateral- entered by two or more persons and the rights and obligations arising therefrom are always reciprocal
Onerous- certain contributions have to be made
Nominate- has a special designation in law
What are the salient features of ordinary partnership?
- Community of interest in profits and losses
- Community of interest in the capital employed
- Community of power in administration
What are the essential requisites of partnership?
C3-O-P2-S2
- There must be a valid CONTRACT
- the relation is fundamentally contractual for it considers the essential elements such as (cause, object and consideration
- it is fiduciary in character in which the element of delectus personae exists - The parties have legal CAPACITY to enter into the contract.
- There must be a mutual CONTRIBUTION of money, property, or industry, or industry to a common fund.
- The OBJECT or purpose must be lawful.
- The primary PURPOSE must be to obtain profits to divide the same among the parties.
- There must be at least one general partner
- There must be Affectio Societaties
- The articles of partnership must not be kept SECRET among the members
Differentiate Partnership and Corporation
1.Parternship
2. Corporation
As to creation
1. Created by mere agreement
2. created by law or by operation of law
As to number of incorporators
1. at least 2 persons
2. there may be only 1 incorporator but not more than 15 in number
As to commencement of Juridical personality
1. from the moment of execution of the contract of partnership
2. from the date of issuance of the certificate of incorporation by the SEC
As to powers
1. may exercise any power authorized by the partners
2. can exercise only the powers expressly granted by law or implied from those granted or incident to its existence
As to management
1. when management is not agreed upon, every partner is an agent of the partnership
2. vested in the board of directors or trustees
As to effect of mismanagement
1. a partner, as such, can sue a co-partner who mismanages
2. The suit against a member of the board of directors or trustees who mismanages must be in the name of the corporation
As to right of succession
1. no such right
2. has such right
As to extent or liability to third persons
1. partners are generally liable for partnership debts to third persons
2. stockholders are liable only to the extent of the shares subscribed by them
As to term of existence
1. may be established for any period of time stipulated by the partners
2. shall have perpetual existence unless its articles of incorporation provide otherwise
As to firm name
1. Limited partnership is required by law to add the word LTD to its name
2. not the same or similar to any registered firm name
As to dissolution
1. may be dissolved at any time by any or all of the partners
2. can only be dissolved with the consent of the State
As to governing law
1. governed by the contract and the civil code
2. governed by the RCC
What are the rules to determine the existence of a partnership?
NCR-SHARE
1. GR. Persons who are NOT partners as to each other are not partners as to third persons.
XPN: Partnership by estoppel
- CO-OWNERSHIP or co-possession of a property does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property.
- Sharing of gross RETURNS alone does not of itself indicate a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived
- Receipt by a person of SHARE in the profits is a prima facie evidence that he is a partner in the business; sharing in the net profits presupposes sharing in the losses.
XPN:DIWAC
a. as a DEBT by installments or otherwise
b. as INTEREST on a loan, though the amount of payment varies with the profits of the business
c. as WAGES of an employee or rent to a landlord
d. as an ANNUITY to a widow or representative of a deceased partner
e. as the CONSIDERATION for the sale of a goodwill of a business or other property by installments or otherwise
What is the object or purpose of partnership?
A partnership must have a lawful object and must be established for the common benefit or interest of the partners
What are the formal requirements of a partnership contract?
GR: A partnership may be constituted in any form
XPN:
a. If Real property or real right is contributed
b. if it is covered by the Statute of Frauds
c. A limited partnership cannot be constituted orally
A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.
Form if Personal property is contributed
a. if capital is less than 3K= no special form
b. If capital is 3K or more= it shall appear in public instrument and must be recorded in the office of SEC
Form if Real Property is Contributed
a. must be in writing in a public instrument
b. an inventory of the property contributed, signed by the parties, is attached to the public instrument.
Form if personal
What are the classifications of partnership?
As to object
a. Universal Partnership
Of all present property
of profits
b. Particular Partnership- on which has for its object (DFUSE)
DETERMINAE things
their USE or FRUITS
A SPECIFIC undertaking
The EXERCISE of a profession or vocation
As to liability of Partners
a. General Partnership- where all the partners are liable pro rata with all their property after the partnership assets have been exhausted
b. Limited partnership- where the limited partners shall not be bound by the obligations of the partnership in excess of his capital contribution
As to duration
a. Partnership at will- no fixed term or undertaking
b. Partnership with a fixed period
c. Partnership for a particular undertaking- automatically dissolved upon the achievement of the particular undertaking stipulated in the contract of partnership
What do you mean by “universal partnership of all present property”?
One wherein the partners contribute all the property which actually belong to them to a common fund, with the intention of diving the same among themselves, as well as the profits which they may acquire therewith.
What do you mean by “universal partnership of profits”?
One which comprises all that the partners may acquire by their industry or work during the existence of the partnership and the USUFRUCT of movable or immovable property which each of the partners may possess at the time of the celebration of the contract.
What is the underlying presumption if there is no specification of its nature in the articles of universal partnership?
Articles of partnership, entered into without specification of its nature, only constitute a universal partnership of profits.
Differentiate Universal Partnership of all present property and Universal Partnership of profits
- Universal partnership of all present property
- Universal partnership of profits
As to coverage
1. all present property actually belonging to the partners are contributed to the partnership, which become common property of all the partners and the partnership
2. Property, which the partners owned at the time of the celebration of the contract, shall continue to pertain to them. Only the usufruct (use and fruits) shall become common property
As to profits
1. only profits derived from the property contributed become common property but not profits arising from other property of the partners. The latter points, however, may by stipulation be considered as common property for the enjoyment of all
2. All profits acquired through the “industry or work” of the partners become common property
Differentiate universal partnership and particular partnership
As to subject matter
Universal partnership encompasses all the present properties of the partners. or to all of the profits
Particular partnership deals with determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation
May a husband and wife form or be partners in a general professional partnership?
Yes. It is a particular partnership for the exercise of a common profession or occupation.
What are the different kinds of partners?
As to the nature of contribution
Capitalist partner contributes money or property
Industrial partner contributes only his industry or personal service
Differentiate capitalist partner and industrial partner
As to prohibition to engage in other business
CP- cannot generally engage in the same or similar enterprise as that of his firm, unless there is a stipulation to the contrary
IP- cannot engage in any business for himself, unless the partnership expressly permits him to do so
As to profits
CP- Shares in the profits according to agreement thereon; if none, pro rata to his contribution
IP- receives a just and equitable share
As to losses
CP
1. First, the stipulation as to losses,
2. If none, the agreement as to profits
3. If none, pro rata to contribution
IP- Exempted as to losses as between partners, but is liable to third persons, without prejudice to reimbursement from the capitalist partners
What are the relations created by the contract of partnership?
- Relations among the partners themselves
- Relations of the partners with the partnership
- Relations of the partnership with third persons with whom it contracts
- Relations of the partners with such third persons
What are some of the obligations of a partner?
- to give his contribution
- not to convert firm money or property to his own use
- not to engage in unfair competition with his own firm
- to account for and hold as trustee, unauthorized personal profits
- pay damages caused by his fault
- duty to credit to the firm, payment made by a debtor who owes him and the firm
- to share with the other partners the share of the partnership credit which he has received from an insolvent firm debtor
What are the obligations of partners among themselves?
- Obligation with respect to CONTRIBUTION of Property
- Obligations with respect to CONTRIBUTION of Money and Money Converted to personal use
- Obligation not to engage in other business for himself
- Obligation to contribute capital and additional capital
- Obligation of Managing partner who collects debt
- Obligation of partner who receives share in partnership credit
- Obligation of partner for damages to partnership
- duty to render information
- obligation to account for any benefit and hold as trustee unauthorized personal profits
What are the implications of the obligation to contribute property among partners?
CoW-DADI
1. to CONTRIBUTE what had been promised
- to WARRANT specific and determinate property contributed to the partnership in case of eviction
- to DELIVER the fruits of the property from the time they should have been delivered, without the need of any demand
- when contribution is in goods, the amount thereof must be determined by proper APPRAISAL of the value thereof at the time of contribution
- to preserve the property with the DILIGENCE of a good father of a family pending delivery to the partnership
- to INDEMNIFY for any interest and damages caused by the retention of the property or by delay in its obligation to contribute a sum of money
What is the rule with regards to the amount, time and delay in the giving of contribution by the partners?
As to the amount, unless there is stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership
As to when, the contribution must be provided upon perfection of the contract, except if the partners stipulate otherwise
As to the issue of delay, he becomes a debtor for the interest and damages from the time he should have complied with his obligation
What are the prohibitions between the partners?
Industrial partner cannot engage in any business for himself unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or of avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages.
Capitalist partner is prohibited only to any operation which is of the same or similar kind of business in which the partnership is engaged, unless there is a stipulation to the contrary.
XPN to CP’s prohibition:
1. Expressly stated that he can engage
2. Other partners allowed him to do so
3. during period of liquidation and winding up, the partnership is already non-existent
4. the general-capitalist partner becomes a limited partner in a competitive enterprise
What are the provisions regarding the contribution of capital and additional capital?
CONTRIBUTION TO PARTNERSHIP CAPITAL
GR: the partners shall contribute capital shares
XPN:
a. when there is stipulation to the contrary
b. industrial partner
XPN to XPN: Unless besides his services, he has contributed capital pursuant to an agreement to that effect.
CONTRIBUTION OF ADDITIONAL CAPITAL
GR: A partner is not bound to contribute additional capital.
XPN:
a. when there is an agreement to the contrary
b. in case of imminent loss of the business, and there is no agreement to the contrary, capitalist partners are under the obligation to contribute an additional share to save the venture. If he refuses to contribute, he shall be obliged to sell his interest in the partnership to other partners.
What are the provisions regarding the collection of debts by the managing partner?
GR: Where a person is separately indebted to the partnership and to the managing partner at the same time, any sum received by the latter, shall be applied to the two credits in proportion to their amounts even though he may have given a receipt for his own credit only.
XPN:
a. where he received entirely for the account of the partnership, in which case the whole sum shall be applied to the partnership credit only
b. if the collecting partner is not a managing partner. There is no basis for the suspicion that the partner is in bad faith.
What are the rules for the distribution of profits?
a. if there is an agreement
The profits shall be distributed in conformity with the agreement. however, they cannot stipulate that one or more partners shall be excluded from the profits and losses.
b. if there is no agreement
i. share of capitalist partner shall be in proportion to his capital contribution
ii. industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as may be just and equitable under the circumstances
c. if the industrial partner also contributed money or property, he is considered a double contributor or a capitalist industrial partner. As far as his contribution of capital is concerned, he shall, in addition, also receive share in the profits in proportion to the amount of the capital he had contributed to the firm.
What are the rules regarding distribution of losses?
a. The losses shall be distributed in conformity with the agreement subject to Art. 1799
b. 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;
c. in the absence of stipulation as to the share of each partner in the profits, in proportion to what he may have contributed.
Note: If there is no profit sharing ration stipulated, then the losses shall be divided in proportion ito ther capital contributions.
What stipulation regarding sharing of profits and losses is considered void?
A stipulation excluding a partner from any share in the profits or losses is void.
Reason: The partnership must exist for the common benefit and interests of partners.
What are the implications if the manner of management has been provided for in the partnership agreement?
WHEN A PARTNER HAS BEEN APPOINTED MANAGER IN THE ARTICLES OF PARTNERSHIP
Extent of power: He may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith.
The power of the managing partner appointed in the Articles of Partnership is generally irrevocable. It can be revoked only:
i. Upon showing of just and lawful cause
ii. upon the vote of the partners representing the controlling interest
WHEN A PARTNER HAS BEEN APPOINTED AS MANAGER after THE CONSTITUTION OF THE PARTNERSHIP
Power to act may be revoked at any time for any cause whatsoever.
Reason: such appointment is a mere delegation of power.
Extent of power: As long as he remains manager, he can perform all acts of administration, but if others oppose and he persists, he can be removed.
What are the rules when 2 or more partners have been entrusted with the management?
WITHOUT SPECIFICATION OF THEIR RESPECTIVE DUTIES AND WITHOUT STIPULATION THAT ONE OF THEM SHALL NOT ACT WITHOUT THE CONSENT OF ALL THE OTHERS
GR: Each one may execute all acts of administration
XPN: if any such partner should oppose,
i. Decision of the majority of the managing partners shall prevail; or
ii. In case of a tie, decision of the partners having the controlling interest shall prevail, provided that they are also managers
WHEN STIPULATION REQUIRING UNANIMITY OF ACTION
In case it should have been stipulated that none of the managing partners shall act without the consent of the others.
GR: The concurrence of ALL shall be necessary for the validity of the acts and absence or disability of any managing partner cannot be alleged.
XPN: When there is an imminent danger of grave or irreparable injury to the partnership.
What are the rules when the manner of management has not been agreed upon?
All partners shall be considered agents and whatever any one of them may do alone binds the partnership (without prejudice to the provisions of Art 1801)
XPN: None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership.
XPN to XPN: But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s intervention may be sought.
What are the Rights of a partner?
PRA3ID
1. Property rights of a partner
2. Right to reimbursement for amounts advanced to the partnership and to indemnification for risks in consequence of management
3. Right to ASSOCIATE with another person in his share
4. Right of ACCESS and inspection of partnership books
5. Right to a formal ACCOUNT of partnership affairs under certain circumstances
6. Right to demand true and full information of all things affecting the partnership.
7. Right to demand true and full information of all things affecting the partnership
8. Right to compensation
9. Right to reimbursement
What are the property rights of a partner?
SIM
1. SPECIFIC partnership property
2. INTEREST in the Partnership
3. MANAGEMENT participation
What are the circumstances for a partner to assert its right to a formal account of partnership affairs?
WAPO
1. If he is WRONGFULLY excluded from the partnership business or possession of its property by his co-partners
2. if the right exists under the terms of any AGREEMENT
3. If a partner has derived PROFITS from any transaction connected with the formation, conduct or liquidation of the partnership or from any use by him of its property
4. Whenever OTHER circumstances render it just and reasonable
What is the rule regarding the right to specific partnership property?
a. Contemplates tangible property
b. The specific partnership property belongs to the partnership. The partners have no actual interest in it until after dissolution
c. The right over a specific partnership property is not subject to attachment or execution except if it is based on a claim against the partnership itself
