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Bam 241: Business Laws and Regulations

Lesson#1: Law on Partnership

Partnership, concept

(Art. 1767) A partnership is a

contract of two or more persons who 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. (1665a)

It is both:

• A contract (Art. 1768) and

• A business organization. It is a

juridical entity which has a

personality separate and distinct

from that of each of the partners.

(Art. 1768) It begins from the

moment of the execution of the

contract, unless it is otherwise

stipulated. (Art. 1784)

Characteristics of a contract of partnership

• Consensual - It is perfected by mere

consent.

• Principal - It does not depend upon

any other contract for its validity or

existence.

• Bilateral or multilateral - It is

entered into by two or more persons

whose rights and obligations are

reciprocal.

• Nominate - It has a special name

given to it by law. (Art. 1767)

• Preparatory - It is a means by

which other contracts will be

entered into as the partnership

pursues its business.

• Onerous - The partners contribute

money, property or industry to a

common fund. (Art. 1767)

Essential requisites of partnership

• There must be a valid contract. In

order for a partnership to exist,

there must be a voluntary

agreement among the parties to

carry on the business as partners. Its

formation cannot be imposed upon a

person because a partnership is a

fiduciary relationship. It operates

under the doctrine of delectus

personae (or personarum, in its

plural form), where a person is free

to choose those whom he wants to

be associated with in partnership.

• There must be a mutual contribution

of money, property or industry to a

common fund. (Art. 1767) The

property that may be contributed

may be real or personal, tangible or

intangible (such as goodwill or

incorporeal rights such as credit

rights). Industry may be physical

manual efforts or intellectual

industry. However, a limited partner

may contribute cash or other

property, but not services. (Art.

1845)

• It must have a lawful object or

purpose. (Art. 1770) Partnership,

being a contract, must have a lawful

object. If a partnership has an

unlawful object, it is void. If such

illegality constitutes a crime, the

partners will be criminally

prosecuted and the profits and

effects and instruments of the crime

will be confiscated in favor of the

government. (Art. 1770, Art. 45,

Revised Penal Code)

• The partnership must be established

for the common benefit or interest

of the partners which is to obtain

profits and to divide the profits

among the partners. (Arts. 1768,

1770) The very purpose of a

partnership business is to obtain

profits which is evident in the

definition of the contract itself. It is

an element that distinguishes it from

religious, civic and social

organizations. However, if a

partnership is formed for the

practice of a profession, its primary

purpose is not to obtain profits but

to render service to the public.

Form of a partnership contract A

partnership contract may be constituted in

any form, oral or written, except as

follows: 1. Where immovable property or

real rights are contributed to the

partnership (regardless of the amount

thereof) a. The partnership contract must

be in a public instrument; and b. An

inventory of the said property must be

made, signed by the parties and attached

to the public instrument. (Art. 1773)

Effect if the above requirements are not

complied with a. The partnership contract

is void. (Art. 1773) b. The partnership will

not have any juridical personality. 2.

Where the capital of the partnership is P3,

000.00 or more, in money or property a.

The partnership contract must be in a

public instrument, and b. Registered with

the Securities and Exchange Commission

(SEC). (Art. 1771) Effect if the above

requirements are not complied with a. The

partnership contract is still valid.

Accordingly, the partnership still acquires

juridical personality. (Arts. 1768, 1772) b.

The liability of the partnership and the

members thereof to third persons are not

affected. (Art. 1772) 3. If the partnership

is a limited partnership, a certificate

signed under oath by the partners and

recorded with the Securities and Exchange

Commission is required. Effect if

requirements are not complied with The

partnership will be considered as a general

Partnership. Who may become partners? 1.

Any natural person who is capacitated

may become a partner. 2. Artificial

persons like partnership and corporation

may likewise form a partnership with

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Bam 241: Business Laws and Regulations • given to it by law. (Art. 1767) Lesson#1: Law on Partnership • Partnership, concept (Art. 1767) Nominate - It has a special name Preparatory - It is a means by which A partnership is entered a contracts into as the will be partnership pursues its business. contract of two or more persons who bind themselves to contribute money, property other • Onerous - The partners contribute or industry to a common fund, with the money, property or industry to a intention of dividing the profits among common fund. (Art. 1767) themselves. Essential requisites of partnership Two or more persons may also form a partnership for the exercise of a • order for a partnership to exist, profession. (1665a) there • A contract (Art. 1768) and • A business juridical organization. entity personality (Art. It whi ...
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