The Law on Partnership CHAPTER 1 Part 1


everyone this subject introduces the

students to the basic legal concepts


to business organizations particularly


corporations and cooperatives

the requirements in this course will

include the following

periodical examinations for the first


prelims midterms and finals assignments

online quizzes research work which will

include comments on legal memes that

will be uploaded in the facebook group

we will cover the law and partnerships

for the prelim period

to start off we will talk about the

general provisions relating to the


contract as a guide to the succeeding


take note of the following topics 1.

the kinds of persons under the law 2.

the kinds of business organizations


the legal definition of partnership four

the characteristic elements of


five the essential elements of


six the rules in determining the

existence of a partnership

seven the kinds of partnership eight

the classifications of businesses nine

the kinds of partners ten the comparison


general and limited partners as well as

the between limited partnership

and general partnership what are the

kinds of persons under the civil code

the first kind of persons under the city

code refer to

the natural person or the physical

individual person

under article 40 it is provided that

birth determines personality

but the conceived child shall be

considered born for all purposes that

are favorable to it

provided to be more later with the

conditions specified

in the following article article 41

states that for civil purposes

the fetus is considered born if it is

alive at the time

it is completely delivered from the

mother's womb however

if the fetus had an intrauterine life of

less than seven months

it is not team born if it dies within 24


after its complete delivery from the

maternal womb

article 42 provides that the civil

personality is extinguished by

death the effect of death upon the

rights and obligations of the deceased

is determined by

law by contract and by will article 43


that if there is a doubt as between two

or more persons who are called to

succeed each other

as to which of them died first whoever

alleges the death of one prior

to the other shall prove the same in the

absence of proof

it is presumed that they died at the

same time and there shall be no

transmission of rights from one to the


the other kind of person under the civil

code referred to the artificial person

artificial persons unlike the natural


do not physically breath or live the

juridical entities are considered

persons because the law says so

article 44 states that the following are

juridical persons

one the state and its political


to other corporations institutions and

entities for public interest or purpose

created by law

their personality begins as soon as they

have been constituted according to law

three corporations partnerships and

associations for a private interest or

purpose to which the law grants a

juridical personality

separate and distinct from that of each


partner or member article 45

provides that your radical persons

mentioned in numbers one

and two of the preceding articles are

governed by the laws creating or

recognizing them

private corporations are regulated by

laws of general application on the


partnerships and associations for

private interest or purpose are governed

by the provisions of the civil code

concerning partnerships

but what is the legal implication if an

entity is considered a person

article 46 states the juritical persons

may acquire and possess property of all


as well as incur obligations and bring

civil or criminal actions

in conformity with the laws and

regulations of their organization

article 47 likewise states that upon the

dissolution of corporations

institutions and other entities for

public interest or purpose mentioned in

number two of article 44

their property and other assets shall be

disposed of impersonates of law

or the charter creating them if nothing

has been specified on this point

the property and other assets shall be

applied to similar purposes for the

benefit of the region

province city or municipality which

during the existence of the institution


the principal benefits from the same in

other words

a person has civil rights and obligation

a juridical person can acquire

properties in his or her own name and

the same is true with the juridical


a natural person may have obligations

similar to that of the juridical

entities like payment of taxes

natural persons can marry while

juridical persons can merge or


however natural persons can participate

in electing the president of the country

while the artificial persons do not have

that right of suffrage

the life of a natural person ends in

death while that of the artificial

person is snuffed out by dissolution

what are the common kinds of business


one business organization is the sole


the sole proprietorship is a business

structure owned by an individual

who has full control or authority of the

business and owns all the assets

personally owes answers to all

liabilities or suffers all losses

but enjoys all the profits to the

exclusion of others

a sole proprietorship must apply for a

business name and be registered with the

department of trade and industry

dti another type of business


is the partnership under the civil code

of the philippines

the partnership is treated as juridical

person having a separate legal

personality from that of its members

partnerships may either be general

partnerships where the partners have

unlimited liability for the debts

and obligation of the partnership or

limited partnerships

where one or more general partners have

unlimited liability and the limited

partners have liability only up to the

amount of their capital contributions

it consists of two or more partners a

partnership with more than 3 000 pesos

as capital must register with the

securities and exchange commission

sec another type of business


is the corporation a corporation is

composed of juridical persons

established under the revised

corporation code

and regulated by the securities and

exchange commission

the corporation has a personality

separate and distinct from that of its


the liability of the shareholders of a

corporation is limited to the amount of

their share capital

corporations can consist of 1 to 15


each of whom must hold at least one

share and must be registered with the

securities and exchange commission a

corporation can either be stock or

non-stock company

regardless of nationality such company

if 60 filipino and 40 percent foreign

owned is considered a filipino


if more than forty percent foreign owned

it is considered a domestic foreign

owned corporation

another type of business organization is

the cooperative

a cooperative also known as co-op

is an autonomous association of persons

united voluntarily to meet their common


social and cultural needs and

aspirations through a jointly owned


cooperatives may include one businesses

owned and managed by the people who used

their services

referred to as a consumer cooperative


organizations managed by the people who

work there and is known as a worker


three multi-stakeholder or hybrid

cooperatives that share ownership

between different stakeholder groups

for example care cooperatives where

ownership is shared between both

caregivers and receivers

stakeholders might also include

nonprofits or investors

four second and third tier cooperatives

whose members are other cooperatives

five platform cooperatives that use a

cooperatively owned

and covered website mobile app or a

protocol to facilitate the sale of goods

and services

in the philippines there are additional

kinds of cooperatives and they are

regulated by the cooperative development


now how does the law define the contract

of partnership

by a 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


a partnership is formed when two or more

individuals own the business

the civil code of the philippines treats

a partnership as a juridical person

which means its legal personality is

separate from that of its business


what are the advantages of choosing the

partnership as a business organization

for one it is quite easy to attract

investors who will agree to pull their

financial resources with you since

partnerships typically involve

utilization of the company's collective


for another in the case of limited


and you are a limited partner there is

no risk to lose your personal assets

since you're only liable up to the

amount of your investment

what are the disadvantages of choosing a

business organization

in the form of a partnership one is you

have no full control

or autonomy over the business two

if you are a general partner you are

liable for the business decisions and

debts of other partners

putting your personal assets at risk as

to taxes

partnerships are taxed just like


the basic income taxes applied to

partnerships and corporations include

regular corporate income tax rrcit

which is an annual tax pay based on

taxable income

minimum corporate income tax mcit which

is taxed to be paid on the fourth

taxable year of the business if the mcit

is greater than the rcit

improperly accumulated earnings tax iet

which on tax pay if the accumulated

earnings exceed 100

of the paid in capital however please

take note of any changes to taxation

rules as brought about by the train law

what are the characteristic elements of

a partnership

a partnership is consensual as the

contract of partnership

is perfected by mere consent of the


a partnership is commutative as the

contribution of each partner

whether money property or industry is

considered as the

equivalent of the contribution of the

other partners

a contract of partnership is nominated

as it has a special designation in law

a partnership is principle as the

contract does not depend on other

contracts for its existence

a partnership is bilateral as all the

parties have an

obligation a partnership is preparatory

as the creation of the partnership is a

preparation for the succeeding business

transactions of the organization

a partnership is honors as each partner

must contribute something

a partnership is fiduciary as it is

based on trust and confidence

the partners choose other people to be

their business partners based on the

principle of delectors

a latin phrase which literally signifies

the choice of a person

and is applied to show that partners

have the right to select their


and that no set of partners can take

another person into the partnership

without the consent of each of the


what are the essential elements or

features of a partnership one

there must be a valid contract two

the parties are legally capacitated

recall the incapacities discussed in law


under articles 13 27 and 1328 of the law


obligations and contracts as well as the

provisions on defective contracts

article 13 27 provides that the

following cannot give consent to a


the unemancipated minors or those which

have not yet reached the age of majority

which is 18 years old

the insane or demented persons and the

deaf mutes who do not know how to write

on the other hand article 13 28 states

that contracts entered into during a

lucid interval are valid

contracts agreed to in a state of

drunkenness or during a hypnotic spell

are avoidable

lucid interval is the period wherein the

person suffering from mental illness is

restored to his normal intellectual


intelligence judgment and reason article

1390 provides that the following

contracts are voidable or unknowable

even though there may have been no

damage to the contracting parties

when one of the parties is incapable of

giving consent for want of capacity

when consent is vitiated by mistake


intimidation undue influence or fraud as

the consent is defective

generally these contracts are binding

unless they are announced by a proper

court action

they are susceptible of ratification

the third essential element of a

contract of partnership is the mutual

contribution of money

property and industry by the partners

industry contributed can either be

physical or mental labor

money is defined as currency or medium

of exchange which is legal tender in the


property can either be tangible or


real property or removables personal

property or movables

or easily closes which refer to

properties susceptible of private


reasonabilities or properties owned by

no one and these communes or properties

enjoyed by everyone cannot be


to understand further these kinds of


let us look at the classifications of

properties under the civil code

article 415 provide that the following

are removable properties

land buildings roads and constructions

of all kinds adhered to the soil

trees plants and growing fruits

while they are attached to the land or

form an integral part of an immovable

everything attached to an immovable in a

fixed manner

in such a way that it cannot be

separated there from without

breaking the material or deterioration

of the object

statues reliefs paintings or other

objects for use or ornamentation

placed in buildings or on lands by the

owner of the immovable

in such a manner that it reveals the

intention to attach them permanently to

the tenements

machinery receptacles instruments or

implements intended by the owner of the

tenement for an industry

or works which may be carried on in the

building or on a piece of land

and which tend directly to meet the

needs of the said industry or works

animal houses pigeon houses beehives

fish ponds or breeding places of similar


in case their owner has placed them or

preserves them with the intention to

have them permanently attached to the


and forming a permanent part of it the

animals in these places are included

fertilizer actually used on a piece of


mines quarries and slag dumps

while the matter thereof forms part of

the bed and waters either running or


docks and structures which both floating

are intended by their nature and object

to remain at a fixed place

on a river lake or coast contracts for

public works

and servitudes and other real rights

over immovable property

article 416 states that

the following things are deemed to be

personal property

those movables susceptible of

appropriation which are not included in

the preceding article

real property which by any special

provision of law is considered as

personal property

forces of nature which are brought under

control by science

and in general all things which can be

transported from place to place without

impairment of the real property

to which they are fixed article 417

also states that the following are also

considered as personal property

obligations and actions which have for

their object movables

or demandable sums and shares of stock


agricultural commercial and industrial


although they may have real estate

movable properties are also further

classified into consumable or


article 418 provides that

movable property is either consumable or


to the first class belong those movables

which cannot be used in a manner

appropriate to their nature without

their being consumed

to the second class along all the others

properties are also classified as

fungibles and non-fungibles

fungibles can be replaced with another

thing of a similar value

none fungibles have individual

characteristics making a thing

non-replaceable consumables are consumed

by normal use but non-consumables

essentially maintained despite wear and


properties are either tangibles or


tangible refers to physical property

that is

tangible property is anything that can

be physically touched

intangible property refers to

non-physical property

that is intangible property is any

property that cannot be physically


intangible property includes patents


trade secrets copyrights debts and

company goodwill

other classifications easily curious

these are things owned by a natural or

legal person's

things in a deceased or insolvent estate

reasonabilities are things capable of

being owned

which at a particular stage are not

owned by anyone

the ownership of these may be through


these derelict air things that are no

longer within physical control of an

owner and in respect of which the owner

no longer has the intention to be the

owner or there is no animus too many

reas dip or dna are lost things and no

longer within the physical

control of the owner but in respect of

which the owner has not lost the

intention to be the owner

reese communes omni is like natural

resources falling outside legal commerce

and which are available to all people

such as air and running water reese

publicly are things owned by the state

and used directly for the public benefit

such as public roads national parks

the sea the beach etc

the fourth element of a contract of

partnership is the presence of one of

the essential elements which is a lawful

purpose or object

partnership is a contract and hence is

limited by the

freedom to contract clause the partners

can agree on anything or everything

save it be contrary to law good morals

good customs public policy and public


under article 1770 paragraph 2

the effects of an unlawful partnership

are as follows

the contract is void ab initio the

profits will be confiscated in favor of

the government

all the instruments or proceeds or tools

of the crime shall be forfeited in favor

of the government

unless belonging to a third person who

did not participate

but those not within the commerce of man

will be destroyed

the fifth element of the contract of

partnership requires that its primary

purpose is to divide profits and it

carries with it the obligation to share

in loss except for industrial partners

but not in liabilities