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BUSINESS LAW
ATTY. MARY ANN SAGANA LECTURE AID – PARTNERSHIP
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. Essential Characteristics: a. Consensual b. Bilateral c. Onerous d. Commutative
e. Principal f. Nominate g. Preparatory
Essential requisites: a. There must be a valid contract b. The parties must have legal capacity to enter into the contract Persons incapacitated to enter into a contract of universal partnership: 1. spouses during the existence of the marriage 2. between persons who are guilty of adultery or concubinage 3. between persons guilty of the commission of the same offense in consideration thereof 4. between public officer or his wife or some other person by reason of the public office. c. There must be mutual contribution to the common fund Contribution to a common fund: 1. Property– real, personal, tangible or intangible 2. Money – cash, and legal tender except if there is a stipulation 3. Industry – mental or physical IMPORTANT: limited partners can only contribute money of property. d. The object must be lawful Effects of unlawful partnership: 1. Void ab initio 2. Profits shall be confiscated in favor of the government 3. Instruments or tools and proceeds of the crime shall be forfeited in favor of the government 4. Capital contributions will be returned to the partners unless the contributions were used as instruments or tools in the commission of the crime e. The purpose or primary purpose must be to obtain profits and to divide the same among the partners OR to exercise profession f. The Articles of Partnership must not be secret to among its members Consequences of a partnership being a person: a. has a personality separate and distinct from the partners b. may acquire and possess properties c. can sue and be sued upon d. can be adjudged insolvent although the partners are solvent e. can incur obligations f. can enter into contracts Formalities required for the creation of a partnership: - Partnership may be constituted in any form except in the following cases: a. Where personal property is contributed and the capital is P3,000.00 or more1. The contract must appear in a public instrument 2. It must be registered with the Securities and Exchange Commission (SEC) b. Where immovable property or real rights thereto are contributed regardless of value1. The contract must appear in a public instrument 2. An inventory of the property, signed by the partners, must be attached to the public instrument 3. In case of limited partnership – a. The partners must sign and swear to a certificate or articles of limited partnership which states the matters prescribed by law b. They must file such certificate with the SEC.
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Statute of Frauds in a Partnership: a. Sale of personal property when the price is not les than Php500, unless there is delivery of payment b. Sale of real property or any interest thereon c. Promise to answer for the debt, default or miscarriage of another person d. Agreement to form a partnership shall be performed after 1 year e. Lease of partnership property for more than 1 year Principle of Delectus Personarum/personam/personae - a rule inherent in every partnership wherein no one can become a member of the partnership association without the consent of all the partners. - mutual trust and confidence between and among the partners Rules to determine the existence of a partnership: 1. Persons who are not partners to each other are not partners as to third persons. Exception: partnership by estoppel. Partner by Estoppel - A person who represents himself, or consents to another/others representing him to anyone, as a partner either in an existing partnership or in one that is fictitious or apparent. 2. Co-ownership of a property does not itself establish a partnership, even though the co- owners share in the profits derived from the incident of joint ownership. 3. Sharing of gross returns alone does not indicate a partnership, whether or not the persons sharing them have a joint or common right or interest in any property. 4. Sharing of net profit (or simply profit) shall give rise to a disputable presumption of the existence of a partnership, except when such profits were received in payment: a. as a debt by installments or otherwise b. as wages of an employee or rent to a landlord; c. as an annuity to a widow or representative of a deceased partner; d. as interest on a loan, though the amount of payment vary with the profits of the business; e. as the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
Classification of Partnership: 1. as to object. a. universal partnership 1. of all present property 2. of profits b. particular partnership 2. as to liability of the partners: a. general partnership b. limited partnership 3. as to the legality of existence: a. de jure partnership b. de facto partnership
5. as to publicity a. secret partnership b. notorious/open partnership
6. as to its duration: a. partnership at will b. partnership with a fixed period
7. as to purpose a. commercial/trading b. professional/ non- trading
4. as to representation to others a. ordinary/real partnership b. ostensible/partnership by estoppel Classes of partners: 1. As to contributions a. capitalist b. industrial 2. As to liability a. general b. limited 3. As to management a. managing b. silent
4. Other classifications a. liquidating b. real c. dormant d. ostensible e. secret 5. Other related terms a. sub-partner, associate, assignee b. nominal/partner by estoppel
Contract of Sub-partnership - one formed between a member of a partnership and a third person for a division of profits coming to him from the partnership enterprise. - it is a partnership within a partnership distinct and separate from the main or principal partnership.
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AGENCY PARTNERSHIP 1. has juridical personality separate and distinct from the partners 2. partners are agents for the partnership and for other partners 3. partner is part co-owner with his copartners with respect to partnership’s property 4. power of attorney if not required for a partner to act, provided the act is within the scope of partnership
1. no juridical personality 2. agent is not a principal himself 3. agent is not a co-owner of the principal 4. power of attorney is ordinarily required before an agent can act in behalf of the principal
CORPORATION PARTNERSHIP 1. created by mere agreement of the parties 2. may be organized by only two persons 3. juridical personality commences from the moment of execution of the contract of partnership 4. may exercise any power authorized by the partners as long as it s not contrary to law, morals, etc. 5. if no agreement as to management – every partner is an agent of the partnership 6. a partner as such may sue a copartner who mismanages 7. has no right of succession 8.the partners are liable personally and subsidiarily for partnership debts 9. based on delectus personam 10. may be established for any period of time stipulated by the partners 11. may be dissolved at anytime by the will of any or all partners 12. death of a general partner dissolves the partnership 13. governed by the Civil Code
GENERAL PARTNERSHIP 1. composed of general partners 2. as a general rule may be constituted in any form 3. must operate under a firm name
GENERAL PARTNER 1. Liable personally for partnership obligations after all partnership assets are exhausted 2. Can participate in the management of the partnership 3. May contribute money, property or industry to common fund 4. Name of the general partner may appear in firm name 5. Limitation on the right to engage in another business or in the same kind of business as that of the partnership
1. created by operation of law 2. requires at least 5 incorporators 3. juridical personality commences from the moment of issuance of the Certificate of Incorporation by the SEC 4. can exercise such powers expressly granted by law or incident to its existence 5. power to do business is vested in the board of directors/trustees 6. suit against the board of director who mismanages must be brought in the corporation’s name 7. has right of succession 8. the stockholders are liable to the extent of the shares subscribed by them 9.not based on delectus personam 10. may not be formed for a period exceeding 50 years, but subject to extension 11. may be dissolved only with the consent of the State 12. death of a shareholder does not dissolve a corporation 13. governed by the Corporation Code
LIMITED PARTNERSHIP 1. composed of at least one general partner and one limited partner 2. must be contained in a certificate of limited partnership 3. must operate under a firm name followed by the word ‘limited’ LIMITED PARTNER 1. Cannot be held liable
2. Cannot participate 3. Can contribute money or other property only 4. Name of limited partner does not appear in firm name 5. No such limitation in limited partnership
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Obligations of the partners with respect to contribution of money or property: 1. Contribute at the beginning of the partnership or at the time stipulated 2. Answer for eviction 3. Answer for the fruits of the property contributed in case of delay in the delivery 4. Exercise diligence over the property pending delivery 5. Indemnify the partnership for any damage or interest in case of money, caused by the retention of the same or delay in the delivery Other obligations of a partner: 1. Pay for interest and damages for any sum of money which he may have taken from the partnership coffers; 2. Contribute additional share to the capital in case of imminent loss; 3. Bring to the partnership capital his share of a partnership credit which he received from a debtor who subsequently became insolvent; 4. Indemnify the partnership for damage caused by his fault and he cannot compensate them with the profits or benefits he may have earned for the partnership; 5. Render true and full information of all things affecting the partnership upon demand of any partner or his representative; 6. Account to the partnership and hold as trustee any benefit derived by him without the consent of the other partners form any transaction relating to partnership business; 7. Share in the loss of the partnership.
Obligations of an industrial partner: 1. Contribute the industry he promised 2. NOT to engage in any other business for himself, otherwise: a. Capitalist partners may exclude him from the firm and demand payment of damages b. Capitalist partners may avail themselves of the benefits which he may have obtained form the other business and demand payment of damages EXCEPTION: - when expressly permitted by the partnership Capitalist partner: - CANNOT engage in any operation or business similar to the business of the partnership, otherwise: a. Shall be liable to the partnership for any profit obtained from his transactions b. Shall personally bear all his losses EXCEPTION: -when the business is not the same or similar to that of the partnership - if there is a stipulation to the contrary Obligations of the partnership to the partners: 1. Refund amounts disbursed by a partner in behalf of the partnership AND the corresponding interest from the time the expenses are made 2. Answer for the obligations that the partnership may have contracted in good faith 3. Answer for the risks in consequence of its management Management of the Partnership – Vested by agreement in one, or some, or all of the partners or even in a third person, either in the articles of partnership or after the partnership had already been constituted. If there is no agreement, it is vested in all of the partners. RULES: 1. The manager is appointed in the Articles of Partnership: - He may execute all acts of administration despite opposition of other partners unless there is bad faith - The power is irrevocable without just and lawful cause 2. The manager is appointed orally or in an instrument other than Articles of Partnership: - He may execute all acts of administration - The power may be revoked at any time with or without just and lawful cause 3. In case two or more managers are appointed without specific duties: - Each one may separately execute acts of administration but in case of an opposition, the decision of the majority of the managers shall prevail. - In case of a tie, the matter will be decided by the managing partners owning the controlling interest or more than 50% of the investments - If appointed in the Articles of Incorporation - The power is irrevocable without just and lawful cause - If appointed orally or in an instrument other than Articles of Incorporation - The power may be revoked at any time with or without just and lawful cause 4. In case two or more managing partners are appointed with a stipulation that none of them shall act without the consent of the other: - The concurrence of all is necessary for the validity of their acts EXCEPT when there is imminent danger of grave or irreparable injury to the partnership
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- If appointed in the Articles of Partnership -The power is irrevocable without just and lawful cause - If appointed orally or in an instrument other than Articles of Incorporation - The power may be revoked at any time with or without just and lawful cause In case there is no stipulation as to the manner of management: - All partners shall be considered agents of the partnership - None of the partners may make any important alteration in the immovable property even if it may be useful to the firm - In case of an opposition, the decision of the majority of the partners shall prevail and in case of a tie, the matter shall be decided by the partners representing the controlling interest, or more than 50% of the investments.
RULE: If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected 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; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the credit of the partnership. Rights of a partner: 1. Receive his share of profits of the partnership 2. Participate in the management of the firm 3. Associate another person in his share of the profits 4. Inspect the partnership books at any reasonable hour 5. Demand formal accounting even before dissolution: a. If the partner is wrongfully excluded from the partnership business or profession of its property by his co-partners b. If the right exists under the terms of any agreement c. 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 d. Whenever other circumstances render it just and reasonable 6. Ask for dissolution of the firm by court decree Acts of strict dominion wherein consent of all partners shall be necessary: 1. Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership; 2. Dispose of the good-will of the business; 3. Do any other act which would make it impossible to carry on the ordinary business of a partnership; 4. Confess a judgment; 5. Enter into a compromise concerning a partnership claim or liability; 6. Submit a partnership claim or liability to arbitration; 7. Renounce a claim of the partnership. Property rights of a partner: 1. his right to specific partnership property 2. his interest in the partnership (his share in the profits and surplus) 3. his right to participate in the management. Rights of a partner in specific partnership property: 1. has an equal right with other partners to possess specific partnership property for partnership purposes 2. not assignable, except in connection with the assignment or rights of all partners in the same property 3. not subject to attachment or execution, except on a claim against the partnership 4. not subject to legal support Effects of conveyance by a partner of his interest in the partnership: 1. conveyance of his whole interest-partnership may either remain or be dissolved; 2. assignee does not necessarily become a partner; 3. assignee cannot interfere in the management or administration of the partnership business or affairs; 4. assignee cannot also demand information, accounting and inspection of the partnership books. Distribution of profits & losses: 1. the partners share in the profits and losses according to their agreement 2. in the absence of such: a. capitalist partner - in proportion to his contribution b. industrial partner - what is just and equitable under the circumstances but he shall not be liable for losses
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Obligations of a newly admitted partner: 1. Obligations already existing before admission - liability is up to the extent of contribution, unless otherwise agree. 2. Obligations incurred after admission - liability is up to the extent of separate property, unless admitted as a limited partner DISSOLUTION - the change in the relation of the partners caused by any partner ceasing to be associated in carrying on the business. EFFECT on the right of the partners to act as agents -- all authority of any partner to act for the partnership will be terminated. EXCEPT: 1. Contracts necessary to wind up partnership affairs 2. Contracts already perfected and begun but not then finished 3. The dissolution being by act of any partner, the partner acting for the partnership had no knowledge of the dissolution; or 4. The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had no knowledge or notice of the death or insolvency. CAUSES FOR THE DISSOLUTION OF A PARTNERSHIP: 1. Without violation of the agreement between the partners: a. termination of definite term b. express will of any partner in good faith c. express will of all partners d. expulsion of any partner 2. 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. 3. Event which makes it unlawful for the business of the partnership to be carried or for the members to carry it on in partnership 4. Insolvency of any partner or the partnership 5. Loss of specific thing promised as a contribution before delivery 6. Civil interdiction of any partner 7. Death of any partner 8. Decree of court a. at the instance of the partnership 1. partner’s insanity 2. incapacity of a partner to perform his part of the partnership contract 3. partner’s act or conduct prejudicial to the partnership 4. partner’s willful and persistent breach of the partnership agreement 5. partnership is operating for a loss 6. other similar circumstances making the dissolution equitable b. at the instance of a purchaser of a partner’s interest 1. after the termination of the specified term or particular undertaking 2. at any time if the firm was a partnership at will when the interest was assigned or when the charging order was issued WINDING UP - the process of settling the business or partnership affairs under dissolution. Judicially – a way of winding up a dissolved partnership under the control and direction of the proper court upon cause shown by any partner, his legal representative of his assignee Extra-judicially – way of winding up by the partners themselves without the intervention of the court. Partnership assets: 1. Partnership property including goodwill 2. Contributions of the partners necessary for the payment of all liabilities Termination - the point in time when all partnership affairs are wound up or completed and is the end of the partnership life. Order of payment in the winding up of partnership liabilities: a. those owing to creditors other than partners b. those owing to partners other than for capital or profits c. those owing to partners in respect of capital d. those owing to partners in respect of profits Limited Partnership - formed by two or more persons having as members one or more general partners and one or more limited partners.
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RULES: - the limited partners shall not be bound by the obligations of the partnership the limited partners do not participate in the control or management of the business of the partnership partnership debts shall be paid out of the common fund and the separate properties of the general partners a limited partner can only contribute money or property - a limited partner’s name cannot appear in the partnership name, otherwise he will be liable as a general partner, except: 1. the surname of the limited partner is the same as the surname of a general partner 2. before the limited partner became as such, the business had been carried on under a name in which his surname appeared 3. third persons extended credit to the partnership with the knowledge that he is limited partner
General-Limited partner -
has all the rights and powers and is subject to all liabilities of a general partner, but still a limited partner as to liability to contribute capital Substitute Limited partner - a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership Preferred Limited partner - given priority over all limited partners in the return of investment, compensation and other matters provided the agreement will appear in the certificate of limited partnership Dissolution may be caused by: 1. Retirement of a general partner 2. Death of a general partner 3. Insolvency of a general partner 4. Insanity of a general partner 5. Civil interdiction of a general partner
Order of payment in the winding up of partnership liabilities: a. those owing to creditors, except those to limited partners on account of their contribution, and to general partners b. those to limited partners in respect to their share of the profits and other compensation by way of income in their contributions c. those to limited partners in respect of their capital contributions d. those to general partners other than for capital and profits e. those to general partners in respect to profits f. those to general partners in respect to capital
/mrs
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