Cyrelle Marie M.

Magpantay LAW2

PARTNERSHIP
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. (Philippines Law Advice)

A partnership is an arrangement between two or more people to oversee business operations and
share its profits and liabilities. (Investopedia)

CHARACTERISTICS OF PARTNERSHIP
The essence of a partnership is that each partner must share in the profits or losses of the venture.
Co-Ownership of Contributed Assets.

All assets contributed into the partnership are owned by the partnership by virtue of its separate and
distinct juridical personality.

MAJOR CHARACTERISTICS OF PARTNERSHIP

1. Contractual Relationship

The partnership results only from a contract between a certain numbers of persons called partners. According to
Partnership Act, “The relation of partnership arises from contract and not from status.” An oral contract is sufficient but it
is always better to draft a deed of partnership specifying the terms and conditions and the rights, duties and obligations of
partnership. Minors, insolvents, lunatics, and other persons incompetent to enter into a valid contract cannot enter into a
partnership agreement.

2. Two or More Persons

In partnership there must be at least two persons. According to Partnership Act there is no maximum limit of
partners in the partnership, but according to Companies Act, 1956 the maximum number of partners is 10 in case of
banking business and 20 in case of other business operations.

3. Existence of Business

The objective of the association of persons must be to do some kind of business. Where there is no business there
is no partnership. By business, we mean all activities concerning production and distribution of goods and services for the
purpose of earning profits.
4. Earning and Sharing of Profit

The agreement to carry on business must be with the objective of making profit and sharing it among all partners.
If the partnership is formed to do some charitable work, it will not be called a partnership.

5. Extent of Liability

The liability of each partner for the firm is unlimited. The creditors have the right to recover the firm’s debts from
the private property of any or all partners, where the assets are not adequate.

6. Mutual Agency

The business may be carried on by all partners or one or more acting on behalf of other partners. In result, such a
partner is both an agent and a principal, agent for other partners and principal for himself.

7. Implied Authority

Each partner is an agent able to bind the other for the acts done by him on behalf of others, such as purchases and
sales, the borrowing of money, the hiring of employees, etc. Such an act is said to be and treated as act of the firm and the
authority so exercised by any of the partners is known as implied authority of the partners.

8. Restriction on the Transfer of Share

No partner can sell or transfer his share to anybody else so as to make him partner in the business. This can,
however, be done with the consent of all the partners.

9. Utmost Good Faith

All the partners must have utmost good faith in each other. Every partner should act honestly and in the best
interest of the firm. They should prepare true accounts and must disclose every information to one another. Distrust and
suspicion among partners lead to the failure of many partnership firms.

10. No Separate Entity

Partnership is an association of persons who are individually called ‘partners’ and collectively a ‘firm’, legally a
partnership firm is not a legal entity nor a person with any separate right distinct from the partners constituting it. It is only
an association of persons. Further, a firm is only a convenient phrase to describe the partners and has no legal existence
apart from them.

11. Dissolution

The partnership may be dissolved on the death, lunacy or insolvency of any one of the partners.
 REQUISITES OF PARTNERSHIP
The essential requisites of an ideal partnership are as follows:

Requisite # 1. A Written Agreement:

In order to avoid any complications, disputes, misunderstanding, it is always desirable that there should be a
written agreement among the partners. Agreement should contain full details about capital, sharing of
profits, extent of authorities of each partner and their rights and duties.

Requisite # 2. Common Purpose:

All the partners must work with great zeal. They should work with highest co-operation and the greatest
common advantage. Each partner should make his contribution to the success of the business according to
one’s capital skill, knowledge and personality.

Requisite # 3. Long Duration:

The duration of an ideal partnership should be as long as possible because it is the long partnership that can
ensure efficiency and effective control and results in prosperity. If the duration is small, the partners look more
towards the ending of partnership than to the consolidation and development of the business. Therefore, it
should be the endeavour of all the partners to extend the life of partnership by working honestly, skillfully and
avoid internal differences and disputes.

Requisite # 4. Good Faith:

Honesty of purpose and fair dealings are the fundamental principles for the well-being of the
partnership. Each partner should fully trust other partners and each partner should prove worthy of the trust
reposed in them. While selecting a partner you have to be careful and select only when you are confident of his
honesty, sincerity and purposefulness. The number of partners should be as small as will bring in the requisite
resources, human as well as material.

Requisite # 5. Sufficient Capital

The necessary funds, both long-term and short-term use, should be available sufficiently. Long-term funds
would be supplied by partners as capital, and other may be obtained by loan. To maintain sound financial
position of the firm, drawing by the partners should be as less as possible and part of the profits must be
ploughed back to the business for further development.

Requisite # 6. Registration:

The registration of the partnership is not compulsory. But to avoid some complications, it should be registered
with the Registrar of Firms soon after its formation. Because an unregistered firm cannot sue outsiders
although outsiders can sue it.
 HOW DOES A PARTNERSHIP EXIST
In law, the question of whether a partnership exists is determined by all of the parties' true intents, which
are determined by their actions. The court will consider the substance of the parties' business relationship rather
than the form of their relationship in evaluating the true relationship. Everything that is available to the court
will be considered, including formal contracts, papers, advertisements, communications, and witness testimony.

The factors that must be present to find that a partnership exists have been generally agreed upon by the
court. The most common factors that the court considers are:

1. The formal registration of a partnership,

KINDS OF PARTNERSHIP
ACCORDING TO NATURE OF BUSINESS
1. General partnership
A general partnership is the most basic form of partnership. It does not require forming a business entity
with the state. In most cases, partners form their business by signing a partnership agreement. Ownership and
profits are usually split evenly among the partners, although they may establish different terms in the
partnership agreement.
In a general partnership, all partners have independent power to bind the business to contracts and loans.
Each partner also has total liability, meaning they are personally responsible for all of the business's debts and
legal obligations. General partnerships are easy to form and dissolve. In most cases, the partnership dissolves
automatically if any partner dies or goes bankrupt.

2. Limited partnership
Limited partnerships (LPs) are formal business entities authorized by the state. They have at least one
general partner who is fully responsible for the business and one or more limited partners who provide money
but do not actively manage the business. Limited partners invest in the business for financial returns and are not
responsible for its debts and liabilities.
This silent partner limited liability means limited partners can share in the profits, but they cannot lose
more than they've invested. In some states, limited partners may not qualify for pass-through taxation. If they
begin actively managing the business, they may lose their status as a limited partner, along with its protections.
Some LPs appoint a limited liability company (LLC) as the general partner so no one has to bear
unlimited personal liability for the business. That option may not be available in all states, and it's much more
complicated than an LP.
3. Limited liability partnership
A limited liability partnership (LLP) operates like a general partnership, with all partners actively
managing the business, but it limits their liability for one another's actions. The partners still bear full
responsibility for the debts and legal liabilities of the business, but they're not responsible for errors and
omissions of their fellow partners. LLPs are not permitted in all states and are often limited to certain
professions such as doctors, lawyers, and accountants.
4. Limited liability limited partnership
A limited liability limited partnership (LLLP) is a newer type of partnership available in some states. It
operates like an LP, with at least one general partner who manages the business, but the LLLP limits the general
partner's liability so all partners have liability protection.
ACCORDING TO PURPOSE
1. Commercial or Trading Partnership- one formed for transaction of business.
2. Professional or Non-trading Partnership- one formed for the exercise of a profession.
AS TO OBJECT
1. Universal Partnership
(a) of all present property or (b) of profits.
2. Particular Partnership
Has for its objects determinate things, their use or fruits, or a specific undertaking, or the
exercise of a profession.
AS TO LIABILITY
1. General Partnership
Liability to the extent of their separate property after the partnership assets have been exhausted.
All are general partners.
2. Limited Partnership
General Partners are liable up to the extent of their separate property; Limited property are liable
up to the extent of their investment; 1 General Partner and at least 1 Limited Partner.

AS TO DURATION
1. Fixed Partnership–duration is fixed by the partners.
2. For a particular undertaking –one which is organized for a certain undertaking and its attainment will
cause the termination of the partnership.
3. Partnership at will–one where no period is fixed by the parties for its duration; hence may be
terminated at will by the partners
4. AS TO PURPOSE
5. 1. COMMERCIAL OR TRADING PARTNERSHIP one formed for the transaction of business
6. 2. PROFESSIONAL OR NON-TRADING PARTNERSHIP one formed for the exercise of a
7. profession
8. AS TO PURPOSE
9. 1. COMMERCIAL OR TRADING PARTNERSHIP one formed for the transaction of business
10. 2. PROFESSIONAL OR NON-TRADING PARTNERSHIP one formed for the exercise of a
11. profession
12. AS TO PURPOSE
13. 1. COMMERCIAL OR TRADING PARTNERSHIP one formed for the transaction of business
14. 2. PROFESSIONAL OR NON-TRADING PARTNERSHIP one formed for the exercise of a
15. profession
AS TO LEGALITY OF EXISTENCE
1. DE JURE PARTNERSHIP- complied with all the legal requirements for its establishment.
2. DE FACTO PARTNERSHIP – failed to comply with all the legal requirements for its establishment.