Name: Class number: Date:

Section:
Schedule:

Lesson title: LAW ON Materials:

PARTNERSHIP Lesson Student Activity Sheets, Pen
Objectives References:
At the end of this module, I should be able to: Soriano, F. R. (2016). Notes in Business
1. Define and describe partnership. Law. Manila: GIC Enterprises & Co.,
2. Enumerate the characteristics and Inc.
essential requirements of a partnership
3. Identify who may become partners in a
partnership.
4. Determine whether a partnership exists.
5. Distinguish Partnership from Corporation

A. LESSON PREVIEW/REVIEW
1) Introduction
Hi, future accountant! Welcome to your journey to learning business laws and regulations. This course is
designed to give you a broad knowledge of legal provisions governing business organizations—
partnership, corporation, and cooperative. The Law on Partnership, the Revised Corporation Code of
the Philippines, and the Philippine Cooperative Code of 2008 are presented in the first, second, and
third periods respectively.The Law on Partnership covers the following topics: concept/nature of
partnership; elements and kinds of partnership; formalities required; rules of management; distribution of
profits, and sharing of losses and liabilities; modes of dissolution; and limited partnership. These topics
are continuously presented in Modules #s 1-8, followed by comprehensive quiz in module #9.
2) Activity 1: What I Know Chart, part 1

Try answering the questions below by writing your ideas under the first column What I Know. It’s okay if
you write key words or phrases that you think are related to the questions.

What I Know Questions:

3. What are the rules
1. What is partnership? to determine whether a
partnership exists?
2. Who may become
partners in a partnership?
 What I Learned (Activity 4)

B. MAIN LESSON

1) Activity 2: Content Notes

Partnership, concept
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. (Art. 1767) It is both:
1. A contract (Art. 1768) and
2. 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

1. Consensual - It is perfected by mere consent.
2. Principal - It does not depend upon any other contract for its validity or existence.
3. Bilateral or multilateral - It is entered into by two or more persons whose rights and obligations
are reciprocal.
4. Nominate - It has a special name given to it by law. (Art. 1767)
5. Preparatory - It is a means by which other contracts will be entered into as the partnership
pursues its business.
6. Onerous - The partners contribute money, property or industry to a common fund. (Art. 1767)
7. Commutative- the undertaking of each of the partner is considered as the equivalent of that of the others.

Essential requisites of partnership

1. 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.

Note: General Rule: Before there can be a valid contract of partnership, it is essential that the contracting
parties have the necessary legal capacity to enter into the contract. Any person may be a partner who is
capable under the law of entering into contractual relations. Any person who cannot legally give consent
to a contract cannot be a partner.

2. 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)

3. 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)
4. 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.
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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
individuals or other partnerships or corporations.

Rules to determine whether a partnership exists

1. Persons who are not partners as to each other are not partners as to third persons except when
a person represents himself or consents to another representing him to anyone, as a partner in an
existing partnership or with one or more persons not actual partners. (Arts. 1769, 1825)
2. Co-ownership or co-possession 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.
3. The sharing of gross returns does not of itself establish 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.
4. The receipt by a person of a share of the profits of a business is a prima facie evidence that he
is a partner in the business.

Exceptions: No such inference shall be drawn if 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 annuity to a widow or representative of a deceased partner.
d. As interest on loan, though the amount of payment vary with the profits of the business.
e. As the consideration for the sale of goodwill of a business or other property by installment or
otherwise. (Art. 1769)

PARTNERSHIP VS CORPORATION

PARTNERSHIP CORPORATION

CREATION Voluntary agreement of parties. Created by the state in the form of a

special character or by a general
enabling law (The Corporation
Code)

NUMBER OF ORGANIZERS Two or more Not more than 15

EXISTENCE No time limit except agreement of Not more than 50 years (now with
parties. perpetual existence under the
Revised Corporation Code)

LIABILITY OF OWNERS may extend to private property Liable only upto their capital
 contributions

TRANSFERABILITY OF All partners need to consent to the Does not need the consent of the
INTEREST transfer of interest to another other stockholders.

ABILITY OF THE OWNER’S TO Generally, partners acting on behalf Generally, stockholders cannot bind
BIND THE FIRM of the partnership are agents corporations since its official acts
thereof; are through a board of directors

REMEDIES IN THE CASE OF A partner can sue another partner A stockholder cannot sue a director
MISMANAGEMENT who mismanages who mismanages, it must be in the
name of the corporation, through a
derivative suit.

NATIONALITY A partnership is a national of the Generally, under whose laws it was

country where it was created, and created as to whether domestic or
dependent on percentage of foreign, and as to nationality, on the
ownership ownership of the outstanding capital
stock.

LEGAL PERSONALITY from the time the contract begins Generally from issuance of COR.

RIGHT OF SUCCESSION None. Death, retirement, Yes. Such causes do not dissolve a
insolvency, civil interdiction, or corporation
insanity of a partner dissolves the
partnership

2) Activity 3: Skill-building Activity

TRUE OR FALSE. Write the word “TRUE” if the statement is true, and the word “FALSE” if the
statement is false.
1. An artificial person like a corporation cannot become a partner in a partnership.
2. A partnership has no personality separate and distinct from each of the partners just like sole
proprietorship.
3. A partnership begins from the moment of the execution of the contract, regardless of
a different date stipulated.
4. A partnership whose capital in money or property amounting to P3,000.00 or more ,
which is not recorded with the Securities and Exchange Commission and does not appear in public
document will not make the contract void for non-compliance thereof.
5. The sharing of gross returns establishes a partnership because the persons sharing
them have a joint or common interest in the property from which the returns are derived.
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6. Persons who are not partners as to each other are not partners as to third persons
and when a person represents himself or consents to another representing him to anyone, as a partner
in an existing partnership or with one or more persons not actual partners.
7. Partnership is either a contract alone or a business organization only.
8. Partnership is bilateral because it is entered into by two or more persons whose rights
and obligations are reciprocal.
9. If a partnership is formed for the practice of a profession, its primary purpose is to
obtain profits.
10. A partnership contract must be constituted in written a written form through public instrument.

Check your answers against the Key to Corrections found at the end of this SAS. Write your score on
your paper.

3) Activity 4: What I Know Chart, part 2

It’s time to answer the questions in the What I Know chart in Activity 1. Log in your answers in the third
column.

4) Activity 5: TEST YOURSELF

Write P if the statement pertains to a Partnership. Write C if it pertains to Corporation

1. Its legal personality exists from the time the contract begins.
2. It is created by a general enabling law
3. It has a perpetual existence
4. Owners cannot bind the business organization since its official acts are through the Board of
Directors
5. It exercises the right of succession
6. Liability may extend to private property
7. Transferability of interest needs the consent of all owners of the business organization.
8. A national of the country where it was created, and dependent on percentage of ownership.
9. It is a consensual contract.
10. It applies the trust fund doctrine and owners are liable up to its capital contribution.

Check your answers against the Key to Corrections found at the end of this SAS. Write your score on
your paper.
 Name:
Section:
Schedule:

5) Activity 6: Check for Understanding 4. The minimum capital in money or

property, except when immovable
PART 1. property or real rights thereto are
MULTIPLE CHOICE. Select the best answer by contributed, that will require the contract
writing the letter of your choice before each of partnership to be in a public instrument
number. and be registered with the Securities and
Exchange Commission (SEC).
1. A contract where two or more A. P5,000.00
persons bind themselves to contribute B. P10,000.00
money, property, or industry to a C. P3,000.00
common fund with the intention of D. P30,000.00
dividing profits among themselves.
A. Voluntary association 5. Which of the following is false about the rules to
B. Corporation determine whether a partnership exists?
C. Partnership a. Persons who are not partners as to each other
D. Sole Proprietorship are not partners as to third persons.
b. Co-ownership or co-possession
2. One of the following is not a characteristic of does not of itself establish a partnership,
contract of partnership. whether such co-owners or
A. Real, in that the partners must co-possessors do or do not share any
deliver their contributions in order for the profits made by the use of the property.
partnership contract to be perfected. c. The sharing of gross returns does
B. Principal, because it can stand by itself. not of itself establish a partnership,
C. Preparatory, because it is a means by which whether or not the persons sharing them
other contracts will be entered into. have a joint or common right or interest
D. Onerous, because the parties contribute money, in any property from which the returns
property, or industry to the common fund. are derived.
d. The receipt by a person of a
3. One of the following is not a requisite of a share of the profits of a business is not a
contract of partnership. Which is it? prima facie evidence that he is a partner
A. There must be a valid contract. in the business.
B. There must be a mutual contribution of money,
property or industry to a common fund.
C. It is established for the common
benefit of the partners which is to obtain
profits and divide the same among
themselves.
D. The articles are kept secret among the
members.
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6. An entity created by law and given certain legal rights and duties of a human being or a being, real or imaginary, who
for the purpose of legal reasoning is treated more or less as a human being
a. Natural person
b. Juridical person
c. Normal person
d. None of the above

7. I. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of
the partners
II. When an unlawful partnership is dissolved by a judicial decree, the profits shall not be confiscated in favor of the
State.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

8. I. Where an immovable property is contributed in a partnership a private instrument shall be necessary

II. An inventory is still required aside from real property, personal property is contributed.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

9. A and B agreed to form a partnership where A promised to contribute his only parcel of land while B undertook to
contribute P100,000. Which is true?
a. Their contract must be executed in a private instrument
b. Their contract must be executed in a public instrument
c. It can be made orally
d. It can be made thru writing, either in a private or public instrument

10. A and B agreed to form a partnership where A promised to contribute his only car while B undertook to contribute
P100,000. Which is true?

a. Their contract must be executed in a private instrument

b. Their contract must be executed in a public instrument
c. It can be made orally
d. All of the above
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PART II.
ENUMERATION: Enumerate the characteristics of a contract of a partnership

Characteristics of a Partnership

Essential Requirements of a Partnership

1. V______________________
2. C______________________
3. O______________________
4. L ______________________

*Activity 6: Check for Understanding is a GRADED QUIZ.

C. LESSON WRAP-UP
1) Activity 6: Thinking about Learning

Congratulations for finishing this module! Shade the number of the module that you finished.

Did you have challenges learning the concepts in this module? If none, which parts of the module
helped you learn the concepts?

Some question/s I want to ask my teacher about this module is/are:

FAQs
1. Why do partnerships register with the Securities and Exchange Commission?
Recording with the SEC is a condition for the issuance to the partnership of a business license to engage in
business. This will enable both the local government and the Bureau of Internal Revenue district where the
partnership will operate to assess its tax liabilities. In addition, registration will enable third persons to determine
both the composition of the firm and its capital before dealing with it and its members.

2. Is a joint venture governed by the laws on partnership?

A joint venture (which may be entered into between two corporations) is a form of partnership and shall be
governed by the laws on partnership. (Marsman Drysdale Land, Inc. vs. Philippine Geoanalytics, Inc., G.R. No.
183374, June 29, 2010) In the latter case of Narra Nickel Mining vs. Redmont Consolidated Mines Corp., G. R.
No. 195580, April 21, 2014, the Supreme Court held that "joint ventures have been deemed to be 'akin' to
partnerships since it is difficult to distinguish between joint ventures and partnerships. As a rule, corporations are
prohibited from entering into partnership agreements; consequently, corporations enter into joint venture
agreements with other corporations or partnerships for certain transactions in order to form 'pseudo partnerships
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Did you know that!

Strictly speaking, the practice of a profession is not a business or an enterprise for profit. However, the law allows
the joint pursuit thereof by two or more persons as partners. The law does not allow individuals to practice a
profession as a corporate entity. The reason is that personal qualifications (e.g. age, good moral character, college
degree) for such practice cannot be possessed by a corporation. (Deleon, 2013)

*KEY TO CORRECTIONS*

Answers to TEST YOURSELF Exercises

1. P 2. C 3. C 4. C 5. C
6. P 7. P 8. P 9. P 10. C

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