Accounting 12

Module 1

BASIC CONSIDERATIONS FOR PARTNERSHIP

Partnership – two or more persons bind themselves to contribute money, property, or

industry to a common fund, with the intention of dividing the profit among themselves.
 Two or more persons may also form a partnership for the exercise of profession.
 The partnership has a juridical personality separate and distinct from that each of the
partners.
 Each owner is called PARTNER.

General Professional Partnership – partnership generally associated with the practice of

profession.

Characteristics of a Partnership

1. Mutual Contribution
There cannot be a partnership without contribution of money, property or industry to a
common fund.
2. Division of Profits or Losses
The essence of partnership is that each partner must share in the profits or losses of the
venture.
3. Co-ownership of Contributed Assets
All asserts contributed into the partnership are owned by the partnership by virtue of its
separate and distinct juridical personality.
4. Mutual Agency
Any partner can bind the other partners to a contract if he is acting within his express or
implied authority.
5. Limited Life
A partnership has a limited life. It may be dissolved by the admission, death, insolvency,
incapacity, withdrawal of a partner or expiration of the term specified in the partnership
agreement.
6. Unlimited Liability
All partners (except limited partners), including industrial partners, are personally liable
for all debts incurred by the partnership.
7. Income taxes
Partnerships, except GPP, are subject to tax.
8. Partner’s Equity Accounts
Accounting for partnership are much like accounting for sole proprietorship. The
difference lies in the number of partners’ equity accounts. Each partner has a capital
account and a withdrawal account that serves similar functions as the related accounts
for sole proprietorship.

Advantages and Disadvantages of a Partnership

 Advantages versus Proprietorship

 Brings greater financial capability to the business
 Combines special skills, expertise and experience of the partners
 Offers relative freedom and flexibility of action in decision-making

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  Advantages versus corporations
 Easier and less expensive to organize
 More personal and informal

 Disadvantages
 Easily dissolved and thus unstable compared to corporation
 Mutual agency and unlimited liability may create personal obligations to partners
 Less effective that a corporation in raising large amounts of capital.

Partnership Distinguished from Corporation

Partnership Corporation
Manner of Created by mere agreement of the Created by operation of law
creation partners
Number of Two or more persons At least 5, not exceeding 15
Persons
Commencement From the execution of the articles From the issuance of certificate
of Juridical of partnership of incorporation by the SEC
Personality
Management Every partner is an agent of the Management is vested on the
partnership if the partners did not Board of Directors
appoint a managing partner
Extent of Each of the partners except a Stockholders are liable only to
Liability limited partner is liable to the the extent of their interest or
extent of his personal assets investment in the corporation
Right of There is no right of succession There is right of succession.
Succession
Terms of For any period of time stipulated by Not to exceed 50 years but
existence the partners subject to extension.

Classification of Partnerships

1. As to object
 Universal Partnership of all present property – all contributions become part of
the partnership fund.
 Universal Partnership of profits
 Particular partnership – the object of the partnership is determinate-its use or
fruits, specific undertaking, or the exercise of a profession or vocation.

2. As to liability
 General – all partners are liable to the extent of their separate properties
 Limited – the limited partners are liable only to the extent of their personal
contributions. In a limited partnership, the law states that there shall be at least
one general partner.

3. As to duration
 Partnership with a fixed term or for a particular undertaking

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  Partnership at will – one in which is specified and is not formed for any particular
undertaking.

4. As to purpose
 Commercial or trading partnership – one formed for the transaction of business
 Professional or non-trading partnership – one formed for the exercise of
profession

5. A to legality of existence
 De jure partnership – one which has complied withal the legal requirements for
its establishment.
 De facto partnership – one which has failed to comply with all the legal
requirements for its establishment.

Kinds of Partners

1. General Partner – one who is liable to the extent of his separate property after all the
assets of the partnership are exhausted.
2. Limited Partner – one who is liable only to the extent of his capital contribution. He is
not allowed to contribute industry or services only.
3. Capitalist Partner – one who contributes money or property to the common fund of
the partnership.
4. Industrial partner – one who contributes his knowledge or personal service to the
partnership.
5. Managing partner – one whom the partners has appointed as manager of the
partnership.
6. Liquidating partner – one who is designated to wind up or settle the affairs of the
partnership after dissolution.
7. Dormant partner – one who does not take active part in the business of the
partnership and is not known as a partner.
8. Silent partner – one who does not take active part in the business of the partnership
though may be known as a partner.
9. Secret partner – one who takes active part in the business but is not known to be a
partner by outside parties.
10. Nominal partner or partner by estoppel – one who is actually not a partner but
who represents himself as one.

Articles of Partnership
SEC Registration

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