BUSINESS LAWS AND REGULATIONS REVIEWER

2nd Term A.Y. 2023-2024 b) An inventory of the said property must be made, signed by
BALAWREX the parties and attached to the public instrument. (Art. 1773)
CHAPTER 1. GENERAL PROVISIONS
Effect if the requirements are not complied with:
I. PARTNERSHIP a) The partnership contract is void.
II. CHARACTERISTICS b) The partnership will not have a juridical personality.
III. FORMS
IV. KINDS OF PARTNERSHIP 2. Capital of the Partnership is P3,000.00 or more, in money
V. KINDS OF PARTNERS or property
a) The partnership contract must be in a public instrument;
ART. 1767. A partnership is a contract of two or more persons who bind
and
themselves to contribute money, property, or industry to a common fund, with b) Registered with the Securities and Exchange Commission
the intention of dividing profits among themselves. (SEC). (Art. 1771)

Two or more persons may also form a partnership for the exercise of a Effect if the requirements are not complied with:
profession. a) The partnership contract is still valid. The partnership still
acquires juridical personality. (Arts. 1768 & 1772)
Partnership: b) The liability of the partnership and the members thereof to
1. Two or more persons third persons are not affected.
2. MPI (Money, Property, or Industry)
3. Common Fund 3. If the partnership is a limited partnership a certificate sgd.
4. Dividing Profits under oath by the partners and recorded with the SEC is
required
 A juridical entity which has a personality separate and distinct
from that of each of the partners. (Art. 1768) Effect if the requirements are not complied with:
 Begins from the moment of the execution of the contract. The partnership is still considered as General Partnership.

CHARACTERISTICS: Who may become a partner?

1. Consensual - perfected by mere consent.  Any natural person who has the capacity.
2. Principal - it does not depend on any other contract for its  Artificial persons like corporations and partnerships. The
validity. Revised Corporation Code thereof now grants corporations the
3. Preparatory - it is a means by which other contracts will be power to enter into partnerships and joint ventures, the latter
entered into as the partnership pursue its business. being referred to as “Pseudo Partnerships”.
4. Bilateral - entered into by two or more persons whose rights
and obligations are reciprocal. Notes:
5. Onerous - the partners contribute money, property, or industry  Co-ownership or co-possession does not itself establish a
to a common fund. partnership, whether such co-owners or co-possessors do or do
6. Nominate - it has a special name given to it by law. (Art. not share any profits made by the use of property.
1767)  The sharing of gross returns does not itself establish a
partnership.
ESSENTIAL REQUISITES:  The receipt of a person of a share of the profits of a business is
 There must be a valid contract. a prima facie evidence that he is a partner in the business.
- There must be a voluntary agreement between the parties.
Its formation can’t be imposed upon a person because a partnership KINDS OF PARTNERSHIP
is a fiduciary relationship.
1. As to object
 There must be a mutual contribution of MPI.
a) Universal Partnership
- The property that may be contributed may be real or
personal, tangible or intangible (such as goodwill or credit rights).
1. Universal Partnership of All Present Property - this is a partnership
in which all the partners contribute all the property which actually
- However, a limited partner may only contribute cash or
belonged to them to a common fund.
property, but not his services. (Art. 1845)
a. Property belonging to the partners at the time of the constitution of
 It must have a lawful object or purpose. (Art. 1770)
the partnership.
- If a partnership has a lawful object, it is void. If such
illegality constitutes a crime, the partners will be criminally
b. Profits that may be acquired from the present property.
prosecuted and the profits will be confiscated.
c. Property acquired by each partner after the formation but only if
stipulated. (Art. 1779)
 Must be established for the common benefit or interest of the
partners which is to obtain profits and to divide it among
Exception: Properties acquired through
themselves. (Art. 1768 & 1770)
inheritance, legacy, or donation.
- Exception: when the partnership is formed for the
Exception to the Exception: The profits
practice of a profession.
and fruits that will be derived from the said
properties.
FORMS OF A PARTNERSHIP CONTRACT: b.) Universal Partnership of Profits
1. Immovable Property or Real Rights are contributed - This comprises all the partners may
a) The partnership contract must be in a public instrument; acquire by their work or industry during the
and existence of the partnership. (Art. 1780)

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 Articles of Universal Partnership entered into without 1. As to liability
specification of its nature, only constitute a Universal
Partnership of Profits. (Art. 1781) a) General Partner - one who is liable for partnership debts
to the extent of his separate properties. (Art. 1816)
 If the doubt refers to the incidents of a gratuitous
contract, the least transmission of rights shall prevail. b) Limited Partner - one who is liable for partnership debts
(Art. 1378) to the extent of his capital contribution only. (Art. 1843)

 Persons prohibited from giving any donation or c) General-limited Partner - one who has all the rights and
advantage to each other cannot enter into a Universal powers and is subject to all the restrictions of a general partner,
Partnership. (Art. 1782) except that, in respect to his contribution, he shall have the
rights against the other members which he would have had if
The following donations are void: he were a general partner. (Art. 1853)

1. Between spouses during the marriage. 2. As to contribution

Exception: Moderate gifts on the occasion of family a) Capitalist Partner - one who contributes money or
rejoicing. property.

2. Between persons who were guilty of adultery or b) Industrial Partner - one who contributes his services or
concubinage at the time of donation. industry; can be physical or intellectual.

3. Between two persons found guilty of the same criminal c) Capitalist-Industrial Partner - one who contributes not
offense, in consideration thereof. only money or property, but also his services. (Art. 1797)

4. Made to a public officer or his wife, descendants or 3. Other Classifications

ascendants by reason of his office (bribery).
a) Managing Partner - one who manages the business or
2. As to liability affairs of the partnership. (Art. 1800)

a) General Partnership - where all the partners are general b) Liquidating Partner - one who takes charge of the
partners who are liable to the extent of their separate property winding up of the partnership. (Art. 1836)
after the partnership assets have been exhausted.
c) Nominal Partner - one who is not actually a partner but
b) Limited Partnership - where there is at least one (1) who may become liable as such to third persons. Partner by
general partner and one (1) limited partner. The same rule Estoppel (Art. 1825)
applies to general partners but the limited partner is only liable
to the extent of his contribution to the partnership.
d) Ostensible Partner - one who is active and known to the
3. As to duration public as a partner, such as by allowing his name to appear in
the firm name.
a) Fixed Term - one for which a period for its duration is
fixed by partners. (Art. 1785) e) Secret Partner - one whose connection is kept from the
public.
b) Particular Undertaking - which is organized for a certain
undertaking which, when attained, will cause the termination of f) Silent Partner - one who has no voice in the
the partnership. (Art. 1785) management of the business.

c) At will - where no period is fixed by the parties for its g) Dormant Partner - one who does not participate in the
duration; hence, may be terminated at will by partners. management and not known to the public as partner.

NOTE: If a partnership for fixed term or particular

LEGALITY OF EXISTENCE
undertaking continued after the expiration of the said term, the
partnership will be considered as Partnership At Will. (Art. 1785) 1. De jure Partnership - One which has complied with all the
requirements for its establishment.
4. As to representation to others
2. De facto Partnership - One which has failed to comply with all
a) Ordinary Partnership - one which actually exists the legal requirements for its establishment.
among the partners as well as to third persons.

b) Partnership by Estoppel - one which in reality is not a

partnership but is considered as one with respect to those who,
by reason of their admission, are precluded from denying its
existence.

KINDS OF PARTNERS: 2nd Term A.Y. 2023-2024

BALAWREX
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CHAPTER 2. RIGHTS AND OBLIGATIONS OF PARTNERS
Exception: One which exempts an industrial partner from losses.
I. RULES IN PROFITS OR LOSSES  If the partners designated their share to the third persons; the
II. RULES OF MANAGEMENT same rules shall be binding upon the partners and may be
III. RIGHTS OF MANAGING PARTNERS impugned only when it is manifestly possible.
IV. OBLIGATIONS OF PARTNERS
A. AMONG THEMSELVES  If entrusted to one of the partners; the designation shall be void.
B. AS TO THIRD PERSONS
V. RIGHTS OF PARTNERS
RULES OF MANAGEMENT
VI. REPRESENTATION OF PARTNER
VII. PREFERENCE OF PARTNERSHIP CREDITORS
1. When a partner has been appointed as manager in the AOP:
RULES IN PROFITS OR LOSSES
a. Scope of Authority
 Division of Profits and Losses (Art. 1797)
General Rule: The managing partner may execute all acts
1. If all are capitalist partners of administration despite the opposition of his partners.

a) Divided according to their agreement. Exception: When he acted in bad faith.

b. Revocation of Appointment
b) In the absence of loss agreement, it should be in
the same proportion as to the profits. 1) With just or lawful cause - his appointment can be revoked
by the vote of the partners owning the controlling interest.
c) In the absence of both, it shall be in proportion (Art. 1800)
of their capital contribution.
2) Without just or lawful cause - his appointment can be
2. Capitalist Partners and Industrial Partner/s revoked only with the consent of all the partners including the
managing partner because it will result to novation of the
a) Profits terms.

1. Divided according to their agreement. 2. When a partner has been appointed as manager after the
constitution:
2. In the absence of any agreement, the industrial partner
shall first receive a just and equitable share of the a. Scope of Authority - The managing partner may
profits. After that, the capitalist partner shall share in execute all acts of administration but in case of
respect to their capital contributions. opposition, the partners owning the controlling interest
may remove him as manager.
b) Losses
b. Revocation of Appointment - He may be removed
1. Industrial Partners shall not share in any of the with or without just cause by the vote of the partners
losses. owning the controlling interest.

2. The Capitalist Partner shall share in the losses as

follows: 3. When two or more persons have been appointed as managers:

a. According to their agreement. a. When there is specification of their respective duties

b. In the absence of any agreement, partners shall 1) Scope of Authority - Each managing partner shall
share in the same proportion as the share in perform only the duties specified in his
profits. appointment.

c. In the absence of both, partners shall share b. When there is no specification of their respective duties:
according to their capital contribution.
1) Scope of Authority - Each one may separately
3. In case there is a Capitalist-Industrial Partner execute all acts of administration. (Art. 1801)

a) Profits 2) Rule in case of opposition

1. According to their agreement. a) The decision of the majority of the managing

partners will prevail (per head)
2. In the absence of any agreement, the capitalist- industrial
partner shall first receive a just and equitable share of b) In case of a tie, the decision of the managing
the profits as industrial partner. After that, he shall receive partner/s owning the controlling interest shall
a share in proportion to his capital contribution. prevail.
NOTE: Any stipulation which excludes one or more partners from any share
in the profits and losses is void, (Art. 1799). c. When there is a stipulation that none of the managing partners
shall act without the consent of the others:
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1) Vote Required - The concurrence of all of them c. To be liable for damages in case of default.
shall be necessary for the validity of the acts.
d. To answer for the eviction in case the partnership is deprived
2) Rule in case of absence or disability of one of the specific or determinate thing he has contributed to the
managing partners - cannot be alleged. The other partnership.
managing partners are not authorized to act for the
partnership unless there is imminent danger of e. To be liable for the fruits of the thing from the time they
grave to the partnership. (Art. 1802) should have been delivered without the need of any demand.
(Art. 1786)
4. When no manager/s appointed:
3. Obligations with respect to contribution of money:
a. All the partners shall be considered managing partners.
a. To deliver to the partnership at the time it was constituted or
on the date stipulated the money he has promised to contribute.
b. Whatever any of them may do alone shall bind the
partnership. b. To pay interest on the amount he had promised to contribute
from the time he should have complied with his obligation.
c. Rule in opposition of the partners:
c. To pay damages suffered by the partnership by reason of
a. Decision of the majority shall prevail. default. (Art. 1788)

b. In case of a tie, the decision of the managing partner/s 4. Obligations with respect to the amount appropriated:
owning the controlling interest shall prevail.
a. To reimburse to the partnership the amount that he has taken
RIGHTS OF MANAGEMENT away from the partnership coffers.

1. Industrial Partner b. To pay interest on the amount he had converted for his own
a. General Rule: An industrial partner cannot engage in use from the time of conversion.
business for himself.
c. To pay damages suffered by the partnership by reason of
Exception: The partnership expressly granted/permits him to default. (Art. 1788)
do so.
5. Obligation to contribute additional capital:
 Even if the Industrial Partner may engage in business for
a. To contribute additional share to the capital in case of an
himself, the capitalist partner may either:
imminent loss of the business of the partnership, except:
1. If he is an industrial partner, or
a. Exclude him from the partnership, with a right to
damages; or
2. If there is an agreement to the contrary.
b. Avail themselves of the benefits obtained from the
b. To sell his interest to the other partners if he refuses to contribute
business he engaged in, with a right to damages.
such additional capital. (Art. 1791)
2. Capitalist Partner
6. Obligation of a partner who has received his share of the
 A business a capitalist partner may engage in should be
partnership credit:
different from the nature of the partnership business.
 Even if a capitalist partner engages in the same kind of
 To bring to the partnership capital his share of a partnership
business without a stipulation allowing him to:
credit which he has received in whole or in part even if he may
have given his receipt only if the following requisites are
a. The capitalist partner shall bring to the common fund present:
any profits accruing to him from his transactions; and
a. The other partners have not collected their shares yet; and
b. He shall personally bear all the losses.
b. The debtor becomes insolvent after the partner has received
OBLIGATIONS OF PARTNERS AMONG THEMSELVES the payment. (Art. 1793)

1. Contribution of Capital - to contribute equally to the capital of 7. Obligation to pay damages to the partnership:
the partnership.
 To pay to the partnership for damages it has suffered through
2. Obligations with respect to their contribution of property: the partner’s fault.
 Partners cannot compensate the partnership with the profits or
a. To deliver to the partnership at the time it was constituted or benefits which he may have earned for the partnership. Unless,
on the date stipulated the property he has promised to he exerted extraordinary efforts that resulted to unusual profits
contribute. realized. (Art. 1794)

b. To take care of the property before its delivery to the 8. Obligations to bear risk for property contributed:
partnership with the diligence of the good father of a family as
a rule. (Art. 1163)

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 To bear the risk of specific and determinate things owned by b. If the right exists under the terms of agreement.
him which are not replaceable, contributed to the partnership so
that only their use and fruits may be for common benefit. c. With respect to benefits or profits derived by a partner
without the consent of the partners from any transaction.
9. Obligations to render information:
d. Whenever the circumstances render it just and reasonable.
 To render on demand true and full information of all things
affecting the partnership to: 4. Property rights of a partner
a) His rights in specific partnership property. (Art. 1810)
a. Any partner, or
b. Legal representative of any deceased partner, or  A partner is a co-owner with his partners of specific
c. Legal representative of any partner under legal disability. partnership property. (Art. 1811)
(Art. 1806)
a. A partner has an equal right with his partners to
10. Obligation to Account: possess specific partnership property for any other
purpose without the consent of his partners.
 To account to the partnership for any benefit, and hold as
trustee for any profits, derived by him without the consent of b. The right is not assignable except in connection
the partners from any transaction connected with the formation, with the assignment of rights of all the partners in
conduct, or liquidation of the partnership or from use by him of the same property.
its property. (Art. 1807)
c. The right is not subject to attachment or
11. Liability of a newly-admitted partner for obligations of the execution except on a claim against the partnership.
partnership:
d. The right is not subject to legal support.
a. Obligations existing at the time of his admission - he is
liable but only to the extent of his contribution.
b) His interest in the partnership. (Art. 1810)
1. A partner’s interest in the partnership is his share
Exception: If there is a stipulation that his liability shall
of the profits and surplus.
extend to his separate property.
2. He may convey his whole interest in the
b. Obligation incurred after his admission - he shall be liable like
partnership.
the other partners pro rata with their separate property after the
a. The conveyance does not cause the
partnership assets have been exhausted. (Art. 1826)
dissolution of the partnership.
b. The assignee does not become a partner.
 The partnership shall be solidarily liable with all the partners
Hence, he does not have the rights that a
in the following cases:
partner has.

1. For loss or injury cause to a third person or any penalty is incurred 3. A partner’s interest in the partnership may be
by reason of the wrongful act or omission of any partner acting in the attached for his separate debts, subject to the
ordinary course of the business with the authority of his co-partners. preference for partnership creditors.
(Art. 1822)
c) His right to participate in management.
2. Where one partner acting within the scope of his apparent
authority receives money or property of a third person and misapplies Application of payment when a person owes separate
it. demandable debts due to the partnership and to the partner
authorized to receive payment.
3. Where the partnership in the course of the business receives
money or property of a third person and such money or property is 1. If the partner authorized to receive payment issues the receipt for
misapplied by any partner while it is in the custody of the the partnership, payment shall be applied to the partnership credit.
partnership. (Art. 1823)
2. If the partner authorized to receive payment issues his own receipt,
NOTE: The solidary liability as may be noted from the foregoing rules,
payment shall be applied to the partner’s credit proportionately. (Art.
applies only if the act of the partner is done in the ordinary course of business.
1792)
RIGHTS OF PARTNERS  The payment shall be applied to the partner’s credit
entirely in the following cases:
1. To associate another person with him in his share in profits.
 The associate shall not be admitted into the partnership
a. The debt is owed to a partner not authorized to receive
without the consent of all the partners.
payment.
2. To have access to, inspect, and copy the partnership books at
b. The debt to the partnership is not yet due.
reasonable hours.
 It shall be kept at the principal place of the partnership.
c. The debt owed to the partner authorized to receive
payment is more onerous to the debtor and latter
3. To have a formal account of partnership affairs.
exercises his right to apply payment to such debt.
a. If he is wrongfully excluded from partnership affairs or
possession of his properties.
REPRESENTATION OF PARTNER

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 Such admission or representation is evidenced against the

partnership if the following requisites are present: 3. If the share of the debtor partner in the remaining
assets is not enough to settle his private debts, his private
1. The admission or representation must concern partnership creditor can go after the partner’s separate assets over
affairs. which he has preference. (Art. 1839)

2. It must be made within the scope of authority of the partner

making the admission or representation.

3. It must be made during the existence of the partnership.

4. The existence of the partnership must be shown by evidence

other than by such admission or representation. (Art. 1821)
2nd Term A.Y. 2023-2024
 Effect of Notice to and Knowledge of a partner BALAWREX
CHAPTER 3. DISSOLUTION AND WINDING UP
1. Notice to a Partner
I. DISSOLUTION
 Notice to any partner relating to partnership affairs is
A. CAUSES
notice to the partnership. (Art. 1821)
B. EFFECTS
II. RULES ON EXISTING LIABILITIES
2. Knowledge of a Partner III. APPLICATION OF PARTNERSHIP RIGHTS
IV. RESCISSION OF PARTNERSHIP CONTRACT
a) Acting on the particular manner V. LIQUIDATION OF DISSOLVED PARTNERSHIP
 Such knowledge is also knowledge of the
partnership if he acquired the same. refers to the change in the
relation of the partners caused by
a. While already a partner, or Dissolution any partner ceasing to be
associated in the carrying on of
b. Before his admission to the partnership, provided the the business. (Art. 1828)
same was still present to his mind.

b) Any other partner

refers to the process of settling
Winding Up the business or affairs of the
 Such knowledge is also knowledge of the
partnership after dissolution.
partnership if the following requisites are present:
(Art. 1829)
a. He acquired the same while already a partner, and

b. He could and should have reasonable communicated refers to the point when all the
the same to the partner acting on the particular matter. Termination business or affairs of the
(Art. 1821) partnership are completely
wound up.
3. When Notice or Knowledge not Binding on the Partnership

 Notice to or knowledge of a partner is not notice or CAUSES OF DISSOLUTION

knowledge of the partnership in case of fraud on the
partnership: 1. Without violation of the agreement of the partners

a. Committed by the partner having notice or knowledge. a. By the termination of the definite term or particular
undertaking specified in the agreement.
b. Consented to by such partner having notice or
knowledge. b. By the express will:

PREFERENCE OF PARTNERSHIP CREDITORS  Of any partner who must act in good faith, when no
definite term or particular undertaking is specified.
 In the payment of the liabilities of the partnership and those of  Of all the partners who have not assigned their
the private debts of a partner, preference shall be as follows: interests or suffered them to be charged for their
separate debts, either before or after the
1. Partnership creditors shall be paid first out of the termination.
partnership assets, (Art. 1827)
2. In contravention of the agreement between the partners, by the
2. A partner’s separate creditor shall be paid out of the express will of any partner at anytime.
share of the partner owing him if there is an excess. The
separate creditor may ask for the attachment and public  The withdrawing partner can be held liable for damages.
sale of the share of the partner for his claim but without
prejudice to the preferential right of partnership creditors. 3. When any event makes it unlawful for the business to be carried
on.
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4. In the following cases of loss:  However, if the acting partner had no knowledge of the act,
insolvency, or death of a partner, the new transaction is not
a. Loss before or after the delivery of property where the terminated.
partner contributed only its use or enjoyment, the owner of the
property bears the losses. When the act of a partner after dissolution binds the partnership:

b. Loss before delivery of a specific thing, which a partner had 1. When the act is necessary for winding up of partnership affairs.
promised to contribute to the partnership,
 If the loss occurs after delivery, the partnership 2. When the act is necessary to complete transactions prior to
shall bear the loss, hence, not dissolved. dissolution.

5. By the death of any partner. 3. In case of new transactions:

6. By the insolvency of any partner. a) If the other party extended credit to the partnership before
dissolution (previous creditor) and he had no knowledge
7. By the civil interdiction of any partner. (Art. 1930) of the dissolution.
b) If the other party had not so extended credit before
8. By decree of the court in the following cases: dissolution (new creditor) but had nevertheless known of
the partnership before dissolution, and the fact that no
a) On the application by or for any partner to dissolve the publication was given about the dissolution.
partnership whenever:
4. Where although the partner has no authority to wind up
1. A partner has been declared insane or is shown to be of partnership affairs, the other party to the transaction is:
unsound mind.
a. One who had extended credit to the partnership before
2. A partner becomes incapable of performing his duties. dissolution (previous creditor) and he had no notice or
knowledge of the partner’s lack of authority.
3. A partner has been guilty of such conduct that might affect
the carrying on of the business. b. One who had not so extended credit before dissolution (new
creditor) and he had no notice or knowledge of the partner’s
4. A partner willfully or persistently commits a breach of the lack of authority, the fact of authority was not published to the
agreement. public.

When the act of a partner after dissolution does not bind the
5. The business can only be carried on at a loss.
partnership. (Art. 1834)
6. Other circumstances render a dissolution equitable. (Art. 1. Where the partnership is dissolved because it is unlawful to carry
1831) on the business, unless the act is appropriate for winding up affairs.
b) On the application of the purchaser of a partner’s 2. Where the acting partner is insolvent.
interest.
3. Where the partner had no authority to windup partnership affairs,
1. After the termination of the specific term or particular except with innocent third persons.
undertaking.
2. At any time when the partnership was a partnership at will 4. Where a partner’s authority is already terminated among the
when the interest was assigned or the charging order was partners and the third persons had actual or constructive knowledge,
issued. (Art. 1831) as the case may be, of the dissolution.

EFFECTS OF DISSOLUTION SUMMARY OF RULES ON LIABILITY

 General Rule: Dissolution terminates all authority of any 1. If a partner’s authority is terminated among the partners, but the
partner to act for the partnership. partnership is bound by the transaction.
Exception: If it is for the winding up of affairs, and to a. The third person can go after the assets of the partnership.
complete the transactions that begun before dissolution.
 This applies to wholly or partly executory contracts.
b. If the assets of the partnership is insufficient, the third party
can go after the acting partner to recover the amount they paid
When the authority of the partner to enter into new transactions
out of their separate assets and to demand the return of the
is terminated among the partners.
amount paid out of the partnership assets.
1. If the cause is not by act, insolvency, or death of a partner, notice
2. If a partner’s authority is not terminated among the partners and
or knowledge of the acting partner of the cause of dissolution is
the partnership is bound by the transaction.
immaterial.
a. The third person can go after the partnership assets.
2. If the cause is the act, insolvency, or death of a partner, and the
partner who entered into a contract had knowledge of it.
b. If the assets of the partnership is insufficient, the third party can go
3. If the cause is the insolvency or death of a partner, and the partner after the separate assets of each partner.
who entered into a contract had knowledge of it.
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c. The other partners cannot go after the acting partner for recovery
because after all the authority of the latter was not terminated among 2. Dissolution in contravention of the partnership agreement.
all the partners.
a. Rights of a partner who has not caused the dissolution
3. If a partner’s authority is terminated among the partners and the wrongfully.
partnership is not bound by the transaction.
1) To have the partnership property applied to discharge the
a. The partnership assets cannot be held to answer for the liability to liabilities of the partnership.
the third person.
2) To have the surplus, if any, applied to pay in the cash the
b. The acting partner alone is liable to third person with whom he net amount owing to the respective partners.
contracted, and he cannot compel the other partners to share in the
payment. 3) To be indemnified for damages from the partner who has
caused the wrongful dissolution of the partnership.
4. If a partner’s authority is not terminated among the partners, but
the partnership is not bound by the transaction. 4) To continue the business of the partnership in the same
name, either by themselves or jointly with others.
 This may occur when a partnership is dissolved by reason
of death of a partner and the acting partner has no b. Rights of partner who has caused the decision wrongfully
knowledge of such death. Then entered into a contract
with a creditor who had knowledge of such reason for
1. If the business is not continued
dissolution.
i. To have the partnership property applied to discharge
the liabilities of the partnership.
RULES ON EXISTING LIABILITIES OF A PARTNER

1. The dissolution does not itself discharge the partner’s liability. ii. To receive his share in the surplus, less damages
suffered by the other partners.
2. A partner is discharged from any existing liability upon the
dissolution by the agreement of the following: 2. If the business is continued
i. To have the value of his interest in the partnership less
a. The partner himself; damages paid to him in cash or have its payment secured
b. The partnership creditor; by a bond approved by court.
c. The person continuing the business.
ii. To be released from all existing liabilities of the
3. The individual property of a deceased partner shall be liable for partnership.
obligations of the partnership while he was a partner, but subject to
the prior payment of his separate debts. RESCISSION OF PARTNERSHIP CONTRACT

Who may wind up partnership affairs? (Art. 1836) 1. Grounds for Rescission

1. Extra-judicially a. Fraud; or
b. Misinterpretation to enter into the partnership contract
a. By the partner or partners designated by the agreement.
b. If none was assigned: 2. Rights of Partners who was induced by fraud or misinterpretation
 By the partner/s who have not wrongfully dissolved
the partnership. a. Right or lien on, or retention of, the surplus of the partnership
 If all the partners are dead, the legal representative property, after the satisfaction of partnership liabilities for any sum
of the last surviving partner who was not insolvent. of money paid by him to the partnership by way of capital or
advances.
2. Judicially
b. Right or subrogation in place of partnership creditors for any
 Under the direction and control of the court, upon proper payment made by him for partnership liabilities.
cause shown by any partner, his legal representative, or
assignee. c. Right of indemnification from the person guilty of fraud or
 The appointee of the court should be a surviving partner, misinterpretation against all debts of the partnership.
not a legal representative of the deceased partner who
was not insolvent except when he was the last surviving LIQUIDATION OF DISSOLVED PARTNERSHIP
partner.
1. Liquidation or winding up - involves the sale of the assets of the
APPLICATION OF PARTNERSHIP RIGHTS partnership, the payment of its liabilities, and the distribution of the
remaining cash or property.
1. Dissolution without contravention of the partnership
agreement. 2. Order of payment of partnership liabilities

a. To have a partnership property applied to discharge the a. Those owing to partners other than for capital and profits.
liabilities of the partnership. b. Those owing to partners in respect of capital.
c. Those owing to partners in respect of profits.
b. To have the surplus, if any, applied to pay in cash the net
amount owing to the respective partners. 3. Assets of the Partnership
8NATIONAL UNIVERSITY
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 BUSINESS LAWS AND REGULATIONS REVIEWER

a. Partnership Property

b. The contributions of the partners necessary for the payment of

such liabilities.

1) The contributions shall be in accordance with the

rules on division of profits and losses.

2) The individual property of a deceased partner

shall be liable for such conditions.

3) The following may enforce payment of the

contributions.

a) An assignee for the benefit of creditors.

b) Any person appointed by the court.
c) Any partner or his legal representative to the
2nd Term A.Y. 2023-2024
extent of the amount which he paid in excess
BALAWREX
of his share of the liability.
CHAPTER 4. LIMITED PARTNERSHIP
4. Priority in the payment of liabilities if partnership property
and the individual property of the partners are in possession of I. LIMITED PARTNERSHIP
the court for distribution. II. FORMATION
III. ADMISSION OF ADDITIONAL LIMITED PARTNERS
a. Partnership creditors for partnership property. IV. OBLIGATIONS OF A LIMITED PARTNER
b. Separate creditors for individual property. V. AMENDMENT OF CERTIFICATE

5. Priority of claims against separate property of a debtor who is Art. 1843. A limited partnership is a partnership which has one or more
insolvent or whose estate is insolvent. general partners and one or more limited partners. The limited partners as
such shall not be bound by the obligations of the partnership except up to the
extent of their contribution.
a. Those owing to separate creditors.
b. Those owing to partnership creditors.
REQUIREMENTS FOR FORMATION (Art. 1844)
c. Those owing to partners by way of contribution.
1. They must subscribe and swear to a certificate, which shall state:

a. The name of the partnership, which must contain the word

“Limited” or “Ltd.”

b. The character of the business.

c. The location of the principal place of the business.

d. The name and place of residence of each member, general and

limited partners being respectively designated.

e. The term for which the partnership is to exist.

f. The amount of cash and a description of and the agreed value of

the other property contributed by each partner.

g. The additional contributions, if any, is to be made by each limited

partner and the times at which or events on the happenings they shall
be made.

h. The time, if agreed upon, when the contribution of each limited

partner is to be returned.

i. The share of the profits or the compensation by way of income

which each limited partner shall receive by reason of his
contribution.

j. The right, if given, of a limited partner to substitute an assignee or

contributor in his place and the terms and conditions of the
substitution.

9NATIONAL UNIVERSITY
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 BUSINESS LAWS AND REGULATIONS REVIEWER
k. The right, if given, of the partners to admit additional limited b. For any unpaid contribution which he agreed in the AOP to
partner. make in the future at the time and conditions stated thereto.

l. The right, if given, of one or more limited partners to priority over 4. To hold as trustee for the partnership in the following:
the limited partners, as to contributions or as to compensation by way
of income, and the nature of such priority. a. Specific property stated in the certificate as contributed by
him, but which was not contributed.
m. The right, if given, of the remaining general partner or partners to b. Specific property which has been wrongfully returned to
continue the business on the death, retirement, civil interdiction, him.
insanity or insolvency of a general partner. c. Money or property wrongfully paid or conveyed to him on
account of his contribution.
n. The right, if given, of a limited partner to demand and receive
5. To be liable to the partnership after he has rightfully received the
property other than cash in return for his contribution.
return of his capital contribution, for any sum not in excess of such
return with interest, which is necessary to discharge its liabilities to
all creditors who extended credit or whose claims arose before such
2. They must file for record the certificate with the Securities and
return. (Art. 1858)
Exchange Commission (SEC). (Art. 1844)

 Additional limited partners may be admitted after 6. Not to receive or hold as collateral security any partnership
formation by filing an amendment to the original certificate. property on account of his claims for loan granted to or other
(Art. 1849) However, this right must be stated in the Articles business transaction with the partnership.
of Partnership. (Art. 1844) 7. Not to receive from a general partner or the partnership on account
of such claims any payment, conveyance, or release from liability, if
 A General Partner/s shall have no authority to perform the at the time the assets of the partnership are insufficient to discharge
following acts without written consent or ratification by all liabilities to persons not claiming as general or limited persons. (Art.
limited partners: 1854)

1. Do any act of contravention to the Articles of Partnership. RIGHTS OF A LIMITED PARTNER

2. Do any act which would make it impossible to carry on the GENERAL PARTNER LIMITED PARTNER
business of the partnership. 1. Right in specific partnership To have partnership books kept
property at principal place of business
2. Interest in the partnership To inspect/copy books at
3. Confess a judgment against the partnership.
(share in the profits and surplus) reasonable hours
3. Right to participate in the To have formal account of
4. Possess partnership property, or assign their rights in specific management partnership affairs whenever
property, for other than a partnership purpose. circumstances render it just and
reasonable
5. Admit a person as a general partner. 4. Right to associate another To have on demand true and full
person with him in his share information of all things
6. Admit a person as a limited partner, unless the right to do so without the consent of other affecting the partnership
is given in the AOP. partners
5. Right to inspect and copy To ask for dissolution and
7. Continue the business with partnership property on the partnership books at any winding up by decree of court
death, retirement, civil interdiction, or insolvency of a general reasonable hour
partner unless the right to do so is stated in the AOP. 6. Right to a formal account as to To receive share of profits/other
partnership affairs (even during compensation by way of income
OBLIGATIONS OF A LIMITED PARTNER the existence of partnership)
6.1. If he is wrongfully excluded To receive return of
1. Not to allow the inclusion of his surname in the partnership name. from partnership business of its contributions, provided the
(Art. 1846) property partnership assets are in excess
6.2. if right exists under the of all its liabilities.
a. Exceptions: terms
1) If it is also the surname of a general partner. 6.3. as provided in Art. 1807
2) The business had been carried on under a name 6.4. whenever the circumstances
in which his surname appeared prior to his admission as a render it just and reasonable.
limited partner.

b. Effect if a limited partner allows the inclusion of his surname in Retirement , death, civil interdiction, insanity, or insolvency of a
the partnership name - he is liable as a general partner without actual partner (Art. 1860)
knowledge that he is one.
GENERAL PARTNER LIMITED PARTNER
2. To be liable as a general partner if he takes part in the control of
the business. Partnership is dissolved. (Art. Partnership is not dissolved
1860) except if there are no more
3. To be liable to the partnership of the following: limited partners.
a. For the difference between his actual contribution and that
stated in the AOP.

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NATIONAL UNIVERSITY
COLLEGE OF BUSINESS AND
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 BUSINESS LAWS AND REGULATIONS REVIEWER
ORDER OF PAYMENT OF LIABILITIES (Art. 1863)
REQUIREMENTS OF CANCELLATION (Art. 1865)
1. Those to creditors, including limited partners, in the order of
priority as provided by law, except those to limited partners on 1. The cancellation must be in writing.
account of their contributions, and to general partners.
2. It must be signed by all the members.
2. Those to limited partners by way of their share of the profits and
other compensation by way of income on their contributions. 3. It must be filed with SEC.

3. Those to limited partners in respect to their capital contribution.

4. Those to general partners other than for capital and profits.

5. Those to general partners in respect to profits.

6. Those to general partners in respect to capital.

 Sharing among limited partners in partnership assets in respect

to their claim for capital, and in respect for their claims for
profits or compensation.

CANCELLATION OR AMENDMENT OF CERTIFICATE

1. When cancelled 2nd Term A.Y. 2023-2024

a. When the partnership is dissolved BALAWREX
b. When all limited partners ceases to be such. CHAPTER 1. GENERAL PROVISIONS

2. When amended I. INTRODUCTION TO CORPORATIONS

a. When there is a change in the name of the partnership or in the A. COMPARATIVE TABLE
amount or character of the contribution of any limited partner II. CLASSES OF CORPORATIONS
III. NATIONALITY OF CORPORATIONS
b. When a person is substituted as a limited partner IV. CORPORATE JURIDICAL PERSONALITY
A. DOCTRINE OF SEPARATE JURIDICAL
c. When an additional limited partner is admitted PERSONALITY
B. DOCTINE OF PIERCING THE CORPORATE
d. When a person is admitted as a general partner VEIL

 The law governing private corporations in the Philippines is the

e. When a general partner retires, dies, become insolvent or insane,
Revised Corporation Code of the Philippines (R.A. No. 11232)
or is sentenced to civil interdiction and the business is continued by
which took effect on February 23, 2019.
the remaining general partners.
Sec. 2 RCC. A corporation is an artificial being created by operation
f. When there is a change in the character of the business of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incidental to its existence.
g. There is a false or erroneous statement in the certificate
COMPARATIVE TABLE
h. There is a change in the time as stated in the certificate for
dissolution of the partnership or for the return of a contribution. PARTNERSHIP CORPORATION
Creation By agreement of the By operation of law
i. When a time is fixed for the dissolution of the partnership, or the parties or by law
return of a contribution, no time having been specified in the
At least one
certificate.
Number of Persons At least two persons incorporator
From the moment of From the date of
j. When the members desire to make a change i any other statement Commencement of execution of the issuance of the
in the certificate in order that it shall accurately represent the the Juridical contract of Certificate of
agreement among them. Personality partnership Incorporation by
SEC
REQUIREMENTS FOR AMENDMENT (Art. 1865) May exercise powers May exercise only
Powers granted by partners the powers vested by
1. The amendment must be in writing, the law
Managing partner;
2. It must be signed and sworn to by all members including: Management All the partners if Board of Directors
a. The assigning limited partner and the substituted limited partner, in not agreed upon
case of substitution. Rights of Succession None Has the right of
b. The newly-admitted limited partner or partners. succession
c. The newly-admitted general partner or partners. Partners are liable Only up to the extent
Extent of Liability personally and of their subscribed
3. The amended certificate must be filed with the SEC. solidarily shares

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NATIONAL UNIVERSITY
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 BUSINESS LAWS AND REGULATIONS REVIEWER
Can have fixed term, b. Foreign Corporation - Formed, organized, and existing under any
Term of Existence depends upon the Perpetual existence laws other than those of the Philippines and whose laws allow
will of the partners Filipino citizens and corporations to do business in its own country.
May be dissolved Can only be
Dissolution any time by any of dissolved with NATIONALITY TESTS
the partners consent of the BOD
Taxes Individual tax for Corporate Tax 1) Incorporation Test - Follows that of the country under
Partners which laws it was incorporated.

 As a juridical entity, a corporation is separated by law by a 2) Control Test - Follows that of the stockholders owning the
dividing line from its stockholders (or members). The controlling interest. Even if it is incorporated under Philippine
consequences of such is: laws, it would still not be considered as Philippine Corporation
if the stockholders are foreigners.
1. The debts of the corporation are not the debts of its
stockholders and vice versa. 3) Business Domiciliary Test - Follows that of the country
where its principal business is conducted.
2. The stockholders are not the owners of the assets of the
corporation but have only an indirect interest therein. GRANDFATHER RULE

3. In connection with corporate property or affairs,  is a method by which the percentage of Filipino equity in
stockholders cannot maintain actions in their own name and corporations engaged in nationalized and/or partly
they have no right to recover possession of property belonging nationalized areas of activities.
to the corporation or to recover damages from its injury.  The rule applies with respect to the registration of the
4. In taxation, the income of the corporation is not the income subsidiary if the capital structure of both the parent
of its stockholders who may still be required to pay their own corporation and its subsidiary does not comply with the
from the dividends they received. 60%;40% Filipino to Foreign ownership ratio.

DOCTRINE OF PIERCING THE VEIL 3. As to number of persons composing them

 This is the doctrine to the effect that the separate personality of a. Corporation Aggregate - one that is composed of more than
a corporation will be disregarded if such entity is used to: one corporator.
b. Sole Corporation - one that is composed of only one
1. Defeat public convenience, justify a wrong, protect fraud, or person.
defend crime.
4. As to whether its purpose is public or private
2. Where a corporation serves as a mere alter ego, instrument,
or agency of another corporation. a. Public Corporation - one that is organized for the government of
a portion of the State, like provinces, cities, municipalities, and
3. Where the corporate fiction is used to evade contracts and barangays.
obligations i.e defrauding creditors
b. Private Corporation - one that is formed for a private purpose or
4. Confuse legitimate legal or judicial issues. end.

 The doctrine may apply to corporations as well as natural c. Government-owned or Controlled Corporations - refers to
persons involved with the corporation. corporations created by special law other than those for the
government of s portion of the state. They might be performing
 The primary consequence of piercing the veil is to hold the governmental or proprietary function.
stockholders directly liable for corporate acts or obligations.
d. Quasi-public Corporation - those organized for profit which are
CLASSES OF CORPORATION granted by franchise by the state to perform public service such as
Meralco.
1. In General
5. As to their legal right or existence
a. Stock Corporation - one that has capital stock divided into
shares and is authorized to distribute dividends or allotments of a.) De jure Corporation - one that has been created in strict
surplus on share-based profits. compliance with all the legal requirements and whose right to
exist as a corporation cannot be successfully attacked in a
direct proceeding for that purpose by the State.
b. Nonstock Corporation - one that has no intention to divide
profits and distribute dividends.
b.) De facto Corporation - one that has defects when created
but there is an actual existence of corporate rights and franchise
2. As to the State under whose laws it was created resulting from an attempt in good faith to incorporate on the
part of the members.
a. Domestic Corporation - Incorporated under Philippine laws.
6. As to their relation to other corporation

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NATIONAL UNIVERSITY
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a. Parent or Holding Corporation - one which owns the
shares of another corporation, and having the power, directly or CLASSES OF STOCKS
indirectly over the latter including the election of directors.
1. Common Stock - The ordinary stock of the corporation that
b. Subsidiary Corporation - one whose shares of stock are entitles the holder to a pro rata division of the dividends, without any
owned by another corporation. preference or advantage over other stockholders.

7. Other classifications 2. Preferred Stock - One that entitles the holder to certain
preferences over other stockholders. Such preferences may be:
a. Corporation by Prescription - one which has exercised
corporate powers from such a length of time without a. Preferred Stock as to Assets - One that entitles the holder
interference from the State and which, by function of law, is to preference in the distribution of assets over common stock
given the status of a corporation. upon liquidation.

b. Corporation by Estoppel - one which is in reality, not a b. Preferred Stock as to Dividends - One that entitles the
corporation but is considered one with respect to those who holder to preference in the distribution of dividends over
precluded by their admission from denying its existence. common stock.

COMPONENTS OF A CORPORATION 1) Cumulative Preferred Stock - Those which

entitles the holder to payment not only of current
1. Corporators - those who compose a corporation, whether the dividends but also those in arrears, when dividends
stockholders or members. are declared, to the extent stipulated, before holders
of common stocks are paid.
2. Stockholders - corporators of a Stock Corporation.
2) Non-cumulative Preferred Stock - Those that
3. Members - corporators of a Non-stock Corporation. entitle the holder to payment of current dividends
but not those in arrears.
4. Incorporators - those stockholders or members mentioned in the
articles of incorporation as originally forming and composing the 3) Participating Preferred Stock - Those that entitle
corporation and are signatories of the document. the holder to participate with the holders of
common shares in the surplus profits after the
amount stipulated has been paid to the holders of
CAPITAL STOCK AND OTHERS
preferred shares.
4) Non-participating Preferred Stock - Those that
1. Capital Stock - The amount specified in the Articles of entitle the holders only to the stipulated preferred
Incorporation paid in, or procured to be paid in for the carrying on of dividend.
the business of the Corporation.
3. Par value Stock - One with a nominal value of which appears on
a. Authorized - The total amount of shares which a the stock certificate.
corporation is allowed to issue if the shares have par value. if
the shares do not have par value, then it does not have a capital
stock. What it has is the authorized number or non-par shares 4. Non-par value Stock - One without any nominal value or par
that it may issue. value appearing on the stock certificate.

b. Subscribed - This is the part of the capital stock which is 5. Redeemable Shares - Those that grant the issuing corporation the
subscribed or issued, whether paid or unpaid. power to redeem or purchase them after a certain period.

c. Outstanding - This refers to the total shares of stock issued Characteristics of Redeemable Shares
to subscribers, whether fully or partially paid, except treasury a. May be issued by the corporation only when expressly provided in
shares. the AOI.

d. Paid-up - The part of the capitals stock that has been paid. b. May be deprived of the voting right.

e. Unissued - The part of the capital stock which is not issued c. May be purchased by the corporation upon the expiration of a
or subscribed. fixed period, regardless of the existence of unrestricted retained
earnings in the books of the corporation.
2. Legal Capital - Refers to the total par value of all issued par value
shares, or the total cash or consideration received for all issued no- d. The terms and conditions for their purchase must be stated in the
par value shares. AOI and in the stock certificate representing the said shares.

3. Stated Capital - The capital with which the corporation issuing e. Shall be considered as treasury shares unless retired or again
shares without par value begins business, increased by any additions disposed by the corporation.
thereto, or diminished by any deductions therefrom.
6. Founders’ Shares - Shares issued by a corporation, classified as
4. Capital - Refers to the actual property of the corporation in money such in the AOI and which grant the holders certain rights and
and other property. privileges not enjoyed by other shares such as the exclusive right to
vote and be voted for in the election of directors.
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7. Treasury Shares - Those that have been issued and fully paid for,
but subsequently reacquired by the issuing corporation by purchase,
redemption, donation, or through some other lawful means.
 Shall have no voting rights.
 Not considered as outstanding capital stock.
 Not entitled to dividends.
 May be again disposed of for a reasonable price.

8. Watered Stock - Those issued without consideration or for an

inadequate consideration.

9. Voting Stock - Those entitled to vote in meetings of the

corporation.

10. Non-voting Stock - Those without voting rights, except in

certain cases.

INCORPORATION OF PRIVATE CORPORATIONS

Steps in Incorporation:
1. Verification with the SEC of the name to be used.
2. Drafting and execution of the Articles of Incorporation signed by
the Incorporators.
3. Filing the Articles of Incorporation with the SEC, together with
the following documents:

 Verification Slip/Certificate authorizing the use of the

corporate name obtained in Step 1.
 Joint Affidavit of two incorporators to change corporate
name unless the undertaking to change the corporate
name is already stated in the Articles of Incorporation.
 Endorsement/Clearance from a department of the SEC or
other government agencies.
 Payment of the filing, legal research and other fees.
 Issuance of the Certificate of Incorporation by SEC.

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