PARTNERSHIP AND CORPORATION (ACC 002)

PARTNERSHIP AND CORPORATION

Chapter 1 – Basic Consideration and Formation for Partnership

In a contract of Partnership, two or more persons bind themselves to contribute money, property,
or industry to a common fun, with the intention of dividing the profit among themselves. Two or more
persons may also form a partnership for the exercise of a profession (Civil Code of the Philippines, Article
1767

An association of two or more persons to carry on, as co-owners, a business for profit (Uniform
Partnership Act, Section 6)

In accounting, a partnership is a business structure where two or more partners share ownership,
management responsibilities, and profits or losses based on their agreement. Each partner’s share of the
business is recorded in the financial statements, reflecting their equity and contributions to the
partnership. Each owner is called a partner.

Characteristics of A Partnership

1. Mutual Contribution: In a partnership, all partners contribute resources—such as capital, skills, or

property—to the business, sharing responsibility for its success and operations.
2. Division of Profit or Losses: Profits and losses are distributed among partners according to the
terms of their agreement, reflecting each partner’s contribution or share in the business.
3. Co-Ownership of Contributed Assets: Partners collectively own the assets they contribute to the
partnership, with each having rights to use or dispose of these assets as agreed upon.
4. Mutual Agency: Each partner has the authority to make decisions and act on behalf of the
partnership, binding the business to contracts and obligations or implied authority.
5. Limited Life: A partnership typically has a limited lifespan. 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: Partners are personally responsible for the debts and obligations of the
business, meaning their personal assets may be at risk if the business faces financial difficulties.
7. Income Taxes: Partnership, except general professional partnerships, are subject to tax at the rate
of 30% (per R.A. No. 9337) of taxable income.
8. Partners Equity Accounts: Each partner has an equity account reflecting their ownership interest
in the partnership, including contributions, share of profits or losses, and withdrawals.

Advantages and Disadvantages of A partnership

A partnership offers certain advantages over a sole proprietorship and a corporation. It also has a
number of disadvantages.

Advantage vs Proprietorship

1. Brings greater financial capability to the business

2. Combines special skills, expertise and experience of the partners
3. Offers relative freedom and flexibility of action in decision-making
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Advantages vs Corporation

1. Easier and less expensive to organize

2. More personal and informal

Disadvantages

1. Easily dissolved and thus unstable compared to a corporation

2. Mutual agency and unlimited liability may create personal obligations to partners
3. Less effective than a corporation in raising large of capital

Kinds of Partner

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.
3. Capital partner – one who contributes his money or property to the company’s capital
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 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

Partnership Distinguished from Corporation

Manner of creation – A partnership is created by mere agreement of the partners while a corporation is
created by operation of law

Number of Persons – Two or more persons may form a partnership, in a corporation, at least five (5)
persons, not exceeding fifteen (15)

Commencement of juridical personality – In a partnership, juridical personality commences from the

execution of the articles of partnership; in a corporation, from the issuance of certificate of incorporation
by the Securities and Exchange Commission.

Management – In a partnership, every partner is an agent of the partnership if the partners did not appoint
a managing partner; In a corporation, management is vested on the Board of Directors.

Extent of Liability – In a partnership, each of the partners except a limited partner is liable to the extent of
his personal assets; in a corporation, stock holders are liable only to the extent of their interest or
investment In corporation.
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Right of Succession – In a partnership, there is no right of succession; in a corporation there is right of

sucession.

Classifications of Partnerships

1. According to Object
a. Universal partnership of all present property. All contributions become part of the
partnership fund.
b. Universal partnership of profits. All that the partners may acquire by they industry or work
during the existence of the partnership and the use of whatever the partners contributed
at the time of the institution of the contract below to the partnership
c. Particular Partnership. The object of the partnership is determinate – its use or fruit,
specific undertaking, or the exercise of a profession or vocation.
2. According to Liability
a. General. All partners are liable to the extent of their separate properties
b. 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. According to duration
a. Partnership with a fixed term or for a particular undertaking
b. Partnership at will. One in which no term is specified and is not formed for any particular
undertaking
4. According to purpose
a. Commercial or trading partnership. One formed for the transaction of business
b. Professional or non-trading partnership. One formed for the exercise of profession.
5. According to legality of existence
a. De jure partnership. One which has complied with all the legal requirements for its
establishment.
b. De facto partnership. One which has failed to comply with all the legal requirements for
its establishment.

Articles of Co-Partnership
It is a document that serves as evidence of contract of partnership to the government
particularly to Securities and Exchange Commission, and to the consuming public including the
creditors, suppliers, banks and other stakeholders. The contract includes by-laws that discusses
how things are done and to be done, and also includes the enumerated rights and obligations of
the partners and their relationship to each other. This document is a basic requirements for
registration with the SEC and other government agencies. The articles of Co-Partnership
contains:
1. Name of the partnership
2. Principla place of business
3. Date of affectivity and life of the partnership
4. Purpose of the partnership
5. Names, addresses and contributions of the partners
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6. Agreement as to the manner of management of the partnership

7. Maner of dividing the profits among the partners
8. Arbitration of disputes