Partnerships Outline 1

Can a partnership be created without any definite intention

(Generally no i think unless ....) Yes provided that the intention of the parties are inferred from their conduct and dealings with each other

Effects of an unlawful partnership

1. The contract is void ab initio and the partnership never existed in the eyes of the law 2. The profits shall be confiscated in favor of the government 3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government 4. The contributions of the partners shall not be confiscated unless they fall under No. 3

Essential features of a partnership

1. There must be a valid contract 2. The parties (two or more persons) must have legal capacity to enter into the contract 3. There must be a mutual contribution of money, property, or industry to a common fund 4. The object must be lawful 5. The primary purpose must be to carry on a business for profits and to divide the same among the parties

As an independent juridical person, a partnership may

1. enter into contracts 2. acquire and posses property of all kinds in its name 3. incur obligations and bring civil or criminal actions in conformity with the laws an regulation of its organization

two essential elements under Art. 1770

1. legality of the object 2. community of benefit or interest of the partners

Art. 1771

A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary

Art 1770

A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime

Section 26 of the National Internal Revenue Code

A partnership, whether registered or not, other than a general professional partnership, is now considered for tax purposes a corporation and the partners are considered stockholders (before the amendment of Sec. 26, only unregistered partnerships were taxable as corporations)

The happening of an event subsequent to the making of a valid partnership contract which would render illegal the business of the partnership as planned, will not nullify the contract

An accounting may be had as to the business transacted prior to it becoming illegal

Statue of frauds

An agreement to enter ina partnership at a future tume, which "by its terms is not to be performed withina year from the making thereof "

Labor union

Any association of employees which exists in whole or in part for the purpose of collective bargaining or of dealing with employers concerning terms and conditions of employment *purpose of partnership is to enable its members, as principals to conduct a lawful business, trade or profession for pecuniary gain as partners

What are the characteristic elements of partneship

Consensual Nominate Bilateral Onerous Commutative Principal Preparatory

Requisites

Consent and capacity of the contracting parties Object Cause

Test

Does the recipient of a share of the profits have an equal voice as proprietor in the conduct and control of the business? Does he own a share of the profits as proprietor of the business producing them?

Art. 1772

Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the office of the securities and exchange commission Failure to comply with the requriements of the preceding paragraph shall not affect the liability of the partnership of the members thereof to third persons

The fact that said contributions are not included in the disposal prescriped for said profits, shows that in consequence of said exclusiion, the general rules of law must be followed, and hence, the partners must be reimbursed the amount of their respective contributions

He need not resort to the partnership contract on which to base his claim or action

Article 1769

In determining whether a partnership exits, these rules shall apply: 1. Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons 2. Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors fo or do not share any profits made by the use of property 3. The sharing of gross returns does not of itself establish a partnership , whether o rnot 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 prima facie evidence that he is a pertner in the business, but no such inference shall be drawn if such profits were received in a payment: (a) As a debt by installment or otherwise (b) As wages of an employee or rent to a landlord (c) As an annuity to a widow or representative of a deceased partner (d) As interest on a loan, though the amount of payment vary with the profits of the business (e) as the consideration for the sale of a good-will of a business or other property by installment or otherwise

Partnership is fiduciary in nature

It is a personal relation in which the element of delectus personae exists, involving as it does trust and confidence between the partners

Where the parties expressly declare they are not partners, this, as a rule settles the questions as between thesmelves

It is, however, the substance, and not the name of the arrangement between them which determines their legal relation toward each other. Thus, the intention to form a partnership is not always required

Is a partnership to practice law formed for the purpose of carrying on trade or business or of holding property

NO

Is a judicial decree necessary to dissolve a partnership?

NO The partnership shall be dissolved by operation of law upon the happening of an event which makes it unlawful (art. 1803(3))

Is the profit motive required to be the exclusive aim

NO , it is sufficient that it is the principal purpose

Is the partnership relation a contract itself

NO , it is the result of the contract

Is the sharing of profits conclusive evidence of partnership

NO , merely presumptive

Cana partnership undertake a banking business

NO general banking law of 2000, section 8 requires that only stock corporations may undertake banking

Is it necessary that the business of a partnership is of a continuing nature

NO, a short term business may qualify as a partnership

Does the law allow individuals to practice a profession as a corporate entity?

NO, because personal qualifications for such practice cannot be possessed by a corporation

Is to organize a partnership an absolute right?

NO, it is a privilege

Can the court force a person to comply with a promise to enter into a partnership

NO, it is a very personal act

Is a stipulation which excludes one or more partners from any participation in the profits valid?

NO, it is void the essence of partnership is that the partners share in the profits and losses (Tacao v. CA)

Are there formal requirements for all types of partnership

NO, only limited partnership

Can the articles of partnership be kept secret among the members

NO, otherwise the association will have no legal personality

is it necessary for the parties to agree upon a system of sharing lossess?

NO, the obligation is implied from the partnership relation

Heirs of Tan Eng Kee v. CA

No single factor usually is controlling. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, nevertheless the collective effect of these circumstances may be such as to support a finding of the existence of the parties' intent

Conjugal Partnership of Gains 1. Arises in case the future spouses - a man and a woman - agree that it shall govern their property relations during the marriage 2. Governed by law 3. No juridical personality 4. Commences precisely on the date of the celebration of the marriage and any stipulation to the contrary is void 5. Primary purpose is to regulate the property relations of husband and wife during the marriage 6. The shares of the spouses in the profits are divided equally 7. Although the administration belongs to the spouses jointly, the husband's decision shall prevail in case of disagreement 8. The share of each spouse cannot be disposed of during the marriage even with the consent of the other

Partnership 1. Created by voluntary agreement of two or more partners, belonging to either sex 2. Governed by the stipulation of the parties 3. Has a juridical personality 4. Begins from the moment of the execution of the contract, unless it is otherwise stipulated 5. Primary purpose is to obtain profits 6. Profits are divided according to the agreement of the partners or in proportion to their capital contributions 7. The management is shared equally by all the partners unless one or more of them are appointed managers in the articles of partnership 8. The whole interest of a partner may be disposed without the consent of the other partners

Voluntary Association 1. NO juridical personality 2. Profit objective is lackng 3. For social purposes, althouogh fees are usually collected from the members to maintain the organization, there is no contribution of capital 4. The members are individually liable for the debts of the association, authorized by them either expressly, or impliedly, or subsequently ratified by them

Partnership 1. Has a juridical personality 2. Always organized for pecuniary profit 3. There is a contribution of capital , either in form of money, property or services 4. The partnership, as a rule, is the one liable in the first place for the debts of the firm,

Corporation 1. Created by law or by operation of law 2. Requires at least 5 incorporators 3. Begins to have juridical personality only from the date of issuance of the certificate of incorporation by the SEC 4.Power to do business and manage its affairs is vested in the board of directors or trustees 5. The suit against a member of the board of directors or trustees who mismanages must be in the name of the corporation 6. A corporation has right of succession 7. In a corporation, the stockholders are liable only to the extent of the shares subscribed by them 8. A stockholder has generally the right to transfer his shares without prior consent of the other stockholders because a corporation is not based on this principle 9. A corporation may not be formed for a term in excess of 50 years extendible to not more than 50 years in any one instance 10. A corporation may adopt any firm name provided it is not the same as or similar to any registered firm name 11. A corporation can only by dissolved with the consent of the state 12. Governed by corporation code

Partnership 1.A partnership is created by mere agreement of the parties 2. May be organized by two persons 3. Commences to acquire juridical personality from the moment of the execution of the contract of partnership 4. May exercise any power authorized by the partners provided it is not contrary to law, morals, good customs, public order or public policy 5. A partner as such can sue a co-partner who mismanages 6. A partnership has no right of succession 7. The partners (except limited partners) are liable personally and subsidiarily (sometimes oslidarily) for partnership debts to third persons 8. A partner cannot transfer his interest in the partnership so as to make the transferee a partner without the consent of all the other existing partners because the partnership is based on the principle of delectus persnarum 9. May be established for any period of time stipulated by the partners 10. A limited partnership is required by the law to add the word "Ltd." To its name 11. A partnership may be dissolved at any time by the will or any of the partners 12. Governed by Civil code

Co-ownership 1. generally created by law 2. has no juridical personality 3. Common enjoyment of a thing or right which does not necessarily involve the sharing of profits 4. In co-ownership, an agreement to keep the thing undivided for more than ten years is not allowed 5. A co-owner may freely dispose of his interest 6. a co-owner cannot represent the co-ownership 7. The death of the co-owner does not necessarily dissolve the co-ownership

Partnership 1. always created by a contract, either express or implied 2. has a juridical personality separate and distinct from each other 3. The purpose is the realization of profits 4. No limitation on the duration of a partnership 5. A partner may not dispose of his individual interest in the partnership so as to make the assignee a partner unless upon by all of the partners 6. A partner may bind the partnership 7. The death of a partner results in the dissolution of the partnership

Art. 1768

The partnership has a juridical personality separate and distinct from that of each of the partners even in case of failure to comply with the requirements of Article 1772, first paragraph

Ratio for the rule that sharing of gross returns is not even presumptive evidence of partnership

When a business is carried on in behalf of a given person as partner, he is conceived as being interested in its failures as its successes

Art. 147 FC

When a man and a woman who are capacitated to marry each other, live exclusively with each other as husband and wife without the benefit of marriage or under a void marriage, their wages and salaries shall be owned by them in equal shares and the property acquired by both of them through their work or industry shall be governed by the rules on co- ownership. ....

Co-ownership

Whenever the ownership of an undivided thing or right belongs to different persons. It is the right of common dominion which two or more persons have in a spiritual part of a thing which is not physically divided

Can partners agree upon concentration of management, leving some of their members entirely inactive or dormant

YES

Is a partnership presumed to continue when it is proven to exist?

YES

Is it allowed for a foreign corporation to enter as a limtied partner in a limited partnership

YES, only for investment purposes and it shall not take part of management and control of the business operation of the partnership, it shall not be deemed doing business in the Philippines

Can a partner transfer to the partnership, as his contribution, merely the use or enjoyment of a specific thing, retaining the ownership thereof

YES, the partners become co-owners of the right tot use such proeprty

Conjugal Partnership of Gains

a partnership formed by the marriage of husband and wife by virtue of which they place in a common fund the fruits and income of their separate properties and those acquired through their efforts or by chance, and unless otherwise agreed upon in the marriage settlements, divide equally, upon the dissolution of the marriage or the partnership the net gains or benefits obtained by either or both of them during the marriage

What if the agreement calls for a portion of "gross returns" where there is further evidence of mutual management and control

a partnership may result

Incidents of partnerships

a. Partners share in profits and loses b. Equal rights in the management and conduct c. Every partner is an agent of the partnership, and entitled to bind the other partners by his acts, for the purpose of its business d. All partners are personally liable for the debts of the partnership with their separate property e. Fiduciary relationship f. On dissolution, the partnership is not terminated g. a fiduciary relationship exist between the partners h. a capitalist partner cannot carry on any competing business venture unless there is a stipulation to the contrary, while an industrial partner is absolutely prohibited from engagning in any kind of business

delectus personae

choice of the person or choice of the persons it is because of this that the law fives such wide authority to make contracts only true in case of a general partner

Salient features of an ordinary partnership

community of interest in profits and losses community of interest in the capital employed community of power in administration *community of interest = to a common fund with the intention of dividing profits

every community of interest does not necessarily contitute a partnership

ex. tenants in common of land are not partners

A partner may be a

human being partnership corporation joint venture

Trust

legal relationship between one person (beneficiary) having the equitable ownership in property and another (trustee) owning the legal title to such property the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter (*in partnership, all of the members are principals and are agents of each other/// while the trustee is only a principal and is not an agent ) (*only the trustee and not the beneficiaries is empowered to make contracts to carry on the business affairs and the only onw who has legal title tot he property)

Money

legal tender in the philippines No contribution of money until checks have been cashed

partner contributing his industry -independent of other partners -not subject to supervision

lessor of services -lessor is under the supervision of the lessee or employer

Article of partnership contains

name, nature or purpose, and location of the firm, and defining, among others, the powers, rights, duties, and liabilities of the partners among themselves, their contributions, the manner by which the profits and losses are to be shared, and the procedure for dissolving the partnership

A partnership may be

oral written express implied˜

common fund

ownership by the partners of the property and business of the partnership and which in turn implies joint powers of management and control of the partnership and sharing of profits and losses

If the parties are partners, what is the remedy for a dispute or difference between them? what if the relationship is that of co-owner?

partners --> action for dissolution co-owner --> action for non-performance of a contract

The legal intention is cruz of partnerships

partners amy call themselves [whatever they want] the courts are only influenced to some extent

General professional partnerships

partnerships formed by persons for the sole purpose of exercising their common profession no part of the income of which is derived from engaging in any trade or business classified under the civil code under Particular Partnerships

what distinguishes a voluntary reigous or social organization from a contract of partnership

profit motive

Property

real or personal, corporeal or incorporeal

Why is it that the law does not imply a partnership between co-owners or co-possessors when they develop or operate a common property

since they may rightfully do this by virtue of their respective titles

Industry

the active cooperation,, the work of the party associated, which may be either personal manual efforts, or intellectual, and for which he receives a share in the profits

Unless authorized by statute or by its charter, a corporation is without capacity or power to enter into a contract of partnership

the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, which would be entirely inconsistent with the policy of the law that the corporation shall maange its own affairs separately and exclusively

Art. 1771 and 1773 read together requires?

the execution of a public insturment for the validity of a contract of partnership whenever immovable property is contributed thereto To affect third persons, the transfer of real property to the aprtnership must be duly registered in the regustry of property of the province or city where the property contributed is located

The law presumes a partnership when

the persons are acting as partners and entered into a contract of partnership

who can not give consent to a contract of partnerhsip

unemancipated mnor insane or demented persons deaf-mute who do not know how to write persons who are suffering from civil interdiction incompetents who are under guardianship

Co-ownership

whenever the ownership of an undivided thing or right belongs to different persons *probably the most essential element of partnership (Art. 1811. A partner is co-owner with his partners of specific partnership property.)

Similarities:

• Separate juridical personality • Can only act through agents • Composed of an aggregate of individuals • Distributes its profits to those who contribute capital can be organized only where there is a law authorizing its organization • Taxable as a corporation, subject to income tax