Accounting for Partnerships: An Overview

Accounting for Partnerships - General Overview

• A partnership consists of two or more individuals who commit to provide resources like funds, assets, or skills to a shared business venture, agreeing to allocate the profits among themselves.
• A partnership can be formed when two or more people come together to perform a profession.

Juridical Personality and Rules for Determining Existence

• A partnership is seen as its own legal entity, separate from the partners, and legally recognized.
• Rules applied to determine the existence of a partnership:
• Those not partners to each other cannot be partners to a third person, except as in Article 1825.
• Joint ownership or possession doesn't automatically create a partnership, even if profits from the property are shared.
• Sharing gross income doesn't indicate a partnership, even with shared rights to the source.
• Receiving a portion of business profits is considered evidence of partnership, unless payments are structured otherwise.
• Payment includes debt installments, wages, or rent.
• Payment option includes annuities for a widow, loan interest varying with profits, or goodwill sales paid by installments.

Lawful Object, Judicial Decree, and Partnership Capital

• A partnership should have a legal purpose and aim to benefit all partners involved.
• Illegitimate partnerships, when legally dissolved the earnings are confiscated by the State.
• Confiscation does not affect penalties established by law.
• Partnerships can be formed in any manner unless real estate or property rights are involved, requiring a public instrument.
• Partnership contracts with capital of 3,000 pesos or more in cash or property must be in a public instrument.
• It must also be registered with the Securities and Exchange Commission.
• Not following these rules does not impact external partnership liabilities.
• Contracts are void if real estate is involved without a signed inventory attached to the public instrument.

Partnership Property and Personality

• A partnership's name can be used to acquire immovable property, and title can only be transferred with the partnership's name.
• Associations with concealed articles and members acting individually lack legal status and are treated as co-owned entities.
• A partnership can be categorized as universal or particular based on its purpose.
• Partnerships can be general or limited depending on partner liability.

Universal Partnerships

• Universal partnerships may encompass all assets or just the profits.
• Partners in a universal property partnership contribute all currently owned assets to a shared fund, planning to divide assets and profits.
• In universal partnerships, all partners commonly own the assets that each possessed when forming the partnership, alongside any earned profits.
• An additional agreement for shared enjoyment may be included, excluding assets obtained later through inheritance, legacy, or donations, with exceptions for the income they generate.
• A universal partnership of profits includes all earnings partners gain from their work during the partnership's duration.

Universal vs Particular Partnerships

• Personal property owned during the contract remains separate, with only the right to use the partnership's property.
• Entering a universal agreement without specifying its type establishes solely a universal partnership of profits.
• Individuals barred from donating to each other cannot create a universal partnership.

Particular Partnerships

• Particular partnerships focus on specific items, their usage, the income they generate, or a distinct project or professional activity.

Partnership Obligations - Commencement and Duration

• A partnership is effective from the moment the contract is signed, unless stated otherwise.
• If a partnership continues beyond its set term without a clear agreement, the original terms still apply when consistent with an at-will partnership.
• Ongoing business operations by partners after the term suggest a continuing partnership.

Partner's Obligations

• Partners are responsible for what they've committed to contribute to the partnership.
• Partners also have a responsibility to provide a guarantee against eviction for certain and defined goods contributed to the partnership.
• This responsibility aligns with that of a seller to a buyer.
• Partners are accountable for the value of goods at the time of formation of the partnership.
• Partners are obligated to provide interest and compensation from the moment they fail to deliver on their obligation.
• Any amount a partner takes from the partnership is subject to the same rule, calculated from when the amount was used personally.
• Partners in industry cannot conduct business for themselves.

Capital and Loss Contributions

• Partners should contribute equally to the partnership's capital, unless agreed upon.
• Partners, excluding industrial, must contribute extra capital to prevent losses.
• Partners who are authorized to manage can collect debts owed to them.
• Any funds collected go proportionately to their credit and the partnership's.
• Partners who have received payment from a partnership are required to return it if the debtor becomes insolvent.
• Partners must cover damages to the partnership caused by their actions.

Risk and Responsibility

• The partner who possess things assumes loses.
• The risk for items that are meant to sell falls on the partnership.
• Partnerships must reimburse or pay their corresponding interest to a partner for amounts the partner has paid on behalf of the partnership.

Profit and Loss Distribution

• Profits and losses are allocated as agreed in the partnership, or profits are determined, so are losses.
• In the absense of stipulations, profits and losses go to the amount the partner contributed.
• Industrial partners have no power over losses.
• Profits may vary based on the circumstances of the partnership.
• Assignation of losses/profits need to come from a 3rd party.

Management

• Partner-managers can conduct administrative actions, unless bad faith is present.
• Votes require a majority interest of partners.
• The approval of all associates is needed when it is stated that administering partners must concur to acts being done.
• Any partner is an acknowledged agent, unless provisions from 1801 occur.
• Associates need to be approved to be in the partnership, even if the partner is assigned as manager.

Partnership Information

• Books will be kept at the location of the partnership. Every partner should be able to access these files.
• Partners must maintain accurate records of all data relating to any partners relating to the partnership.
• A partner violating the conditions will deliver their transactions will bear the losses.

Rights to a Formal Account

• The partnership wrongfully excludes one from the business.
• The right exists under the terms of the agreement.
• As under article 1807.
• If other circumstances render just and reasonable.

Property Rights

• The rights of the partner are in specific property. An interest in the partnership, and the right to participate in what may be produced.
• A associate is a co-owner as well as his partners.
• Without consent, one cannot acquire partnership property.
• Property isnt assignable, but connected to all partners in the same property.
• Rights are not subject to judgement if a claim is in question.
• If the property is is attached for debts related to obligations, they cannot claim any rights.

Partner Agency and Restrictions

• Every partner serves as an agent of the partnership for typical business operations, binding the company unless they lack the authority to act.
• Action that is out of the ordinary requires permissions.
• Unless approved by partners, they cannot assign partnerships in trusts, dispose good will, confess a judgement etc.

Real Property and Knowledge

• Partners may convey partnerships as long as it is in the partnerships name.
• A title to real property is in their name, an objective interest will result if it is within their ability.
• Admissions are representations, any notice to a partner represents all.
• All accomplices assume reliability pertaining to the partners activities.
• The partnership is bound to shoulder losses if within third party they receive property.