Partnership Reviewer

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Questions and Answers

What type of partnership is formed for a specific undertaking that, when achieved, terminates the partnership?

Partnership at will

Partnership for a particular undertaking (correct)

Partnership by estoppel

Ordinary partnership

Which type of partner is liable for debts only to the extent of their capital contribution?

General-Limited Partner

General Partner

Managing Partner

Limited Partner (correct)

What defines a partnership by estoppel?

A partnership that exists legally but does not actually function

A perceived partnership due to the actions of individuals involved (correct)

A partnership that is set to operate indefinitely

A formal agreement between parties for conducting business

Which of the following classifications does NOT pertain to how partners contribute?

Ostensible Partner Signup and view all the answers

What is the role of a liquidating partner?

To handle the winding up of the partnership's affairs after dissolution Signup and view all the answers

Which type of partner is known to the public but does not have actual partnership status?

Nominal Partner Signup and view all the answers

What is a characteristic of a managing partner?

They oversee and manage the business or affairs of the partnership Signup and view all the answers

What distinguishes a general-limited partner from a standard general partner?

They possess additional rights related to their contribution Signup and view all the answers

Under what condition can a managing partner's appointment be revoked without just or lawful cause?

With the consent of all partners, including the managing partner Signup and view all the answers

What happens when managing partners are appointed without specified duties?

They can execute acts of administration separately Signup and view all the answers

When partners disagree on management decisions, how is the final decision made?

The decision of the majority of managing partners prevails Signup and view all the answers

What is the outcome if all managing partners are required to consent to actions?

Acts require the concurrence of all managing partners Signup and view all the answers

How may a managing partner be removed with just cause?

By the vote of the partners owning the controlling interest Signup and view all the answers

What binding authority do partners have when management responsibilities are not agreed upon?

All partners act as individuals and bind the partnership with their actions Signup and view all the answers

In the event of a tie among managing partners when making a decision, who prevails?

The managing partner owning the controlling interest Signup and view all the answers

What is the nature of authority when a partner is appointed manager after the partnership is formed?

They can execute all administrative acts, subject to opposition Signup and view all the answers

How are profits divided if there is no agreement among partners?

Based on each partner's capital contribution after the industrial partner receives a share Signup and view all the answers

What is the liability of the industrial partner regarding losses?

The industrial partner does not share in the losses Signup and view all the answers

How should losses be divided if there is no agreement among capitalist partners?

Proportionately according to the share each has in the partnership Signup and view all the answers

What authority does a managing partner have?

Can execute acts of administration, even against partner opposition Signup and view all the answers

In what order are profits distributed to partners in the absence of an agreement?

Capitalist-industrial partner receives a share first, then others by capital contribution Signup and view all the answers

Which statement about the division of profits and losses contains an error?

The industrial partner shares in losses based on capital contribution Signup and view all the answers

What happens if there are both capitalist and capitalist-industrial partners regarding their losses?

Capitalist-industrial partner does not share losses as an industrial partner Signup and view all the answers

What must be true for a managing partner to act against the wishes of other partners?

The managing partner must not act in bad faith Signup and view all the answers

What must partners who wish to continue the business after a wrongful dissolution provide?

Court-approved bond for payment Signup and view all the answers

If a partner causes wrongful dissolution but the business continues, what option does he have regarding his interest?

Have the value of his interest paid in cash Signup and view all the answers

In case of wrongful dissolution, which part of the business value cannot be considered while calculating a partner's interest?

Value of the business goodwill Signup and view all the answers

What does a partner entitled to rescission due to fraud gain?

Lien on surplus after liabilities are satisfied Signup and view all the answers

What must happen before a partner can possess partnership property after wrongful dissolution?

Obtain approval from the court Signup and view all the answers

If a partner wrongfully causes dissolution and the business does not continue, what is he liable for?

Damages to co-partners as well as existing liabilities Signup and view all the answers

What do partners need to do if they decide to indemnify a partner who caused wrongful dissolution?

Pay him the full value of his interests Signup and view all the answers

What is required for a partner to recover any amount paid for capital or advances upon rescission due to fraud?

Lien on surplus partnership property Signup and view all the answers

What is the first priority in the order of payment of partnership liabilities after dissolution?

Liabilities owing to creditors other than partners Signup and view all the answers

In settling accounts after dissolution, the assets of the partnership include which of the following?

The partnership property and contributions of the partners Signup and view all the answers

According to the liquidation rules, who has the right to enforce contributions from partners when debts are owed?

An assignee for the benefit of creditors or a court-appointed person Signup and view all the answers

What happens to the individual property of a deceased partner concerning partnership liabilities?

It becomes liable for the contributions specified in the partnership rules Signup and view all the answers

What is the sequence of claims against a partner's separate property if the partner is insolvent?

Separate creditors first, then partnership creditors Signup and view all the answers

What must be done to satisfy partnership liabilities during liquidation?

Apply assets in the order of declaration to pay off liabilities Signup and view all the answers

Who besides the partners can enforce contributions necessary to settle liabilities?

An assignee for the benefit of creditors Signup and view all the answers

In the event that partnership property and individual properties are under court possession, who has priority?

Creditors of the partnership on partnership property Signup and view all the answers

What must a person do to not be considered a general partner after mistakenly contributing capital as a limited partner?

He must promptly renounce his interest in profits and not control the business. Signup and view all the answers

Under what condition can a limited partner demand the return of his contribution?

Upon the dissolution of the partnership. Signup and view all the answers

What distinguishes a general partner from a limited partner when both are part of the same partnership?

Limited partners cannot participate in management, while general partners can. Signup and view all the answers

What happens to a limited partner’s contribution if the partnership has outstanding liabilities?

It cannot be returned until all liabilities, except those to general and limited partners, are settled. Signup and view all the answers

Which of the following statements is true concerning a person who is concurrently a general and a limited partner?

They must state their dual capacity in the partnership certificate. Signup and view all the answers

What is the implication of having no specific timeframe mentioned in the partnership certificate regarding contribution returns?

The limited partner can only demand cash returns after notifying other members with six months' notice. Signup and view all the answers

What is the primary restriction placed on a limited partner when it comes to the return of their contributions?

They are restricted from receiving returns until specific conditions regarding partnership liabilities are met. Signup and view all the answers

Which of the following accurately describes a limited partner's rights to their contribution?

They have the right to demand cash in lieu of their contributions unless stated otherwise. Signup and view all the answers

Study Notes

Partnerships

Partnerships are contracts of two or more people who contribute money, property, or industry to a common fund with the intention of dividing profits.
They can also be formed for professional purposes. (Article 1767)
Partnerships have a separate juridical personality distinct from the partners. (Article 1768)

Characteristics of a Partnership Contract

Consensual
Principal
Bilateral or multilateral
Nominate
Preparatory
Onerous

Essential Requisites of a Partnership

Valid contract
Mutual contribution of money, property, or industry to a common fund
Lawful object or purpose
Established for the common benefit or interest of the partners to obtain and divide profits.

Form of a Partnership Contract

Partnerships may be oral or written, except in the following cases:
- Immovable property or real rights are contributed:
  - Must be a public instrument
  - Inventory of the property must be attached and signed by the parties
- Capital of PHP 3,000.00 or more:
- Must be a public instrument
- Registered with the Securities and Exchange Commission (SEC)
Limited partnership: Signed certificate under oath recorded with the SEC is required

Who May Become Partners

Any natural person with capacity
Partnerships and corporations can be partners with individuals or other partnerships or corporations.

Rules Applied in Determining Whether a Partnership Exists

Persons not partners to each other are not partners to third parties, unless a person represents himself or consents to another representing him as a partner in an existing partnership, or represents himself or consents that the partnership would have one or more persons not actual partners. (Articles 1769, 1825)
Co-ownership or co-possession does not establish a partnership, even if the co-owners share profits from using the property.
Sharing gross returns does not establish a partnership, even if the parties have a joint/common right or interest in the property from which the returns are derived.
Receiving a share of profits is prima facie evidence of partnership, but this inference does not apply if the profits were received as a debt, compensation for employment, or rent.

Kinds of Partnerships

As to Object:
- Universal partnership:
  - Of all present property
  - Of profits
- Particular partnership: determinate things, use or fruits of it, or a specific undertaking (Article 1783)
As to Liability:
- General partnership: Partners liable for debts to the full extent of their separate property after partnership assets are exhausted.
- Limited partnership: Some partners (general) are fully liable; others (limited) are liable only to the extent of their investment.
As to Duration:
- Fixed term: Partnership for a specified period
- Particular undertaking: Partnership for a particular task or project
- At will: No fixed duration, may be terminated whenever a partner wishes
As to Representation to others:
- Ordinary partnership: One which actually exists
- Partnership by estoppel: One which does not exist but considered as such by the conduct or admission of the parties

Kinds of Partners

As to Liability:
- General Partner: Liable for partnership debts to the extent of his/her separate property.
- Limited Partner: Liable only to the extent of his/her capital contribution.
- General-Limited Partner: Has all rights and powers of a general partner and is subject to all restrictions except for his contribution, which is limited.
As to Contribution:
- Capitalist Partner: Contributes money or property.
- Industrial Partner: Contributes services or industry.
- Capitalist-Industrial Partner: Contributes both money/property and services.
Other Classifications
- Managing Partner: Manages partnership affairs (Art. 1800)
- Liquidating Partner: Winds up partnership after dissolution (Art. 1836)
- Nominal Partner: Appears to be a partner but is not.
- Ostensible Partner: Active partner, known to the public.
- Secret Partner: Partner's connection with the partnership is hidden.
- Silent Partner: Partner who does not participate in the management but takes part in profits/losses.
- Dormant Partner: Not known to the public and does not participate in management

Obligations of the Partners

Division of profit and loss:
- Divided as agreed upon
- If no agreement, proportion to capital contributions
Management:
- Scope of Authority for the managing partner determined in the articles of partnership or by agreement
- Revocation of management appointment: With or without just cause
Rights in dealing with business:
- Industrial partner can't engage in business without partnership consent (Art. 1789)
- Capitalist partner may engage in a different business, or same kind if stipulated (Art. 1808)
Liability to third parties:
- General partners are pro rata liable for partnership's obligations,
- Subsidiary liability
Operating under a firm name (includes partner's name or not)
Contribution of capital, obligations regarding property/money, obligation to contribute additional capital, obligation to pay damages to the partnership
Obligation to bear risk for property
Obligation to render information
Obligation to account

Obligations of the Partnership to the Partners

Paying amounts disbursed with interest
Paying for obligations partners contracted
Answering for risks in consequence of management

Obligations of the Partnership for Wrongful Acts of Partners

The partnership is solidarily liable with all partners for losses/injuries caused to third parties due to wrongful acts of partners or actions done according to apparent authority (within the ordinary business)
Partnership is liable when a partner receives property on behalf of the partnership and misappropriates it.
Partnership is liable for misapplication of money or property by any partner while in the custody of the partnership.

Liability of Partnership to Third Persons for Acts of Partners

When partnership IS bound:
- Partner authorized to act for the partnership
- Act for apparent carrying on of the business
When partnership IS NOT bound:
- Un-authorized act
- Third party aware of the lack of authority

Dissolution and Winding Up

Dissolution: Change in the relation of partners
Winding-up: Settling business/affairs after dissolution
Termination: All business/affairs of the partnership completely settled

Causes of Dissolution

Termination of definite term/undertaking (by agreement or will)
Express will of partners in the absence of a definite term/undertaking
Expulsion of a partner
Any event making partnership business unlawful
Loss of specific items contributed to the partnership
Other causes of dissolution:
Death of a partner
Insolvency of a partner
Civil interdiction of a partner
Decree of court

Effect of Dissolution on Authority of a Partner

Dissolution ends partner's authority to act for the partnership
Exceptions: Acts to wind up partnership affairs or complete transactions begun before dissolution.

Liability of Partners/Partnership after Dissolution

When the partnership is bound:
- Third parties can go after partnership assets
- If assets insufficient, go after partners' separate assets
When the partnership is not bound:

Rules on Existing Liability of a Partner

Dissolution does not discharge liabilities
Discharge by agreement: Partner, creditor, person continuing the business.
Decesed partner's property liable for obligations during their lifetime, subject to prior payment of separate debts

Who may wind up the partnership affairs?

Partner/s designated by agreement.
If none, those not wrongfully dissolving/legal representative of the last surviving partner who is not bankrupt.
Judicial direction (court) upon proper cause by a partner/representative/assignee.

Application of Partnership Property and Other Rights of Partners on Dissolution

When dissolution isn't contrary to partnership agreement:
- Apply assets to liabilities
- Return remaining funds to respective partners
When dissolution is contrary to agreement:
- Rights differ; partner(s) who didn't cause wrongful dissolution have rights against the problematic partner(s), either for damages or to continue business or for paying off liabilities

Liquidation of Dissolved Partnership

Order of payment follows the asset order
- Creditors other than partners
- Partners owed besides capital/profit
- Capital contributions among partners
- Profit portions among partners
Partner(s) contributions necessary for fulfillment of liabilities
Assignee or court enforcing liabilities (e.g. debt).
Liability of deceased partner's property for contributions during life
Priority of partnership/individual creditors/lien holders
Ranking of debts to/from the deceased partner

Rights of a Partner who Retires/ the Legal Representative of a Deceased Partner

Rights concerning dissolution, if business continues
Right to receive the value of the interest, with or without interest, or profits

Right to Accounting

The right to an account of interest accrues to a partner or representative, against other partners/representatives/persons continuing the business/upon dissolution, with no agreement to the contrary.

Limited Partnership

Formed by two or more persons (having general and limited partners)
Limited partners not liable for partnership obligations

Requirements for Formation

Certificate stating firm name (with "Limited"), business character, location, member names/residences, term of existence , amount and description of contributions, additional contributions (if any), periods of contributions, shares of profits/income distribution , return of contribution/compensation
Filing certificate with SEC

Liability for False Statement

One who loses as consequence of false statement in a certificate can hold party who knew it to be false liable: immediately, or within a timeframe to reasonably correct the false statement.

Rights and Liabilities of General Partner in a Limited Partnership

Same rights and restrictions as partner in a regular (non-limited) partnership
Restrictions on actions, requires consent of limited partners for actions that go against or conflict with partnership's ordinary business, cannot confess judgement against the Partnership, cannot assign rights in partnership property without the proper purpose, cannot engage in partnership acts during interdiction or insolvency of another general partner

Rights of a Limited Partner

Same rights as general partners
Inspect and copy partnership books
Demand true and full information/formal accounts whenever necessary
Dissolution and winding by court decree
Receive share of profits/compensation; return of contribution

Status of Person erroneously Believing He's a Limited Partner

Not a general partner, despite actions, if he promptly renounces interest in profits/compensation AND doesn't participate in the business control