Partnership: Nature, Governing Law, Characteristics

Nature of Partnership

• A partnership involves two or more individuals binding themselves via contract. They contribute money, property, or industry to a shared fund. The goal is to divide the profits amongst themselves
• The defining features include partner agreement, mutual contribution, profit-sharing, legal purpose, shared agency, and a distinct legal identity

Governing Law

• In the Philippines, partnerships are regulated by the Civil Code, specifically Articles 1767 to 1867

Characteristics of a Partnership Contract

• Consensual: Perfected upon agreement
• Nominate: Has a special legal name
• Bilateral: Involves at least two people and establishing reciprocal rights and obligations
• Onerous: Each party aims to benefit by providing something
• Commutative: Partners' contributions are deemed equivalent
• Principal: Exists on its merit, independent of other contracts
• Preparatory: Establishes means achieving business goal

Distinction Between Partnership and Corporation

• Certain individuals cannot enter into a partnership
• Unemancipated minors
• Individuals who are insane or demented
• Deaf-mutes unable to write
• Those under civil interdiction
• Insolvent individuals are prohibited from joining a partnership

Requisites for Partnership Existence

• There is a need of a valid contract
• All parties must have the legal capability to enter the contract
• Mutual contribution of money, property, or industry to a common fund must be agreed upon
• The purpose of the collaboration object must be legal
• The main intention is to make profits and to split them among the partners

Partnership Classification

• Partnerships can be classified based on:
• Subject Matter
• Partner Liability
• Duration
• Legality
• Existence Representation to others
• Publicity
• Purpose

Types of partnerships based on subject matter

• Universal:
  • All present property: Partners contribute all current assets to a shared fund; profits become common property excluding future inheritances or donations
  • All profits: Encompasses earnings from partners' work during the partnership; present and future property ownership remains individual, with only profits and usufruct transferred

Legal Standing of Future Property

• Future property isn't permissible in universal partnerships
  • Law mandates determinate contributed asset
  • Partner's position akin to donor, precludes future donations. Inherited/donated property is excluded, stipulating their inclusion renders partnership agreement void

Partner Obligations

• Each partner must act as a debtor to the partnership for agreed contributions
• Guarantees warranty against dispossession for contributed items, paralleling vendor-vendee responsibilities
• Must account for fruits from contribution without formal request/demand

Partner Rights

• Rights to specific partnership property
• "Interest in partnership" accrual
• Involvement in management
• Entitlement to reimbursement for partnership-related advances and safeguarding against managerial risks
  • Access to and partnerhsip inspection books
  • Accessing comprehensive details regarding operations
  • Entitlement of accurate accounts under circumstances
  • Entitlement to dissolve partnership given circumstances

Partner Duties

• Must work for shared/common advantage
• Transparently divulge full details pertinent to alliance/relationship
• Abstain from actions conflicting with alliance'/relationship interests
• Account for confidential/akin gains
• Account for revenue post-association/relation termination

Types of Partners

• Capitalist: Contributes money/property
• Industrial: Contributes personal service/industry
• General: Liability extends to separate property
• Limited: Liability limited to capital contribution
• Managing: Manages entity
• Liquidating: Manages asset distribution during termination
• Partner by Estoppel: Liable to protect innocent third parties, although not truly a partner.
• Continuing: Remains in business post-dissolution, or due to adding/removing partners.
• Surviving: Remains post-demise of partner
• Subpartner: Contracts with another regarding their share, but isn't partnership member

Capitalist vs. Industrial Partner

• Capitalist furnishes monetary contributions/property
• Industrial provides expertise, labor

Distinctions Between Articles 1792 and 1793

• Article 1792: If a managing partner collects a debt owed to them personally from someone who also owes the partnership, funds are applied proportionally, unless credit receipt is explicitly for partnership then it goes to the partnership
• Article 1793: A partner receiving a partnership credit share must return it should the debtor become insolvent, even with personal receipt

Profit Distribution Procedures

• Profits/losses are distributed as contractually specified
• When only profit division is specified, loss distribution mirrors profit shares
• Absent contract details, distribution bases on capital contributed; industrial counterparts are exempt from losses, but receive equitable profit share per conditions

Rules of Loss Distribution

• Follow contractual obligations on how to bear loses If the stipulated obligations aren't available, the profit-sharing ratio is used However in the absence of both stated obligations on sharing, the loss is equally split based on captital contribution, however purely industrial partners don't bear any looses.

Dissolution

• The modification among associates due to one concluding involvement; set apart from closure

Winding Up Defined

Winding up, dissolution and termination are three legal concepts in law Dissolution represents partner cessation , termination defines conclusive status

Reasons Behind Dissolution?

Caused by:

1. No breaching the contract: termination, partner will, partner interest, expelling partner with power
2. Contra agreement: by partner will
3. Events that makes work unlawful

Legalities of the limited Partner?

Partner whose liability limited to their capital contribution

Responsibilities for limited partner

Responsibilities

• Avoid participating in management and if partakes makes them liable to general liability
• Allowed to advise and act as an agent in the entity
• Demand business info and check the legitimacy of books being kept

Partnership Law (General Provisions)

• Article 1767: A partnership forms when two or more people agree to pool resources (money, property, industry) to share profits, extending to professional practices
• Article 1768: Partnerships gain a legal identity distinct from individual partners, irrespective of Article 1772 first paragraph compliance
• Article 1769: Guides partnership existence determination, non-partners aren't third-party partners unless per Article 182 sharing of profits isn't proof if received as debt, wages, annuity, etc.
• Article 1770: Partnerships need a lawful purpose for mutual partner benefit
• Unlawful partnerships face judicial dissolution, with profits forfeited to State aside from Penal Code enforcements
• Article 1771: Creation of any form of partnership is allowed unless it contributed real property to the contract
• Article 1772: Partnerships with capital of PHP 3,000+ must be in public document, registered to SEC
• Non-compliance won't affect the liability of the entity with respect to individuals
• Article 1773: Partnership is void, if and when it has immovable assets, without a signed inventory
• Article 1774: Ownership can be done under the entity and can only be transferred under an entity name
• Article 1775: Any groups who have kept their documents a secret won't be given a legal standing
• Article 1776: Object for an entity is universal or particular
• Article 1777: Deals with the liability and limitations for the company's profit

Partnership of All Present Property (Article 1778)

• Partners pool all current assets into a shared fund with the intention to divide it as well as generated revenues
• In universal partnerships, assets at the time are considered shared resources including later-reaped gains excluding inheritances, legacies, or donations

Universal Partnerships of Profit (Article 1780)

• The partners can leverage in the duration of association with an established
• Status of personal state during alliance lasts with them alone.

Provisions on articles for Universal Partnerships

• Article 1781: If not defined as its specific design for business
• Article 1782: No persons are allowed to give an exception for donation as well as benefits at the time of the Partnership
• Article 1783: Partnership for things is determined by the use or the job to be done

Partnership Agreement (Obligations)

Article 1784: The commencement at time of contract set in place unless stipulated obligations commence Article 1785: Rights and duties of partners are same even in undertaking that there was any unestablished agreement when they act as partners

• The extension of business is prima facie confirmation

Partner as Debtor (Article 1786)

• Any partner as contributor is the legal debtor for what was contributed and accountable for dispossession of partnership property. Fruits can't be required as collateral

Appraising Partner Contribution (Article 1787)

• Appraisal is set to goods that capital which is prescribed upon to be decided when the contract is decided on.

Partner Compliance (Article 1788)

• Contributor who fails becomes liable to comply by interest or obligation

Terms of Engagement (Article 1789)

• Without direct permission, an industrial partner cannot partake or have himself in business

Equal Shares (Article 1790)

• With any conditions that have yet to be declared, Partners are all set to add the same to capital contribution

Imminent Loss (Article 1791)

If theres any imminent loss of Capital with no written agreement, any member with the exception of capital contribution, with ventures to give share of revenue should sell their interest to others.

Authorised Managing Partner (Article 1792)

• If a partner gets endorsed will leverage their share in another partnership, while crediting to the latter.

Received Partnership share (Article 1793)

• Receiver is obligated to provide capital

Partner Damages (Article 1794)

• If damages suffer under the liability can't reimburse by the partnership

Partner Risk (Article 1795)

• The partner is on the hook for his own

Obligations with the Partnership (Article 1796)

Partnership answerable per money spent by the partners plus management risks from a good approach.

Profit Agreement (Article 1797)

• Profits and loses are shared at equal

3rd party (Article 1798)

• The designation should be in bad faith then within 3 months of making the change before he can cry about it

Exclusion (Article 1799)

• Exclusion is when partners don't have the right to participate.

Appointed Manager (Article 1800)

• The executor is the one that gives the faith. vote is a must to take power away

Legal standing (Article 1801)

• No consent = can't act without a consent from all

Rules to be observed (Article 1803)

1. Everyone are agent's as of now and with prejudice of 1800, everyone is going to have a binding.
2. Can't change a lot that important but court action is allowed

Association Permission (Article 1804)

Not admitted until 4 partners said yes

Partnership Legalities

Article 1805: Partnership books are subject to agreement should they follow suit

Lawful Legalities

• Article 1806 Partner must have information for one another
• Article 1807 Everyone are trustees meaning no matter what consent should be followed. can't conduct on anything that will help the entity

Legal Restriction (Article 1808)

Capital has to comply with the partnership meaning he can't start any movement unless its stated.

The Law legal Rights

Article 1809

• Business possession
• Article 1807
• If lawful

Legality of property

Article 1810 : the partner property

Co-Ownership

Article 1811 The Incident Of

• Title
• Legal/ Support

Article 1812 Property is for surplus ,share Article 1813 The transfer but without dissolves it and usual action

Legal standing of Partner

1814: Judgment of credit 15: Must operate firm Masero Must Comply the legal.

Agent Legal Stances

Not by doing unless

• Must pay his debts of the assignee
• If it doesn't help. in anyway (partnership)
• Must confess all

Property Owner (1819)

1819: Property owner

• convey legal to it
• Name passes

Explore the core aspects of partnership, focusing on its nature as a contract involving two or more individuals. Learn about the governing laws in the Philippines, particularly Articles 1767 to 1867 of the Civil Code. Understand the essential characteristics that define a partnership contract.