BAM 201 IBT Partnership and Corporation (Part 1) PDF

BAM 201 IBT Partnership and Corporation Partnerships: Basic Considerations and Formation (Part 1) OBJECTIVES 1. Define partnership and identify its characteristics and classifications 2. Differentiate partnership from corporation 3. Prepare entries and discuss accounting procedures in...

BAM 201 IBT Partnership and Corporation Partnerships: Basic Considerations and Formation (Part 1) OBJECTIVES 1. Define partnership and identify its characteristics and classifications 2. Differentiate partnership from corporation 3. Prepare entries and discuss accounting procedures in partnership formation PARTNERSHIP DEFINITION In a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. (Civil Code of the Philippines, Article 1767). PHASES OF PARTNERSHIP Characteristics of Partnership Ease of Formation. Partnership may be created by mere agreement of the partners (owners) thus, require less formality as compared to corporations Separate Juridical Personality. Partnership has a juridical/legal personality separate and distinct from that of each of the partners. For example, if Lex and Leo formed a partnership, three persons are involved, namely, (1) the partnership and the partners, (2) Lex and (3) Leo. Mutual Contribution. There cannot be a partnership without contribution of money, property or industry (talents and knowledge) which will form part their common funds. Division of Profit or Loss. Profit and losses as a result of the business operation are shared among the partners in any manner to which they agree. Mutual Agency. The partners are agents of the partnership thus, any partner can bind the other partners to a contract or agreement if he/she acting within his express/implied authority for the purpose of business operations. Limited life. It may be dissolved by admission (if new partner/s will join the partnership), death, insolvency, incapacity, withdrawal of partners or expiration of the term specified in the partnership agreement. Unlimited Liability. All partners (except limited partners), including industrial ones, are personally liable for all the debts incurred by the partnership to the extent of his personal assets after all partnership assets have been exhausted. Income taxes. Partnerships are subject to tax at the rate of 30% of taxable income (except general professional partnership). Partners’ Equity Account. Each partner has a capital account and withdrawal account ADVANTAGES AND DISADVANTAGES Advantages versus Sole Proprietorship 1. Bring 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. Advantages versus 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 amounts of capital.  PARTNERSHIP VS. CORPORATION Differences Partnership Corporation 1. Manner of Creation Agreement of the partners Operation of law At least 5 but not more than 2. Number of Persons 2 or more 15 Issuance of Certificate of 3. Commencement of Juridical Personality Execution of Articles of Partnership Incorporation by SEC Managing partner; if no appointed 4. Management Board of Directors every partner is an agent All partners except limited partners Stockholder are liable only to 5. Extent of Liability are liable to the extent of his the extent of their investment personal assets. 6. Right of Succession None There is right For any period of time stipulated by Not to exceed 50 years but 7. Term of Existence the partners subject to extension CLASSIFICATIONS OF PARTNERSHIP Category Type of Partnership Characteristics All contributions become part of a. Universal partnership of all partnership fund or common property present property of all partners as well as the profits which they may acquire therewith. All that the partners may acquire by their industry or work during the 1. According to object or subject existence of the partnership and the use b. Universal partnership of profits matter of whatever the partners contributed at the time of the institution of the contract belong to the partnership. The object of the partnership is determinate – its use or fruit, specific c. Particular Partnership undertaking, or the exercise of a profession or vocation. All partners are liable to the extent of a. General Partnership their separate properties. 2. According to liability of partners The limited partners are liable only to b. Limited Partnership the extent of their personal contributions. CLASSIFICATIONS OF PARTNERSHIP Category Type of Partnership Characteristics The term for which the partnership to a. Partnership with a fixed term or exist is fixed or agreed upon or one for a particular undertaking formed for a particular undertaking 3. According to duration One in which no term is specified and b. Partnership at will not formed for a particular undertaking a. Commercial/ Trading One formed for the transaction of Partnership business 4. According to purpose: b. Professional/ Non-trading One formed for the exercise of Partnership. profession One which has complied with all the a. De jure Partnership legal requirements for its establishment 5. According to legality of existence: One which has failed to comply with all b. De facto Partnership the legal requirements for its establishment KINDS OF PARTNERS 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. Capitalist partner. One who contributes money or property to the common fund 4. Industrial partner. One who contributes his knowledge or personal service 5. Capitalist-Industrial partner. One who contributes both property and service 6. Managing partner. One whom the partners has appointed as manager of the partnership 7. Liquidating partner. One who is designated to wind up or settle the affairs of the partnership after dissolution 8. Dormant partner. One who does not take active part in the business of the partnership and is not known as partner 9. Silent partner. One who does not take active part in the business of the partnership though may be known as a partner 10. Secret partner. One who takes active part in the business of the partnership but is not known to be a partner by outside parties 11. Nominal partner/Partner by estoppel. One who is actually not a partner but who represents himself as one ARTICLE OF PARTNERSHIP Embodied the partnership agreement in writing which contains essential provisions such as: name, nature, purpose, location, date of formation and duration of the partnership; names, citizenship and residences, rights and duties, capital contributions, drawings and salaries allowed, method of sharing profit or loss of the partners. SEC REGISTRATION When partnership capital is P3,000 or more, in money or property, the pubic instrument must be recorded with Securities and Exchange Commission. Even if it is not registered, the partnership having a capital of P3,000 or more is still valid and therefore has legal personality ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY Certified public accountants (CPAs), firms and partnerships of CPAs, engaged in the practice of public accountancy, including the partners and staff members thereof, shall register with the Professional Regulation Commission and the Professional Regulatory Board of Accountancy. The registration shall be renewed every three years (The Philippine Accountancy Act of 2004, Sec, 31). The rules and regulations covering the accreditation for the practice of public accountancy are specified in Annex B of The Rules and Regulations Implementing Republic Act 9298 otherwise known as the Philippine Accountancy Act of 2004. Thank you for listening!