Business Laws and Regulations Prelim Exam Reviewer (PDF)

Tab 1  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY...

Tab 1  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP Note: The materials in this reviewer are intended for educational purposes only. All content remains the intellectual property of their 1. Consensual respective authors and publishers. - It is perfected by mere consent. Sources: 2. Commutative The Law on Partnership and Private Corporations (2016 Edition), - Contribution of each partner is considered as the equivalent of Hector S. De Leon & Hector M. De Leon, Jr. the contribution of the other partners. Business Laws and Regulations: Partnership, Revised Corporation, Cooperative Law (2021 Edition), Andrix D. Domingo 3. Principal Notes in Business Law Volume 1 (2023), Fidelito R. Soriano - It does not depend on other contracts for its existence/validity. 4. Bilateral —LAW ON PARTNERSHIP — - Entered into by two or more persons I. GENERAL PROVISIONS 5. Onerous Partnership (Art. 1767) - Each partner must contribute to a common fund. Two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of 6. Nominate dividing the profits among themselves. - It has a name in law Two or more persons may also form a partnership for the 7. Preparatory exercise of a profession. - It is a contract in preparation for other contracts. The doctrine of Delectus Personae 8. Informal/Consensual and Weak Juridical Personality - The right to choose with whom a person wishes to associate - Generally, a partnership may be constituted in any form himself. - The juridical personality of a partnership is deemed weak since a The partnership has a judicial personality separate and distinct from partnership may be dissolved without the need to go through a that of each of the partners. (Art. 1768) formal dissolution process. 9. Mutual Agency The partnership can: - All partners shall be considered agents and whatever any one of Acquire and possess property of all kinds. them may do alone shall bind the partnership. Incur obligations. Bring civil or criminal actions. 10. Unlimited Liability Adjudged insolvent even if the individual members are each - All partners, including industrial ones, shall be liable pro rata with financially solvent all their property, and after all partnership assets have been exhausted Piercing the Veil of Partnership Separate Personality - The partners are solidarily liable and will be treated as one with the partnership if it is shown that the partnership is being used for RULES IN DETERMINING WHETHER A PARTNERSHIP EXISTS fraudulent, unfair, or illegal purposes. 1. When the intent of the parties is clear, such intent shall govern. ELEMENTS OF A CONTRACT OF PARTNERSHIP 2. When the intent of the parties is not clear, the following rules of Art. 1. Two or more persons bind themselves to contribute money, 1769 SHALL apply: property, or industry to a common fund. a. Persons who are not partners to each other are not partners as to Money third persons, subject to the provisions on partnership by estoppel. - Must be in legal tender - Checks, drafts, promissory notes, and other Partnership by Estoppel mercantile/commercial documents are not money. - persons, by words spoken or written or by conduct, represent themselves, or consent to another representing to them to Note: There is no contribution of money until they have been cashed. anyone, as partners in an existing partnership or with one or (Art. 1249) more persons, not actual partners. Property b. Co-ownership or co-possession does not of itself establish a - It may be real, personal, corporeal, or incorporeal property. partnership, even when there is sharing of profits in the use of the property. Industry - This means active cooperation, the work of the party associated, c. Sharing of gross returns does not of itself establish a partnership, which may be either personal manual efforts or intellectual, and even when the parties have joint or common interest in any property for which he receives a share in the profits (not salary) of the from which the returns are derived. business. d. The receipt by a person of a share in the profits of a business is prima Common Fund facie evidence that he is a partner. - The partnership may therefore exist even before the common fund is created. Exceptions: No such inference is drawn if the profits are received in - The form of the common fund may not even be cash or property; payment: it can be in the form of credit or industry. 1. As a debt by installments or otherwise. 2. As wages of an employee or rent to a landlord. 3. As an annuity to a widow or representative of a deceased partner 2. Intention of dividing the profits among themselves. 4. As interest on a loan, though the amount of payment varies with If the common fund’s work is “indispensable, beneficial and economically the profits of the business useful to the business” of the partners and the profit motive is the 5. As the consideration for the sale of a goodwill of a business or primordial reason to establish the partnership, even if there are no actual other property by installments or otherwise. profits, then there is a partnership. Preliminary Exam Mentoring Series | 1  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER OBJECT AND PURPOSE OF PARTNERSHIP nature, only constitute a universal partnership of profits. (Art. 1781) Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the *Persons not allowed to form a universal partnership. partners. Husband and wife (Art. 133) Those guilty of adultery and concubinage (Art. 739). When an unlawful partnership is dissolved by a judicial decree, the Those guilty of the same criminal offense, if the partnership was profits shall be confiscated in favor of the State, without prejudice to the entered into in consideration of the same provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. B. Particular Partnership (Art. 1783) where the objects are: Effects of an Unlawful Partnership - Determinate things, their use or fruits, or 1. The contract is void from the very beginning. - A specific undertaking, or 2. The profits shall be confiscated in favor of the government. - The exercise of a profession or occupation 3. The instruments or tools and proceeds of the crime shall be forfeited in favor of the government As to the extent of the Liability of the Partners 4. The contributions of the partners shall not be confiscated unless they fall under no. 3. General Partnership Limited Partnership FORM OF A CONTRACT OF PARTNERSHIP A partnership consisting of all A partnership consisting of one or general partners. more general partners and one or General Rule: No required form is necessary more limited partners. (Art 1843) Exceptions: 1. Where immovable property or real rights are contributed to the As to the Term of Existence partnership, a public instrument shall be necessary. (Art. 1771) An inventory of said property, signed by the parties, must be Partnership with a Partnership for a Partnership at Will attached to the public instrument. (Art. 1773) Fixed Term Particular Undertaking 2. Every contract of partnership having a capital of Php 3,000 or more, in money or property, shall appear in a public instrument. (Art. 1772) It is one where the It is one where it will A partnership that The instrument must be recorded in the Office of the Securities life or period of exist until the can be terminated at and Exchange Commission. existence has been purpose is any time Failure to comply with these requirements shall not affect the agreed upon by the accomplished liability of the partnership and the members thereof to third partners. persons It is one where there is no fixed term or II. KINDS OF PARTNERSHIP particular undertaking As to their Object It is one for a fixed A. Universal Partnership term or particular - A universal partnership is virtually a donation to each other of the undertaking that partner’s properties (or at least their usufruct). continues without an express agreement (Art. 1785) Universal Partnership of All Universal Partnership of All Present Properties Profits (Art. 1778-1779) (Art. 1780) As to Representation to Others All the property actually belonging Only the usufruct of the to the partners are contributed properties of the partners become Ordinary Partnership Partnership by Estoppel both ownership and naked common property. ownership. It is one where two or more It is one where persons, by words *naked ownership is retained by persons bind themselves to spoken or written or by conduct, each of the partners. contribute money, property, or represent themselves or consent industry to a common fund, with to another representing anyone As a rule, aside from the All profits acquired by industry or the intention of dividing the as partners in an existing contributed properties, only the work of the partners become profits among themselves partnership or with one or more profits of the contributed common property (regardless of persons not actual partners property. whether or not said profits were obtained through the usufruct As to the Legality of Its Existence contributed). Profits from other sources may De Jure Partnership De Facto Partnership become common, but only if there is a stipulation to such Has complied with all the legal Has not complied with all the effect. requirements for its creation legal requirements for its creation. Properties subsequently acquired by inheritance, legacy, or donation, cannot be included in the stipulation, but the fruits III. KINDS OF PARTNER thereof can be in included in the Partners stipulation. - Can be natural or juridical persons. *Articles of universal partnership, entered into without specification of its As to their Contribution Preliminary Exam Mentoring Series | 2  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER Capitalist Partner Industrial Partner persons represent him to be a partner (Art. 1825) Contributes money or property to Contributes industry to a common a common fund fund As to the Nature of Membership Capitalist-Industrial Partner Contributes money or property and industry to a Original Partner Incoming Partner common fund Members of the partnership from Members after the establishment the time of its constitution of the partnership As to their Liability Retiring Partner General Partner Limited Partner Withdraw from the partnership Liable for partnership obligations Not liable for partnership if the partnership properties are obligations beyond their As to the Continuation of the Partnership after the Dissolution not sufficient contributions They may contribute money, They can only contribute money Continuing Partner Discontinuing Partner property, or industry (Art. 1767) or property (Art. 1845) Continue the partnership after the Does not continue the partnership dissolution. (Art. 1840) after the dissolution. General-Limited Partner A general partner as to 3rd persons but a limited partner as to its co-partner. As to the State of Survivorship *All the rights and powers of a general partner *Be subject to all the restrictions of a general Surviving Partner Deceased Partner partner. Continue the partnership after its Died while being a member of the *He shall have the rights against the other dissolution by reason of the death partnership (Art 1840-1841) members that he would have had if he were not of a partner. (Art. 1842) also a general partner As to the Value of the Contribution As to Management Majority Partner Minority Partner Managing Partner Silent Partner Represents the majority or Represents the minority interest. Manage actively the business or Do not take an active part in the controlling interest. affairs of the partnership. (Art. partnership affairs though they 1800) share in the profits or loss As to the Effect of Expulsion Liquidating Partner Expelled Partner Expelling Partner Tasked to wind up the partnership affairs and to liquidate the assets of the partnership after Expelled from the partnership for Caused the expulsion of the dissolution (Art. 1836) a valid cause partner for a valid cause As to Third Persons IV. OBLIGATIONS OF A PARTNER Ostensible Partner Secret Partner 4.1. TO THE PARTNERSHIP A. Every partner is a debtor of the partnership for whatever he Publicly known to be a partner. Not publicly known to be a may have promised to contribute. (Art. 1786) partner. 1. Contribution of Money and Property Take an active part in the partnership affairs. When contribution is in goods, the amount thereof must be determined by proper appraisal of the value as prescribed in the contract of Dormant Partner partnership, or in the absence thereof, the current prices, at the time of contribution. (Art. 1787) Not publicly known to be a partner. 2. Contribution of Industry Do not take an active part in the partnership An industrial partner is obliged to contribute to his industry at the affairs. stipulated time. As to Membership 3. Contribution of a Determinate Thing (Art. 1786) To warrant against eviction in the same manner as a vendor To deliver to the partnership the fruits of the property promised Regular Partner Partner by Estoppel to be contributed, from the time they should have been delivered, without the need of demand Partners in an existing legal Not really a partner but partnership. represents himself or other Loss borne by: (Art. 1795) Preliminary Exam Mentoring Series | 3  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER unusual profits were realized. (Art. 1794) Partner Partnership Not fungible and Fungible *Note: there is still no compensation in this case only their use and fruits may be for the Cannot be kept D. To account for and hold as trustee, unauthorized personal common benefit without deteriorating; profits (Art.1807) or There is a stipulation Every partner must that he shall bear They were contributed 1. Account to the partnership for any benefit the loss of the thing to be sold 2. Hold as trustee for it any profits derived by him without the brought and consent of the other partners appraised in the There was appraisal in a. From any transaction connected with the formation, conduct, or inventory the inventory and no liquidation of the partnership; or stipulation that b. From any use by him of its property partner will bear the loss. General Rule: The partner cannot use or apply exclusively to his own benefit partnership assets or results of the knowledge or information gained by him as a partner to the detriment of the partnership 4. To preserve the property with the diligence of a good father of a family pending delivery to the partnership. (Art. 1163) Exceptions: If the taking by the partner is with the consent of all other 5. To indemnify for any interest and damages caused by the partners retention of the property or by delay in its obligation to The duty to account continues until the partnership relation is contribute a sum of money. (Art 1778, 1170) terminated (Art. 1829) Amount of Contribution This obligation exists even when he issued a receipt for his share General Rule: Partners are to contribute equal shares to the capital of only (Art. 1793) the partnership. (Art. 1792) Exceptions: 4.2. AMONGTHEMSELVES When there is an agreement to the contrary, the contribution shall follow such agreement A. To render true and full information (Art. 1806) Industrial partners, unless he has contributed capital pursuant to an agreement to that effect Even without demand, honesty demands the giving of vital information, and refraining from all kinds of concealment. Additional Capital Contribution General Rule: In case of an imminent loss of the business of the Partners shall render on demand true and full information of all things partnership, any partner who refuses to contribute an additional share to affecting the partnership to: the capital to save the venture, shall he obliged to sell his interest to the 1. Any partner other partners. 2. The legal representative of any deceased partner or 3. The legal representative of any partner under legal disability (Art. Exceptions: 1806). Industrial partners except if there is stipulation that he will likewise contribute. B. Not to engage in other business If there is stipulation to the contrary. A partner occupies a fiduciary position with respect to his co-partners imposing duties of utmost good faith and he may not carry on any other B. Obligation to Apply Sums Collected Pro Rata business in rivalry with the business of the partnership, whether in his To prevent the managing partner from furthering his personal interest to own name or for the account of another at the expense of the the detriment of the firm, if such managing partner collects a sum from partnership. a common debtor who owes money both to said partner and to the 1.. Capitalist Partner partnership: General Rule: the prohibition is limited to businesses in the same industry as that of the partnership which may result in competition. (Art. Issued a receipt in the the payment shall be applied to the 1808) name of the partnership partnership credit Issued a receipt in his General Rule: the payment shall be Exceptions: name applied proportionate to the amounts of When it is expressly stipulated that the capitalist partner can so the two debts engage himself. (Art. 1808) When the other partners expressly allow him to do so. (Art. Exception: The debt owed by the debtor to the 1808) managing partner is more onerous, the When the other partners impliedly allow him to do so, as when debtor may choose to apply the payment all are violation the article. exclusively to such During the period of liquidation and winding up, when the partnership is already non-existent. When the general-capitalist partner becomes a limited partner in C. Every partner is responsible to the partnership for damages suffered by it through his fault. (Art. 1794) a competitive enterprise. (Art. 1853) General Rule: The liability for damages cannot be set off or Effect of Non-compliance compensated by profits or benefits that the partner may have earned for He shall bring to the partnership all the profits illegally obtained. the partnership by his industry He is liable, personally, for all the losses. He may be ousted for loss of trust and confidence. Exceptions: The court may equitably lessen the liability if, through his 2. Industrial Partner (Art. 1789) extraordinary efforts in other activities of the partnership, General Rule: Cannot engage in business for himself Preliminary Exam Mentoring Series | 4  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER therefore it can only act through the partners and the duly appointed Exceptions agents. Capitalist partners permit him to do so. Mutual Agency Rule Effect of Non-compliance Every partner is an agent of the partnership for the purpose of its The capitalist partners may either business Exclude him from the firm, or Avail themselves of the benefits that he may have 1. Acts for the carrying of usual business (Art. 1818) obtained in violation of this provision General Rule: The partnership is liable for any act of a partner which is apparently for the carrying on of the usual business of the partnership, C. To adhere to the partnership agreement and decisions of the including the execution of any instrument in the partnership name. appointed managing partner/s. Exceptions: The partnership is not bound when: D. To inform the other partners on all matters affecting the The partner has in fact no authority to act partnership or relative to partnership affairs. The person with whom he deals has knowledge of such a fact. E..Keep the partnership books in the principal office (except 2. Acts that are not for the carrying of usual business (Art. 1818) when otherwise agreed) and allow other partners to have access, inspect and copy the same. (Art. 1805) General Rule: Acts of a partner which is not apparently for carrying on of the usual business does not bind the partnership. 4.3. TO THIRD PERSONS Exceptions: A. To operate under a firm name The partnership is bound if the other partners authorize him to do the act. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners. (Art. 1815) 3. Acts of Strict Dominion (Art. 1818) Strangers who include their name in the firm are liable as partners General Rule: One or some of the partners have no authority to do the because of estoppel but do not have the rights of partners following acts of strict dominion: ○ this is to protect customers from being misled. 1. Assign the partnership property in trust for creditors or on the assignee’s promise to pay the debts of the partnership If a limited partner included his name in the firm name, he shall be liable 2. Dispose of the goodwill of the business as a general partner. (Art. 1846) 3. Do any other act which makes it impossible to carry on the ordinary business of the partnership The partnership is primarily liable for contracts entered into: 4. Confess a judgment 1. In its name and for its account 5. Enter into a compromise concerning a partnership claim or 2. Under its signature liability 3. By a person authorized to act for it. 6. Submit a partnership claim or liability to arbitration 7. Renounce a claim of the partnership. B. Liability for Partnership Debts Exceptions: They may do so if: Upon exhaustion of its assets, all partners are liable pro rata with all Authorized by all the partners their property. Any partner may enter into a separate obligation to The other partners have abandoned the business perform a partnership contract. (Art. 1816) 4. Acts in contravention of a restriction (Art. 1818) Note: Any stipulation to the contrary shall be void, except as to the Any act of a partner in contravention of a restriction on authority does partners. (Art. 1817) not bind the partnership to persons having knowledge of the restriction. 1. Subsidiary Liability of Partners D. Conveyance of Partnership Real Property (Art. 1819) General Rule: The partners are liable subsidiarily. It only arises upon the exhaustion of partnership assets 1. Partner conveys the partnership’s property in a conveyance executed in the partnership’s name Exceptions: A third person who transacted with the partnership can hold the General Rule: The partnership may recover. partners solidarily liable for the whole obligation if the case falls under Art. 1822 or 1823. The incoming partner is not personally liable. Exceptions: When the act binds the partnership. 2. Pro rata When ownership has been transferred to a transferee who had The partner has left the country and the payment of his share of no knowledge that the partner has exceeded his authority. the liability cannot be enforced. The partner liability is condoned by the creditor. 2. Partner conveys the partnership’s property in a conveyance executed Note: in his own name Any stipulation against pro rata liability is void against third persons but valid among the partners. (Art. 1817) General Rule: passes only the equitable interest in the partnership. An industrial partner, who is not liable for losses, is not exempt from this liability. However, he can recover the amount he has Exception: if the partner acted outside the scope of his authority paid from the capitalist partners unless there is a stipulation to the contrary 3. One or more partners, but not all, and the property is in their name, and they convey such property C. Liability for Partnership Contracts A partnership is a juridical person and has no physical existence Preliminary Exam Mentoring Series | 5  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER General Rule: The partnership may recover if the partners’ act does not represented to be a partner extent and in the same manner, bind the partnership. 1. in an existing partnership as though he were a partner in 2. with one or more persons fact. Exception: if the purchaser or his assignee is an innocent holder of value not actual partners 2. With respect to persons who 4. When the property is in the name of one or more partners, but not rely upon the representation all, or in the name of the third person in trust for the partnership, a When all the members of the A partnership act or obligation conveyance executed by a partner in the partnership name, or in his existing partnership consent to results own name the representation General Rule: It passes the equitable interest of the partnership. In all other cases The representation is the joint obligation of the person acting Exception: The act is not within the apparent business of the partnership and the persons consenting to the representation 5. Where the title to real property is in the name of all the partners a conveyance executed by all the partner Liability of Partner by Estoppel Liability When? General Rule: Passes all their rights in such property as though he were a There is an existing partnership E. Solidary liability of the partnership with the partner partner All the partners consented to the Rule of Respondeat Superior representation - It is not only the partners who are liable in solidum; it is also the partnership. (Art. 1824) A partnership liability results. 1. Wrongful Acts of a Partner (Art. 1822) jointly and pro rata There is an existing partnership but not all the partners consented The partnership is solidarily liable with the partner who causes loss or injury to any person, not a partner, or incurs any penalty through any or wrongful act or omission: In the ordinary course of the business of the partnership, or There is no existing partnership and all Not in the ordinary course of business, but with the authority of those represented as partners consented to his co-partners the representation. 2. Misapplication of Money or Property (Art. 1823) separately There is an existing partnership but none of the partners consented The partnership is liable for losses suffered by a third person whose money or property was: or Received by a Partner Received by the Partnership There is no existing partnership and not all of those represented as partners consented Acting within the scope of his In the course of its business to the representation. apparent authority Misapplied it Misapplied by any partner while it is in the custody of the H. Admission by a Partner partnership An admission or representation by any partner may be used as evidence against the partnership when: F. Criminal Liability for Criminal Acts 1. It concerns partnership affairs 2. Such affairs are within the scope of his authority General Rule: A non-acting partner in a partnership engaged in a lawful business is not criminally liable for the criminal acts of another partner. I. Liability of an Incoming Partner He is liable for the obligations already contracted before his Exception: admission but only to the extent of his contribution. He is criminally liable if the partnership is involved in an unlawful He is liable to the extent of his personal property for subsequent enterprise with his knowledge or consent. obligations like an original partner. Partnership Liability Note: Criminal Liability It is not considered harsh since he is to partake of the benefits of the partnership property and an established business. Does not extent the wrongdoing is regarded as He has every means of protecting himself by asking for a individual in character liquidation or settlement of the existing debts while the creditors have no such means Does extent the crime is statutory, especially where it involves a fine or imprisonment J. Preference of Partnership Creditors in Partnership Property Property Preference G. In the case of Partnership by Estoppel (Art. 1825 Property Partnership Property Partnership creditors Preference Partner’s Individual Partners individual Representation Effect Property creditors When a person has been 1. To bind them to the same Preliminary Exam Mentoring Series | 6  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER Insufficiency Partnership creditors After the exhaustion of losses and profits, in proportion of Assets partnership assets, the to contribution creditor may come after the private property of the For Industrial Partner partners. General Rule: not be liable for Losses. Partners individual Ask for attachment and creditors public sale of the share of Exception: may be made liable for the partner in the losses only if there was a partnership assets stipulation to that effect K. Personal Creditors of the Partners Effect of conveyance of a partner’s whole interest General Rule: Partnership creditors are preferred over the personal Does not, in itself, dissolve the partnership. The partnership is deemed creditors of the partners as regards partnership property. dissolved only if there is stipulation to that effect. Exceptions: On due application by any judgment creditor of a partner, a The conveyee does not necessarily become a partner and such has no competent court may: right to: Charge the interest of the partner for the satisfaction of the Demand accounting and settlement judgment debt Interfere in the management or administration of the partnership Appoint a receiver of the share of the profits and of any other business; or money due or to fall due to the partner Demand information, accounting and inspection of the Make all other orders, directions, accounts, and inquiries, that the partnership books. debtor partner might have made, or which the circumstances may require. Rights of the Assignee 1. To receive the partner-assignor’s share in the profits of the partnership. V. PROPERTY RIGHTS OF A PARTNER 2. To avail remedies in case of fraud in the management 3. To require an account from the date of the last account agreed A. His rights in specific partnership property upon by the partners in case of the dissolution A partner is a co-owner with his partners of a specific partnership 4. The right to ask for dissolution in the following cases property. The incidents of such co-ownership are: a. After the termination of the specified term or particular 1. A partner, subject to any agreement between the partners, undertaking Partnership purposes - has an equal right with his partners b. At any time if the partnership at will when the interest Other purposes - has no right to possess property without the was assigned or when the charging order was issued. CONSENT of his partners. Partner’s Interest may be subject to a charge or attachment by the court: 2. A partner’s specific partnership property right is NOT 1. Only the interest, that is profits and surplus of the partner and ASSIGNABLE not his share in the specific properties of the partnership Exception: connection with the assignment of rights of all the 2. Priority is still given to creditors of the partnership partners in the same property 3. Such interest may be redeemed prior to foreclosure with: a. The separate property of any one or more of the 3. A partner's right in specific partnership property is not subject to partners; or attachment or execution. b. partnership property with the consent of ALL the other Exception: a claim against the partnership partners 4. A partner's right in specific partnership property is not subject to Note: for limited partners, their interest may only be redeemed with the legal support separate property of the general partners and not with the property of the partnership. B. His interest in the partnership A partner's interest in the partnership is his share of the profits and C. His right to participate in the management surplus. Rules o 1. To share in Profit and Losses 1. Managing partner in the articles of partnership May execute all acts of administration, in good faith, even with A stipulation excluding one or more partners from any share in the opposition from the other partners profits or losses is VOID (Art. 1799) The power to execute all acts of administration can only be revoked if: Hierarchy of Distributing P/L: ○ with just or lawful cause ○ by a vote of the partners representing the controlling Profit Loss interest. In accordance with the In accordance with the agreement as to the distribution agreement as to the distribution 2. Managing partner after partnership has been constituted of profits of losses the power as manager may be revoked by a vote of the partners representing the controlling interest even without just or lawful If there was no such agreement, If there was no agreement as to cause. in proportion to the contribution losses, the same proportion as to the agreement as to profits 3. Multiple managing partners without specification of their *The industrial partner shall respective duties, or without a stipulation that one of them receive such share as may be shall not act without the consent of all the others just and equitable. Each partner may separately execute all acts of administration. Should one of the managing partners oppose the act of another, the matter shall be decided by a majority of the managing If there is no agreement as to partners per head count. Preliminary Exam Mentoring Series | 7  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER Should there be a tie in the votes of the managing partners, the controlling interest of ALL the partners shall prevail. Note: the partner who causes the dissolution will be liable for damages. Note: the concurrence of all shall be necessary for the validity of the If the cause is not justified or no cause was given, the acts, and the absence or disability of any one of them cannot be alleged, withdrawing partner is liable for damages unless there is imminent danger of grave or irreparable injury to the partnership 3. By Operation of Law By any event which makes it unlawful for the business of the 4. No agreement as to the management of partnership partnership to be carried on or for the members to carry it on in All the partners shall be considered agents and whatever any one partnership. of them may do alone shall bind the partnership, without When a specific thing which a partner had promised to contribute prejudice to the provisions of Article 1801 (on Multiple Managing to the partnership, perishes before the delivery; in any case by Partners). None of the partners may, without the consent of the others, the loss of the thing, when the partner who contributed it having make any important alteration in the immovable property of the reserved the ownership thereof, has only transferred to the partnership, even if it may be useful to the partnership. But if the partnership the use or enjoyment of the same; but the refusal of consent by the other partners is manifestly prejudicial partnership shall not be dissolved by the loss of the thing when it to the interest of the partnership, the court's intervention may be occurs after the partnership has acquired the ownership thereof sought. By the death of any partner By the insolvency of any partner or of the partnership 5. Every partner may associate another person with him in his share, but the associate shall not be admitted into the By the civil interdiction of any partner partnership without the consent of all the other partners, even if the partner having an associate should be a manager. B. JUDICIAL CAUSE A partner may apply for dissolution in court when: VI.DISSOLUTION AND WINDING UP A partner has been declared insane in any judicial proceeding or Dissolution is shown to be of unsound mind - is the change in the relation of the partners caused by any A partner becomes in any other way incapable of performing his partner ceasing to be associated in the carrying on of the part of the partnership contract business. A partner has been guilty of such conduct as tends to affect - It does not terminate the partnership, which continues until the prejudicially the carrying on of the business winding up of partnership affairs is completed A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in Winding-up matters relating to the partnership business that it is not - process of settling business affairs after dissolution. reasonably practicable to carry on the business in partnership - This is the process of liquidating the partnership assets and the with him distributing the proceeds to satisfy the claims against the The business of the partnership can only be carried on at a loss partnership. Other circumstances render a dissolution equitable. Termination C. OTHER CAUSES - all the partnership affairs have been wound up. - end of the partnership life. When a new partner is admitted into an existing partnership. When any partner retires When the other partners assign their rights to the sole remaining CAUSES OF DISSOLUTION partner A. EXTRA JUDICIAL CAUSE When all the partners assign their rights in the partnership Without the intervention of the court. property to third persons 1. Without violation of the agreement between the partners: EFFECTS OF DISSOLUTION By the termination of the definite term or particular undertaking specified in the agreement 1. Act, Insolvency or Death: By the express will of any partner, who must act in good faith, If the cause of the dissolution is AID – notice should be given by when no definite term or particular is specified the partners to terminate the mutual agency. By the express will of all the partners who have not assigned If the cause is not AID – the mutual agency is terminated, and their interests or suffered them to be charged for their separate the dissolution is binding even without notice. debts, either before or after the termination of any specified term or particular undertaking 2. The following acts are still binding even after dissolution: By the expulsion of any partner from the business bona fide in Acts to for winding-up of the affairs of the partnership. accordance with such a power conferred by the agreement Contracts with creditors who had no notice of the dissolution. between the partners (Art. 1830). If, after the expiration of the definite term or particular 3. The partners may continue the partnership after dissolution of the old undertaking, the partners continue the partnership without partnership. Such continuation still dissolves the old partnership and a making a new agreement, the firm becomes a partnership at will new partnership is created. The creditors of the old partnership are also (Art. 1785) creditors of the person or partnership continuing the business. Any one of the partners may, at his sole pleasure, dictate the dissolution of the partnership at will. He must, however, act in WINDING UP OR LIQUIDATION good faith, not that the attendance of bad faith can prevent the dissolution of the partnership, but that it can result in a liability Who may wind up? for damages The following partners have the right to wind up the partnership affairs: 1. Those designated in an agreement 2. In Contravention of the Agreement Between the Partners 2. Those who have not wrongfully dissolved the partnership Where circumstances do not permit dissolution under any other provision 3. The legal representative of the last surviving partner, who was of Art. 1830, Civil Code, it may also be dissolved by the express will of not insolvent. any partner at any time. Preliminary Exam Mentoring Series | 8  ASSOCIATION OF TAXATION AND LAW STUDENTS BRILLIANCE, EXCELLENCE, AND SUPERIORITY HONORS’ SOCIETY HIYAS NG SILANGAN HONORS’ SOCIETY UNIVERSITY OF THE EAST CALOOCAN A.Y. 2024-2025 BUSINESS LAWS AND REGULATIONS - PRELIM EXAM REVIEWER Manner of Winding Up The right, if given, of one or more of the limited partners 1. Extrajudicial, by the partners themselves to priority over other limited partners, as to contributions 2. Judicial, under the control and direction of the proper court. or as to compensation by way of income, and the nature of such priority. Doctrine of Marshaling of Assets The right, if given, of the remaining general partner or When partnership property and the individual properties of the partners partners to continue the business on the death, are in possession of a court for distribution: retirement, civil interdiction, insanity or insolvency of a Partnership creditors have priority on partnership property general partner. Separate creditors have priority on individual property, saving the The right, if given, of a limited partner to demand and rights of lien of secured creditors receive property other than cash in return for Anything left from either shall be applied to satisfy the other hiscontribution Order of Application of Assets 2. The said certificate will be filed with the SEC and a limited The partnership liabilities shall rank, in order of payment, as follows: partnership is formed if there has been substantial compliance in good faith with the foregoing requirements A. General Partnership 1. Those owing to creditors other than partners 2. Those owing to partners other than for capital and profits GENERAL PARTNER VS LIMITED PARTNER 3. Those owing to partners in respect of capital General Partner Limited Partner 4. Those owing to partners in respect of profits Unlimited liability Limited liability B. Limited Partnership 1. Those owing to creditors other than partners Liable for partnership obligations if Not liable for partnership 2. Those owing to the limited partners, other than capital and the partnership properties are not obligations beyond their profits sufficient contributions 3. Those owing to the limited partners in respect of profits 4. Those owing to the limited partners in respect of capital They may contribute money, They can only contribute money or 5. Those owing to general partners other than for capital and profits property, or industry (Art. 1767) property (Art. 1845) 6. Those owing to general partners in respect of profits 7. Those owing to general partners in respect of capital Have a right to manage the No right to participate in partnership. (Art. 1810) management (Art. 1848) Partner’s Liability: in case the assets of the partnership are not sufficient to cover the Their name may appear in the Their names may not appear in the liabilities, the remaining claims may be satisfied against the separate partnership name. (Art. 1815) partnership name (Art. 1846) assets of the partners. They cannot engage in competing Not subject to this limitation or Property of an Insolvent Partner business for capitalist partners, or prohibition (Art. 1853) 1. Those owing to separate creditors in any business for industrial 2. Those owing to partnership creditors partners (Art. 1808, 1789) 3. Those owing to partners by way of contribution His right cannot be assigned His right is assignable (Art. 1859) without the consent of the other VII. LIMITED PARTNERSHIP partners. (Art 1813) Limited Partnership Retirement, death, insolvency, The death of a limited partner does - one formed by two or more persons under the provisions of the insanity, or civil interdiction of a not dissolve the partnership. (Art. following article, having as members one or more general general partner dissolves the 1861) partners and one or more limited partners partnership (Art. 1860) Formation May be a proper party to a court Is not proper party to a court two or more persons desiring to form a limited partnership shall: proceeding by or against the proceeding by or against the partnership (Art. 1853) partnership. 1. Sign and swear to a certificate, which shall state The name of the partnership, adding thereto the word "Limited". The character of the business. The location of the principal place of business. The name and place of residence of each member, general and limited partners being respectively designated. The term for which the partnership is to exist. The amount of cash and a description of and the agreed value of the other property contributed by each limitedpartner. The additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made. The time, if agreed upon, when the contribution of each limited partner is to be returned. The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution. The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution. The right, if given, of the partners to admit additional limited partners. Preliminary Exam Mentoring Series | 9