Partnership Theories PDF

Partnership Theories 8. Partner’s Equity Accounts – This is the distinguishing factor because basically, from the Partnership assets...

Partnership Theories 8. Partner’s Equity Accounts – This is the distinguishing factor because basically, from the Partnership assets to liabilities, one of each partners will have According to the Civil Code of the Philippines, their own equity account. Article 1767, a partnership is a contract whereby two or more persons bind themselves to Advantages of a Partnership contribute money, property, or industry to a A. As Compared with a Sole Proprietorship) common fund, with the intention of dividing the 1. Brings greater financial capability to the profit among themselves. business. Two or more persons may also form a partnership 2. Combines special skills, expertise and for the exercise of a profession. (1665a) experience of the partners. Note: The term “person” may refer to a natural 3. Offers relative freedom and flexibility of person or juridical person which may either be action in decision-making. an individual, a corporation or other partnership. B. As Compared with a Corporation ARTICLE 1768 The partnership has a juridical 1. Easier and less expensive to organize. personality separate and distinct from that of each 2. More personal and informal. of the partners, even in case of failure to comply with the requirements of article 1772, first Disadvantage of a Partnership paragraph. (n) 1. Easily dissolved and thus unstable compared to a corporation. Characteristics of Partnership 2. Mutual agency and unlimited liability may create 1. Mutual Contribution – Partners bind personal obligations to partners. themselves to contribute money, property, and 3. Less effective than a corporation in raising industry (cash, non-cash, talents, skills, and amounts of capital. know-hows) 2. Division of Profits or Losses – The intention of Partnership Distinguished from Corporation a commercial or business partnership is to divide 1. Manner of Creation – Partnership can be the profits or losses among themselves, among formed by mere agreement while corporations the partners. require to be approved by the law (SEC). 3. Co-ownership of Contributed Assets – In 2. Number of Persons – Two or more persons in general, when we contribute something to a partnership while corporations cannot be formed partnership, the partners co-own it. by only two persons. However, one-person 4. Mutual Agency – Partners will be representing corporation (OPC) exists. the partnership at all times. All partners are 3. Commencement of Juridical Personality – agents of the partnership. Partnerships only has juridical personality if 5. Limited Life – Since partnership is merely based approved by SEC. Corporations, on the other on an agreement, so when parties decide to stop hand, has juridical personality upon the issuance and dissolve the partnership, the partnership of the certificate of incorporation by the SEC. could be put to an end. 4. Management – Partners can be the managers of 6. Unlimited Liability – Partners both have a partnership or they can appoint as well unlike unlimited liabilities and obligations to the extent corporations whose management are upon the of their personal assets. board of directors (BOD). 7. Income Taxes – Except from the general 5. Extent of Liability – Partnerships’ liability is professional partnerships which are non-taxable unlimited in both parties but in corporations, (established for the practice of professions such shareholders are only liable up to the amount that as accountants forming partnerships), all they have invested. partnerships are subject to a corporate tax. 6. Right of Succession – There is no right of Partnerships follow whatever the corporation tax succession in partnership. However, corporations is. have longer lives up to 50 years after receiving the certificate.  7. Terms of Existence – Partnership can manufacturing businesses who are in a immediately terminate the partnership whereas in partnership. corporation, once it has been approved by the 2. Professional or Non-Trading SEC, it has a term of 50 years that is renewable. Partnership – Service partnerships for the practice of professions. Classification of Partnerships E. According to Legality A. According to Object 1. De Jure Partnership – Legal 1. Universal Partnership of All Present partnerships which have completed the Property – Partners will be contributing requirements as stated by the SEC for its money, property and industry with a establishment as well as in other common fund (they become co-owners statutory agencies of the government. to the fund). Profits will be distributed 2. De Facto Partnership – Illegal, are not based on agreement among themselves. registered, or have not completed the 2. Universal Partnership of Profits – requirements for registration. Not Partnerships like this must be stipulated. registered but they are still considered by Partners in this classification do not co- law as partnerships. own. Only the profit is divided not the assets or properties that they have used to Kinds of Partners gain money. 1. General Partner – Liable up to their personal net 3. Particular Partnership – Similar to the assets. last partnership, this classification must 2. Limited Partner – Limited liability as they are also be stipulated in the agreement. only liable to the amount they have contributed. General professional partnership belongs 3. Capitalist Partner – Contributes money or to this classification (CPA, lawyers, property. engineers, and such). 4. Industrial Partner – Contributes industry such B. According to Liability as skills. 1. General – The partners are liable up to 5. Managing Partner – Most of the time, they are their separate properties and thus have the one to transact on behalf of the partnership. unlimited liability. 6. Liquidating Partner – Appointed in the time of 2. Limited – Partnerships like this have liquidation. LTD on their names. A limited 7. Dormant Partner – One who does not take partnership should at least have one active part in the business or the partnership and general partner as they are liable to their is not known as a partner. personal assets. 8. Silent Partner – Is also not active but their name C. According to Duration is included in the partnership. 1. Partnership with a Fixed Term or for 9. Secret Partner – Active but is not known to be a a Particular Undertaking – An partner. example would be partnership formed in 10. Nominal Partner or Partner by Estoppel – a concert and after the event, they will Serve as a manager and represents the partnership simply split and divide the profit. even though they are not a partner. Engineers who are temporarily in a partnership for a particular project could Government Requirement for Partnerships also be an example. Registration with local municipality, BIR, SSS, 2. Partnership at Will – As long as Philhealth, and Pag-ibig partners are willing to stay in the SEC Registration partnership and agree with one another. Accomplish Articles of Partnership D. According to Purpose Accreditation to practice (BOA) 1. Commercial or Trading Partnership – Service, merchandising, and