Legal Aspects of Business: Forms of Business PDF

Legal Aspects of Business: Forms of Business By: Glenn R. Romano Special Senior Lecturer - PLM Assistant City Prosecutor - Manila Forms of Business Organization Ownership and structural forms of business organization, applicable laws, requirements for their formations, and advantages...

Legal Aspects of Business: Forms of Business By: Glenn R. Romano Special Senior Lecturer - PLM Assistant City Prosecutor - Manila Forms of Business Organization Ownership and structural forms of business organization, applicable laws, requirements for their formations, and advantages and disadvantages Forms of Business Organization 1. Sole Proprietorship 2. Partnership 3. Corporation 4. Cooperative Forms of Business Organization Single or Sole Proprietorship - It is a form of business organization which is owned by one person. Forms of Business Organization Single or Sole Proprietorship -The owner personally manages his business. Forms of Business Organization Single or Sole Proprietorship -The owner personally manages his business. - Most of businesses in the Philippines (including those which are not registered) belong to single proprietorship. Examples are retailers, market vendors, barbers, tailors, and so forth. Forms of Business Organization Single or Sole Proprietorship a) Advantages of Single or Sole Proprietorship Forms of Business Organization Single or Sole Proprietorship a) Advantages of Single or Sole Proprietorship 1) It is easy to organize. Financial capital is small, and registration requirements are not difficult to comply with. In fact, in the remote rural areas small businesses do not even bother to apply for license. Forms of Business Organization Single or Sole Proprietorship a) Advantages of Single or Sole Proprietorship 2) The single proprietor is the boss. He makes the decisions and enjoys substantial freedom of action. Possibilities of conflicts or quarrels are minimized. Forms of Business Organization Single or Sole Proprietorship a) Advantages of Single or Sole Proprietorship 3) The owner acquires all the profits from his business. This gives him more incentives to make his business grow. Forms of Business Organization Single or Sole Proprietorship b) Disadvantages of Single or Sole Proprietorship 1) In general the financial resources of a single proprietorship are not enough to transform the business into a large scale enterprise. Forms of Business Organization Single or Sole Proprietorship b) Disadvantages of Single or Sole Proprietorship Considering its small assets and high mortality rate, banks are reluctant to grant big loans to single proprietorship type of business organizations. Forms of Business Organization Single or Sole Proprietorship b) Disadvantages of Single or Sole Proprietorship 2)Benefits of specialization in business management are not present in small scale proprietorship. There is only one manager. In not a few cases, the owner is the only employee. Forms of Business Organization Single or Sole Proprietorship b) Disadvantages of Single or Sole Proprietorship 3) The owner has unlimited liability. Forms of Business Organization Single or Sole Proprietorship c) Requirements for formation Since it is the simplest form of business it is the easiest to register. It is registered through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DTI). Forms of Business Organization Single or Sole Proprietorship d) Applicable Law Republic Act No. 9178 Barangay Micro Business Enterprises (BMBEs) Act of 2002 Forms of Business Organization 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. Forms of Business Organization Partnership - two or more persons may also form a partnership for the exercise of a profession. Forms of Business Organization Partnership a) Advantages of Partnership 1) It is also easy to organize like single proprietorship. Legal red tape in connection with its registration is not much. Forms of Business Organization Partnership a) Advantages of Partnership 1) It is also easy to organize like single proprietorship. Legal red tape in connection with its registration is not much. Forms of Business Organization Partnership a) Advantages of Partnership 2) Better management because of the presence or more participants in the operations of the business. Forms of Business Organization Partnership a) Advantages of Partnership 3) Possibility of bigger resources than in the single proprietorship exists. Financial institutions may extend bigger loans to such business organization considering the combined resources of the partners. Forms of Business Organization Partnership b) Disadvantages of Partnership 1) Conflicts or quarrels between or among the partners regarding the management or policies of the business are likely to crop up. Forms of Business Organization Partnership b) Disadvantages of Partnership 2) It lacks stability. The death or withdrawal of one partner dissolves the partnership. To continue its operation, a complete reorganization is needed. Forms of Business Organization Partnership b) Disadvantages of Partnership 3) Like the single proprietor, the partners are also subject to unlimited liability, except the limited partners. Such partners, liabilities are only confined to their share of capital contributions in the form of cash or property. Forms of Business Organization Partnership c) Requirements for formation The partnership contract registered with the Securities and Exchange Commission (SEC). Forms of Business Organization Partnership d Applicable Laws Articles 1767 to 1867 of the Civil Code of the Philippines Forms of Business Organization Cooperative - An association of persons, with a common bond of interest, making equitable contributions to the capital required, joined together to achieve a common social or economic end and for a common and shared benefit. Forms of Business Organization Cooperative - It is an organization composed primarily of small producers and consumers who voluntarily join together to form business enterprises which they themselves own, control and patronize. Forms of Business Organization Cooperative - Members have a common social and economic status. Forms of Business Organization Cooperative a) Advantages of a Cooperative Forms of Business Organization Cooperative a) Advantages of a Cooperative 1. Elimination of middlemen. Forms of Business Organization Cooperative a) Advantages of a Cooperative 2. Saving in management and operation expenses. Forms of Business Organization Cooperative a) Advantages of a Cooperative 3. Minimum stock. Forms of Business Organization Cooperative a) Advantages of a Cooperative 4. Economy production and marketing expenditure. Forms of Business Organization Cooperative b) Disadvantages of a Cooperative 1. Lack of capital. It thus suffers shortage of capital for the operation of business. Forms of Business Organization Cooperative b) Disadvantages of a Cooperative 2.Limited scale. Forms of Business Organization Cooperative b) Disadvantages of a Cooperative 3.Inefficient management Forms of Business Organization Cooperative b) Disadvantages of a Cooperative 4.Lack of prompt decision. Forms of Business Organization Cooperative c) Requirements for their formation - Applying for registration with the Cooperative Development Authority (CDA) Forms of Business Organization Cooperative d) Applicable Laws - Republic Act 6938 (The Cooperative Code of the Philippines) Forms of Business Organization Corporation - artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Forms of Business Organization Corporation a) Advantages of a Corporation 1) A member has limited liability. Forms of Business Organization Corporation a) Advantages of a Corporation 2.) It has the most effective means of raising money capital for its operations, by selling stocks and bonds. Forms of Business Organization Corporation a) Advantages of a Corporation 3) It has permanent existence. Forms of Business Organization Corporation a) Advantages of a Corporation 4) It is capable of getting the most efficient management considering its huge resources. Forms of Business Organization Corporation b) Disadvantages of a Corporation 1) It is not easy to organize a corporation. Forms of Business Organization Corporation b) Disadvantages of a Corporation 1) It is not easy to organize a corporation. Forms of Business Organization Corporation b) Disadvantages of a Corporation 2) Abuses of corporation officials are likely to emerge in situations where many stockholders do not participate actively in the affairs of their corporation. Forms of Business Organization Corporation c) Requirements for their formation - Submit articles of incorporation with the Securities and Exchange Commission Forms of Business Organization Corporation d) Applicable Laws - Republic Act 11232 (Revised Corporation Code of the Philippines) Forms of Business Organization Corporation and Partnership as Juridical Entities: - they are vested with personality or considered as persons. Forms of Business Organization Corporation and Partnership as Juridical Entities: Person – a being which is susceptible of rights and obligations, or being the subject of legal relations Forms of Business Organization Corporation and Partnership as Juridical Entities: Kinds of Persons 1. Natural Persons 2. Juridical Persons Forms of Business Organization Corporation and Partnership as Juridical Entities: Natural – human being; product of procreation. Forms of Business Organization Corporation and Partnership as Juridical Entities: Juridical – exists only in contemplation of law; product of legal fiction. Forms of Business Organization Corporation and Partnership as Juridical Entities: Personality – the status of having juridical capacity or capacity to act. Juridical Capacity – fitness to be subject of legal relations Capacity to act – power to do acts with legal effect. Forms of Business Organization Distinction between PAT and Corp: 1. Manner of creation P- mere agreement C- operation of law Forms of Business Organization Distinction between PAT and Corp: 2. Number of Persons required P- at least 2 C – 5-15, except OPC Forms of Business Organization Distinction between PAT and Corp: 3. Commencement of Juridical Personality P- execution C- issuance of certificate PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 1. Bilateral – it is entered into by two or more persons and the rights and obligations arising therefrom are reciprocal 2. Onerous – each of the parties aspires to procure for himself a benefit through the giving of something PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 3. Nominate – it has a special name or designation in our law 4. Consensual – perfected by mere consent PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 5. Commutative – the undertaking of each of the partners is considered as the equivalent of that of the others 6. Principal – its life does not depend on the existence of another contract PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 7. Preparatory – because it is entered into as a means to an end, i.e. to engage in business 8. Fiduciary – it is based on trust and confidence PARTNERSHIP Formalities GR: No special form is required for its validity or existence. (Art. 1771, NCC) PARTNERSHIP Formalities 2. Real property or real rights – must be: a. in a public instrument (Art. 1771, NCC) PARTNERSHIP Formalities 2. Real property or real rights – must be: b. with an inventory of said property i. signed by the parties ii. attached to the public instrument (Art. 1773, NCC) PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) 1. Universal Partnership PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) a. Universal partnership of all present property -comprises the property which belonged to each of the partners at the time of the constitution of the partnership, AND PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) a. Universal partnership of all present property - profits which they may acquire from all property contributed PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) b. Universal partnership of all profits - comprises all that the partners may acquire by their industry or work during the existence of the partnership PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) 2. Particular Partnership - one which has for its object, determinate things, their use and fruits, or a specific undertaking or the exercise of a profession or a vocation. (Art. 1783, NCC) PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Liability of partners) 1. General Partnership – One where all partners are general partners who are liable even with respect to their individual properties, after the assets of the partnership have been exhausted PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Liability of partners) 2. Limited partnership – - one having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Duration) 1. Partnership at will – for a particular undertaking or venture which may be terminated anytime by mutual agreement. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Duration) 2. Partnership with a fixed period – the partnership is to exist for an agreed period or one formed for a particular undertaking. PARTNERSHIP PRINCIPAL CLASSIFICATIONS OF PARTNERS 1. Capitalist – Contributes money or property to the common fund 2. Industrial – Contributes only his industry or personal service PARTNERSHIP PRINCIPAL CLASSIFICATIONS OF PARTNERS 3. General – One whose liability to 3rd persons extends to his separate or personal property 4. Limited – One whose liability to 3rd persons is limited to his capital contribution PARTNERSHIP PRINCIPAL CLASSIFICATIONS OF PARTNERS 5. Managing – Manages the affairs or business of the partnership PARTNERSHIP PROHIBITION IN ENGAGING IN BUSINESS 1. INDUSTRIAL PARTNER – Cannot engage in business for himself unless the partnership expressly permits him to do so PARTNERSHIP PROHIBITION IN ENGAGING IN BUSINESS 2. CAPITALIST PARTNER– Cannot engage in business (with same kind of business with the partnership) for his own account, unless there is a stipulation to the contrary PARTNERSHIP DISSOLUTION OF A PARTNERSHIP 1. Termination of the definite term or specific undertaking 2. Express will of any partner 3. Violating the agreement 4. Unlawfulness of the business PARTNERSHIP DISSOLUTION OF A PARTNERSHIP 5. Loss 6. Death of any of the partners 7. Insolvency of any partner or of the partnership 8. Civil interdiction of any partner PARTNERSHIP DISSOLUTION OF A PARTNERSHIP Civil interdiction – incapacity to perform rights of parental authority, or guardianship, either as to the person or property of any ward, of marital authority, of the right to manage his property, and of the right to dispose of such property by any act or any conveyance inter vivos. PARTNERSHIP DISSOLUTION OF A PARTNERSHIP 8. By decree of court under Art. 1831, NCC PARTNERSHIP Winding up - ceased in the carrying of the partnership business - partnership properties are liquidated and proceeds distributed to the partners, if there is any PARTNERSHIP Termination - point in time when all partnership affairs are wound up or completed - the end of the partnership life Legal Aspects of Business: Forms of Business By: Glenn R. Romano Special Senior Lecturer - PLM Assistant City Prosecutor - Manila PARTNERSHIP Partnership – a contract where 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. – may also be formed for the exercise of a professions PARTNERSHIP Concept of Partnership a. An association/organization b. A legal relation c. A joint undertaking d. A status e. An entity PARTNERSHIP Partnership for the Exercise of Profession - an entity created for the purpose of engaging jointly in practice and in rendering services. PARTNERSHIP Characteristics of Partnership a. Consensual b. Nominate c. Bilateral d. Onerous e. Commutative PARTNERSHIP Characteristics of Partnership f. Principal g. Preparatory PARTNERSHIP Essential Features of Partnership 1. There must be a valid contract. 2. The parties must have legal capacities. 3. There must be mutual contribution. 4. The object must be lawful. 5. The purpose must be to obtain profits and divide the same among the parties. PARTNERSHIP A partnership is a personal relation in which the element of “delectus personae”* exist. *“the choice of person/s” – the right to choose with whom a person wishes to associate or continue to associate himself. PARTNERSHIP Persons Who Cannot Give Consent: 1. Minors 2. Insane or demented persons 3. Deaf-mutes who can’t read and write 4. Persons who are suffering from civil interdiction. 5. Incompetents under guardianship. PARTNERSHIP Kinds of Contributions: 1. Money 2. Property 3. Industry PARTNERSHIP Legality of the Object: - “it is not contrary to law, morals, goods customs, public order or policy” - if object is unlawful, contract of partnership is “VOID” PARTNERSHIP Juridical Personality - having legal existence, and susceptible of rights and obligations, or of being subject of legal relations. PARTNERSHIP If the partnership capital exceeds PhP3,000, the partnership contract must be in a public instrument. Failure to comply with this rule does not affect the juridical personality of the partnership. (Art 1768, NCC) PARTNERSHIP Person – a being which is susceptible of rights and obligations, or being the subject of legal relations. Natural – human being; product of procreation. Juridical – exists only in contemplation of law; product of legal fiction. Personality – the status of having juridical capacity or capacity to act. PARTNERSHIP Juridical Capacity – fitness to be subject of legal relations; Capacity to act – power to do acts with legal effect. PARTNERSHIP Rules in Determining Existence of Partneship. (1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; PARTNERSHIP Rules in Determining Existence of Partneship. (2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co- owners or co-possessors do or do not share any profits made by the use of the property; PARTNERSHIP Rules in Determining Existence of Partneship. (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; PARTNERSHIP Rules in Determining Existence of Partneship. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise; PARTNERSHIP Rules in Determining Existence of Partneship. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (b) As wages of an employee or rent to a landlord; PARTNERSHIP Rules in Determining Existence of Partnership. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (c) As an annuity to a widow or representative of a deceased partner; PARTNERSHIP Rules in Determining Existence of Partneship. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (d) As interest on a loan, though the amount of payment vary with the profits of the business; PARTNERSHIP Rules in Determining Existence of Partneship. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (e) As the consideration for the sale of a goodwill of a business or other. PARTNERSHIP Partnership vs. Co-ownership Co-ownership – when the ownership of an undivided thing or right belongs to different persons. PARTNERSHIP Partnership vs. Co-ownership a. Creation: P – Always created by contract; C – generally created by law b. Juridical Personality: P – has JP; C – No JP c. Purpose: P – profits; C – common enjoyment of property or right. PARTNERSHIP Partnership vs. Co-ownership d. Duration: P – no limitation by law; C – there is limitation (10 years) e. Disposal of Interest: P – partner cannot dispose unless ALL agree; C – may freely dispose f. Power to act with 3rd persons: P – binds partners; C – absent stipulations, can’t bind co-owners PARTNERSHIP Partnership vs. Co-ownership d. Effect of Death: P – results in dissolution; C – does not necessarily results in dissolution. PARTNERSHIP Effect of Unlawful a. The contract is void ab initio. b. The profits will be confiscated in favor of the gov’t. c. The instruments or tools and proceeds of the crime will be confiscated in favor of the gov’t. d. The contributions not confiscated unless falls in #3. PARTNERSHIP “A partnership may be constituted in ANY FORM, except where IMMOVABLE PROPERTY OR REAL RIGHTS are contributed thereto, in which case a public instrument shall be necessary.” PARTNERSHIP Form of Partnership Contract “A partnership may be constituted in ANY FORM, except where IMMOVABLE PROPERTY OR REAL RIGHTS are contributed thereto, in which case a public instrument shall be necessary.” PARTNERSHIP Form of Partnership Contract “Every contract of partnership having a capital of PhP3,000.00 or more or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. PARTNERSHIP Form of Partnership Contract Failure to comply with the requirements Art. 1772 shall not affect the liability of the partnership and the members thereof to third persons. PARTNERSHIP Form of Partnership Contract A contract of partnership is VOID, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. PARTNERSHIP Formalities GR: No special form is required for its validity or existence. (Art. 1771, NCC) PARTNERSHIP Formalities 2. Real property or real rights – must be: a. in a public instrument (Art. 1771, NCC) PARTNERSHIP Formalities 2. Real property or real rights – must be: b. with an inventory of said property i. signed by the parties ii. attached to the public instrument (Art. 1773, NCC) PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 1. Bilateral – it is entered into by two or more persons and the rights and obligations arising therefrom are reciprocal 2. Onerous – each of the parties aspires to procure for himself a benefit through the giving of something PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 3. Nominate – it has a special name or designation in our law 4. Consensual – perfected by mere consent PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 5. Commutative – the undertaking of each of the partners is considered as the equivalent of that of the others 6. Principal – its life does not depend on the existence of another contract PARTNERSHIP Characteristics of a Partnership (BON‐CC‐PP) 7. Preparatory – because it is entered into as a means to an end, i.e. to engage in business 8. Fiduciary – it is based on trust and confidence PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) 1. Universal Partnership PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) a. Universal partnership of all present property -comprises the property which belonged to each of the partners at the time of the constitution of the partnership, AND PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) a. Universal partnership of all present property - profits which they may acquire from all property contributed PARTNERSHIP In universal partnership of all properties - A stipulation for the common enjoyment of any other property may also be made, but the property which the parties may acquire subsequently by inheritance, legacy, donation cannot be included in such stipulation, except the fruits thereof. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) b. Universal partnership of all profits - comprises all that the partners may acquire by their industry or work during the existence of the partnership PARTNERSHIP In universal partnership of all profits - Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. PARTNERSHIP Presumption: - Article of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. (Art. 1781) PARTNERSHIP ❖ Persons prohibited from giving each other any donation or advantage cannot enter into universal partnership. PARTNERSHIP Prohibited donations: 1. Donation between spouses; 2. Those made between persons who were guilty of adultery or concubinage at the time of the donation; PARTNERSHIP Prohibited donations: 3. Those made between persons found guilty of the same criminal offense, in consideration thereof; and 4. Those made to a public officer or his wife, descendants, by reason of his office. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (As to object) 2. Particular Partnership - one which has for its object, determinate things, their use and fruits, or a specific undertaking or the exercise of a profession or a vocation. (Art. 1783, NCC) PARTNERSHIP Particular Partnership - one which has for its object, determinate things, their use and fruits, or a specific undertaking or the exercise of a profession or a vocation. (Art. 1783, NCC) PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Liability of partners) 1. General Partnership – One where all partners are general partners who are liable even with respect to their individual properties, after the assets of the partnership have been exhausted PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Liability of partners) 2. Limited partnership – - one having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Duration) 1. Partnership at will – for a particular undertaking or venture which may be terminated anytime by mutual agreement. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Duration) 2. Partnership with a fixed period – the partnership is to exist for an agreed period or one formed for a particular undertaking. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Legality) 1. De jure – complied with all the requirement for its establishment. PARTNERSHIP CLASSIFICATIONS OF PARTNERSHIP (Legality) 1. De facto – failed to comply with all the requirement for its establishment but exist like one as a matter of fact. PARTNERSHIP Secret Partnership - Association and societies, whose articles are kept secret among members, and wherein any one of the members may contract in his own name with third persons. - No juridical personality; governed by co- ownership. PARTNERSHIP Partnership by estoppels - actually not a partnership by but it is considered as a partnership as to person who cannot deny its existence by reason of agreement, admission or conduct. PARTNERSHIP PRINCIPAL CLASSIFICATIONS OF PARTNERS 1. Capitalist – Contributes money or property to the common fund 2. Industrial – Contributes only his industry or personal service PARTNERSHIP PRINCIPAL CLASSIFICATIONS OF PARTNERS 3. General – One whose liability to 3rd persons extends to his separate or personal property 4. Limited – One whose liability to 3rd persons is limited to his capital contribution PARTNERSHIP PRINCIPAL CLASSIFICATIONS OF PARTNERS 5. Managing – Manages the affairs or business of the partnership PARTNERSHIP OTHER CLASSIFICATIONS OF PARTNERS 1. Winding up 2. Ostensible 3. Secret 4. Dormant PARTNERSHIP OTHER CLASSIFICATIONS OF PARTNERS 4. Dormant - one who is merely passive in the firm, not active in the management or operation of business PARTNERSHIP OTHER CLASSIFICATIONS OF PARTNERS 5. Nominal - Person who is not actually a partner, but who by his acts or omissions , is made liable, as a partner, to third persons for the obligations of the partnership. PARTNERSHIP PROHIBITION IN ENGAGING IN BUSINESS 1. INDUSTRIAL PARTNER – Cannot engage in business for himself unless the partnership expressly permits him to do so PARTNERSHIP PROHIBITION IN ENGAGING IN BUSINESS 2. CAPITALIST PARTNER– Cannot engage in business (with same kind of business with the partnership) for his own account, unless there is a stipulation to the contrary PARTNERSHIP DISSOLUTION OF A PARTNERSHIP 1. Termination of the definite term or specific undertaking 2. Express will of any partner 3. Violating the agreement 4. Unlawfulness of the business PARTNERSHIP DISSOLUTION OF A PARTNERSHIP 5. Loss 6. Death of any of the partners 7. Insolvency of any partner or of the partnership 8. Civil interdiction of any partner PARTNERSHIP DISSOLUTION OF A PARTNERSHIP Civil interdiction – incapacity to perform rights of parental authority, or guardianship, either as to the person or property of any ward, of marital authority, of the right to manage his property, and of the right to dispose of such property by any act or any conveyance inter vivos. PARTNERSHIP DISSOLUTION OF A PARTNERSHIP 8. By decree of court under Art. 1831, NCC PARTNERSHIP Winding up - ceased in the carrying of the partnership business - partnership properties are liquidated and proceeds distributed to the partners, if there is any PARTNERSHIP Termination - point in time when all partnership affairs are wound up or completed - the end of the partnership life Legal Aspects of Business: Forms of Business By: Glenn R. Romano Special Senior Lecturer - PLM Assistant City Prosecutor - Manila Obligations of Partners At least four distinct relationships in a contract of partnership 1. The relations of the parties among themselves 2. The relations of the partner with the partnership Obligations of Partners At least four distinct relationships in a contract of partnership 3. The relations of the partnership with third persons with whom it transacts business 4. The relations of the partners with third persons OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remains the same as they were at such termination, so far as is consistent with a partnership at will. (Art. 1785. ) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES vA continuation of the business by the partners or such of them as habitually acted therein during the term without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. (Art. 1785. ) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Obligations of partners to contribute: 1. Delivery of the thing promised 2. Answer for eviction 3. Answer for the fruits 4. Preserve the thing 5. Indemnify for damages caused by retention OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v When the capital or part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for the account of the partnership. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES vA partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v Anindustrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right of damages in either case. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v Unlessthere is stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v Ifthere is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v partner authorized to manage collects - sum, owed to him in his own name and another sum also demandable. - given a receipt for his own credit only – credited proportionally. - but should he have given a receipt it for the account of the partnership credit, the amount shall be fully applied to the latter. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES vA partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them. (Art. 1795) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised. (Art. 1795) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Fungible (consumable) - Movables which cannot be used in a manner appropriate to their nature without being consumed. (Arty. 418) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Five (5) cases contemplated 1. Specific and determinate things which are not fungible where only the use is contributed the risk of loss is borne by the partner because he remains the owner of the things (car) 2. Specific determinate thing the ownership of which is transferred to the partnership loss is for the account of the partnership being the owner OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Five (5) cases contemplated 3. Fungible things or things which cannot be kept without deteriorating even if they are contributed only for the use of the partnership loss borne by the partnership since use impossible without the things being consumed or impaired. 4. Thing contributed to be sold borne by the partnership since ownership was transferred OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Five (5) cases contemplated 5. Things brought and appraised in the inventory ownership is transferred to the partnership and the price of the thing is intended to be contributed. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Responsibility of Partnership to Partners (Art. 1796) 1. Refund the amounts he may have disbursed on behalf of the partnership and for the corresponding interest, from the time the expense are made; 2. To answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business; and 3. To answer for risks in consequence of its management. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Distribution of Profits: 1. If there is agreement: - according to agreement subject to Article 1799 2. If the is no agreement: - Divided in proportion to their capital contributed (industrial partner must be satisfied first, as may be just and equitable) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Distribution of Losses: 1. In accordance with the agreement, if there be any, subject to Article 1799; 2. In accordance with the profit sharing ratio; 3. If no profit sharing ratio, in proportion to their capital contribution. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Designation of Profits and Losses by Third Persons v designation of losses and profits cannot be intrusted to one of the partners. v designation of share of profit and losses can be entrusted to a third person by common consent of the partners v Designation by third persons may be impugned only when it is manifestly inequitable OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v A stipulation which excludes one or more partners from any share in the profits or losses is void. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Rights and Obligations with Respect to Management v if appointment was made in the articles, revocable on grounds of just and lawful cause; can execution all acts except there is restriction. v if made after the constitution of partnership may be revoke at anytime for whatever cause. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Rights and Obligations with Respect to Management v opposition can be validly made if there is bad faith. v generallymanaging partners are not entitled to compensation except if there is express agreement and in proper cases, contract of compensation may be implied. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v Iftwo or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v ifany of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v ifany of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Where Unanimity of Action Required: - When stipulated that concurrence of all shall be necessary for the validity of the acts; - the absence or disability of any one of them cannot be alleged. Exceptions: a.) there is imminent danger of grave or irreparable injury to the partnership; and b.) not applicable in routine transaction/matter OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Rule When the Manner o Management Not Agreed. 1. All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership; 2. Partners may not, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Contract of Subpartnership - when a partner associate with another person with him in his share. - associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Contract of Subpartnership - when a partner associate with another person with him in his share. - associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Right to access partnership books - the partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Duty to Render/Divulge information - Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Fiduciary accountability of a partner (trust and confidence) Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Fiduciary accountability of a partner (trust and confidence) - the capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Fiduciary accountability of a partner (trust and confidence) - Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Fiduciary accountability of a partner (trust and confidence) (1) If he is wrongfully excluded from the partnership business or possession of its property by his co- partners; (2) If the right exists under the terms of any agreement; OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Fiduciary accountability of a partner (trust and confidence) (3) As provided by article 1807; (4) Whenever other circumstances render it just and reasonable. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES v As a general rule, a partner is not entitled to formal accounting during the existence of the partnership; article 1809 is the exceptions. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Any partner shall have the right to a formal account as to partnership affairs: - - Prohibition is relative unlike in industrial partners where prohibition in any kind of business. Property Right of a Partner Extent of Property Rights of A Partner (Principal) 1. Article 1811 2. Article 1812 3. Article 1803 Property Right of a Partner Related/other rights: 1. Right to reimbursement of advance and indemnification for risks in the consequence of management (Article 1796); 2. The right of access and to inspection of partnership books (art. 1805); 3. The right to true and full information of all things affecting the partnership (art. 1806) Property Right of a Partner Related/other rights: 4. The right to a formal account of partnership affairs under certain circumstance (art. 1809) 5. The right to have the partnership dissolve under certain conditions. (Art.1830-1831) Property Right of a Partner Partner’s Rights in Specific Partnership Property 1. Equal right of possession 2. Prohibition of separate assignment of right to specific property 3. Execution of specific partnership property 4. Partner’s right in specific partnership property not subject to legal support Property Right of a Partner vA partner's interest in the partnership is his share of the profits and surplus. Property Right of a Partner vA conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, the rights to exercise the rights to a partner. Property Right of a Partner v Assignment merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies. Property Right of a Partner v In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. Legal Aspects of Business: Forms of Business By: Glenn R. Romano Special Senior Lecturer - PLM Assistant City Prosecutor - Manila Obligations of Partners to 3rd Persons Firm Name - the title, style under which a company transacts bus. Obligations of Partners to 3rd Persons Partners has the right to choose any firm name; limitations: 1. misleading name 2. name of deceased person 3. already used by an entity/business. Obligations of Partners to 3rd Persons v Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. Obligations of Partners to 3rd Persons Nature of Individual Liability - ALL partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted. - pro-rata means equally or jointly Obligations of Partners to 3rd Persons SUBSIDIARY/SECONDARY LIABILITY OF PARTNERS - liability of partners attached only after all the property of the partnership are exhausted. - industrial partners are also subsidiary liable to partnership liabilities. - any stipulation against this liability shall be void, except as among the partners. Obligations of Partners to 3rd Persons Powers of Partners as Agent of Partnership 1. acts apparently carrying on in the usual way the business of the partnership. 2. Acts of strict dominion or ownership, if authorized by the partners or they abandoned the business. Obligations of Partners to 3rd Persons v When a partner performs within the scope of his authority, he is an agent of the partnership and his co-partner. v If a partner convey the property in excess of his authority, the partnership may recover the same. Obligations of Partners to 3rd Persons Under Art. 1819, property maybe registered under the name of: 1. The partnership (1,2) 2. One or more, but not all (par 3.) 3. One, or more, or all the partners, or in a third person in trust for the partnership (par 4.) 4. All partners (par. 5) Obligations of Partners to 3rd Persons v Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property, unless, the partner binds the partnership or the assignee is a holder for value and in good faith. Obligations of Partners to 3rd Persons v Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name, unless the partner binds the partnership or assignee/transferee if holder for value and in good faith. (1) Obligations of Partners to 3rd Persons v Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, unless the partner binds the partnership.(2) Obligations of Partners to 3rd Persons v Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, unless the partner binds the partnership or assignee/transferee if holder for value and in good faith. (3) Obligations of Partners to 3rd Persons v Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the partner acted with his authority. (4) Obligations of Partners to 3rd Persons v Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property.(5) Obligations of Partners to 3rd Persons v Noticeto any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership. Obligations of Partners to 3rd Persons Liability of the Partnership Due to Partner’s Act 1. A partner is guilty of a wrongful act or omission. 2. The partner acting in the ordinary course of the business of the partnership or with the authority of co-partners. (Art. 1822) v All partners are liable solidarily with the partnership for everything chargeable to the partnership Obligations of Partners to 3rd Persons Liability of the Partnership Due to Loss 1. Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it. Obligations of Partners to 3rd Persons Liability of the Partnership Due to Loss 2. Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (Art. 1823) Obligations of Partners to 3rd Persons Partnership by Estoppel 2. Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (Art. 1823) Obligations of Partners to 3rd Persons Estoppel - bar which precludes a person from\ denying or asserting anything contrary to that which has been established as the truth by his own deed or representation. Obligations of Partners to 3rd Persons Partner by Estoppel 1. directly represents himself to anyone as a partner; and 2. indirectly representing himself by consenting to another representing him as partner. Obligations of Partners to 3rd Persons Partnership by Estoppel - an apparent partnership presumed when all the partners consented a third person in representing himself as a partner. Obligations of Partners to 3rd Persons Liability of incoming Partner - liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred. - personal properties are not liable for the prior liabilities. Obligations of Partners to 3rd Persons v The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right v the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets. Dissolution and Winding Up DISSOLUTION OF A PARTNERSHIP 1. Termination of the definite term or specific undertaking 2. Express will of any partner 3. Violating the agreement 4. Unlawfulness of the business Dissolution and Winding Up DISSOLUTION OF A PARTNERSHIP 5. Loss 6. Death of any of the partners 7. Insolvency of any partner or of the partnership 8. Civil interdiction of any partner Dissolution and Winding Up Civil interdiction – incapacity to perform rights of parental authority, or guardianship, either as to the person or property of any ward, of marital authority, of the right to manage his property, and of the right to dispose of such property by any act or any conveyance inter vivos. Dissolution and Winding Up DISSOLUTION OF A PARTNERSHIP 9. By decree of court under Art. 1831, NCC Dissolution and Winding Up Winding up - ceased in the carrying of the partnership business - partnership properties are liquidated and proceeds distributed to the partners, if there is any Dissolution and Winding Up Termination - point in time when all partnership affairs are wound up or completed. - the end of the partnership life Legal Aspects of Business: Forms of Business By: Glenn R. Romano Special Senior Lecturer - PLM Assistant City Prosecutor - Manila Dissolution and Winding Up Dissolution - designates the point in time when the partner cease to carry on the business together. Dissolution and Winding Up Winding up - the process of settling partnership affairs after dissolution. Dissolution and Winding Up Termination - the point in time when all partnership affairs are wound up. Dissolution and Winding Up 1. Without violation of the agreement between the partners: a. Termination of the definite term or specific undertaking. b. By the express will of any partner, who must act in good faith, when no definite term or particular is specified. Dissolution and Winding Up 1. Without violation of the agreement between the partners: c. By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking. Dissolution and Winding Up 1. Without violation of the agreement between the partners: d. By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners Dissolution and Winding Up 2. In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time. Dissolution and Winding Up 3. By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership. Dissolution and Winding Up 4. When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing. Dissolution and Winding Up 5. By the death of any partner; 6. By the insolvency of any partner or of the partnership; 7. By the civil interdiction of any partner; 8. By decree of court under Art. 1831. Dissolution and Winding Up Civil interdiction – incapacity to perform rights of parental authority, or guardianship, either as to the person or property of any ward, of marital authority, of the right to manage his property, and of the right to dispose of such property by any act or any conveyance inter vivos. Dissolution and Winding Up Dissolution on Application of a Partner: 1. Insanity 2. Incapacity 3. Conducts that tends to affect prejudicially the carrying on of the business Dissolution and Winding Up Dissolution on Application of a Partner: 4. Misconduct and persistent breach of partnership agreement 5. Business can be carried on only at a loss 6. Other circumstances Dissolution and Winding Up Dissolution on Application of a Purchaser of a Partner’s Interest (1) After the termination of the specified term or particular undertaking; Dissolution and Winding Up Dissolution on Application of a Purchaser of a Partner’s Interest (2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. Dissolution and Winding Up Effects of Dissolution on Authority of Partner: v Authority to act for the partnership is terminated, except those necessary to wind up partnership affairs or to complete transactions begun but not then finished, subject to provisions of Art. 1833 and 1834. Dissolution and Winding Up Effects of Dissolution on Authority of Partner: (with respect to the partners, when dissolution is by such act, insolvency or death of a partner) v partners liable as if partnership is not dissolved. UNLESS: v the partner acting for the partnership had knowledge of the dissolution. Dissolution and Winding Up Effects of Dissolution on Authority of Partner: (with respect to the partners, when dissolution is by such act, insolvency or death of a partner) v partners liable as if partnership is not dissolved. UNLESS: v the partner acting for the partnership had knowledge or notice of the death/insolvency. Dissolution and Winding Up Knowledge of a Fact - not only when he has actual knowledge thereof, but also when he has knowledge of such other facts as in the circumstances show bad faith.” Dissolution and Winding Up Notice of Fact - when a person who claims the benefit of the notice: (a) states the fact to such person, or (b) delivers through the mail or by other means of communication, a written statement of the fact to such person or to a proper person at his place of business or residence. Dissolution and Winding Up v Pars.1and 2, binds the partnership, even after dissolution; v Par. 3 cannot bind the partnership, except: - Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority. Dissolution and Winding Up v Par. 3 cannot bind the partnership, except: - had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised. Dissolution and Winding Up Effect of Dissolution to Existing Liability of Partner: v does not of itself discharge the existing liability of any partner Dissolution and Winding Up Effect of Dissolution to Existing Liability of Partner: v discharged upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business. Dissolution and Winding Up Manner of Dissolution: v Judicial – under control and direction of the proper court upon cause shown by any partner, his representative, or his assignee. v Extrajudicial – by the partners themselves without intervention of the court. Dissolution and Winding Up Persons Authorize to Wind Up: v The partners designated by the agreement. v If no agreement, all the partners who have not wrongfully dissolved the partnership. v The legal representative of the last surviving partner, not insolvent. Dissolution and Winding Up Rights where the dissolution not in contravention of agreement: v Tohave the partnership property applied to discharge the liabilities of the partnership. v Tohave the surplus, if any, applied to pay in cash the net amount owing to the respective partners. Dissolution and Winding Up Rights of partner who has not caused the dissolution wrongfully (contravention) v To have partnership property applied for the payment of its liabilities and to receive in cash his share of the surplus. v To be indemnified for damages caused by the partner guilty of wrongful dissolution. Dissolution and Winding Up Rights of partner who has not caused the dissolution wrongfully (contravention) v To continue the business in the same name during the agreed term of partnership, by themselves or jointly with others. v To possess partnership property should they decide to continue the business. Dissolution and Winding Up Rights of partner who has caused the dissolution wrongfully (contravention) a. If the business is not continued by the other partners, to have the partnership property applied to discharge its liabilities and to receive in cash his share of the surplus less damages by his wrongful dissolution. Dissolution and Winding Up Rights of partner who has caused the dissolution wrongfully (contravention) b. If business is continued: i. To have the value of his interest in the partnership at the time of the dissolution ascertained and paid in cash or secured by bond approved by court; and Dissolution and Winding Up Rights of partner who has caused the dissolution wrongfully (contravention) b. If business is continued: ii. To be released from all existing and future liabilities of the partnership. Dissolution and Winding Up Right of Partner to Rescind Contract of Partnership v if one is induced by fraud or misrepresentation to become a partner, the contract is voidable or annullable. v If annulled, the injured partner is entitled to restitution (Art. 1398) Dissolution and Winding Up Right of Injured Partner Where Partnership is Rescinded 1. Right of lien on the surplus partnership property after satisfying partnership liabilities for any sum of money paid or contributed by him. Dissolution and Winding Up Right of Injured Partner Where Partnership is Rescinded 2. Right of subrogation in place of partnership creditors after payment of partnership liabilities. Dissolution and Winding Up Right of Injured Partner Where Partnership is Rescinded 3. Right of indemnification by the guilty partner against all debts and liabilities of the partnership. Dissolution and Winding Up The assets of the partnership are: (a) The partnership property, (b) The contributions of the partners necessary for the payment of all the liabilities. Dissolution and Winding Up (2) The liabilities of the partnership shall rank in order of payment, as follows: (a) Those owing to creditors other than partners. (b) Those owing to partners other than for capital and profits, Dissolution and Winding Up (2) The liabilities of the partnership shall rank in order of payment, as follows: (c) Those owing to partners in respect of capital, (d) Those owing to partners in respect of profits. Dissolution and Winding Up Rules in Settling Accounts Between Partners After Dissolution: v The assets shall be applied in the order of their declaration in No. 1 of Art. 18939 to the satisfaction of the liabilities. Dissolution and Winding Up Rules in Settling Accounts Between Partners After Dissolution: v The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities. Dissolution and Winding Up Rules in Settling Accounts Between Partners After Dissolution: v An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number. Dissolution and Winding Up Rules in Settling Accounts Between Partners After Dissolution: v Any partner or his legal representative shall have the right to enforce the contributions necessary to satisfy the liabilities to the extent of the amount which he has paid in excess of his share of the liability. Dissolution and Winding Up Rules in Settling Accounts Between Partners After Dissolution: v The individual property of a deceased partner shall be liable for the contributions necessary to satisfy the liabilities. Dissolution and Winding Up Rules in Settling Accounts Between Partners After Dissolution: v When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors Dissolution and Winding Up Order of Payment in Case of Insolvency: (a) Those owing to separate creditors; (b) Those owing to partnership creditors; (c) Those owing to partners by way of contribution. Dissolution and Winding Up Creditors of Dissolved Partnership are Creditors of Those Continuing the Business: (a) When new partner are admitted. (b) Retiring/representative of a deceased partner assigns his rights in partnership property and continued the business without liquidation. Dissolution and Winding Up Creditors of Dissolved Partnership are Creditors of Those Continuing the Business: (c) All partners and representative of a deceased partner assigns their rights in partnership property and continued the business without liquidation. Dissolution and Winding Up Creditors of Dissolved Partnership are Creditors of Those Continuing the Business: (d) When any partner retires or dies and the business of the dissolved partnership is continued without dissolution with the consent of the former, but without any assignment of their right in partnership property. Dissolution and Winding Up Creditors of Dissolved Partnership are Creditors of Those Continuing the Business: (e) When all the partners/representatives assign their rights in partnership property to third person/s who promise to pay the debts and who continue the business of the dissolved partnership. Dissolution and Winding Up Creditors of Dissolved Partnership are Creditors of Those Continuing the Business: (f) When any partner wrongfully causes a dissolution and the remaining partners continue the business without liquidation of the partnership affairs. Dissolution and Winding Up Creditors of Dissolved Partnership are Creditors of Those Continuing the Business: (g) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. Dissolution and Winding Up v The liability of a third person becoming a partner in the partnership continuing the business, under Art. 1840, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary. Dissolution and Winding Up v The creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner/representative of the deceased partner, have a prior right to any claim of the retired partner/the representative of the deceased partner against the person or partnership continuing the business. Dissolution and Winding Up v The creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner/representative of the deceased partner, have a prior right to any claim of the retired partner/the representative of the deceased partner against the person or partnership continuing the business. Dissolution and Winding Up Rights of Retiring or of Legal Representative of Deceased Partner when Business is Continued. 1. To have the value of the interest of the retiring partner or deceased partner in the partnership ascertained as of the date of dissolution. Dissolution and Winding Up Rights of Retiring or of Legal Representative of Deceased Partner when Business is Continued. 2. To receive thereafter, as an ordinary creditor, an amount equal to the value of his share in the dissolve partnership with interest, or, at his option, in lieu of interest, the profits attributable tso the use of his right. Dissolution and Winding Up Partner’s Right to Account of his Interest: (Accrual of rights) - the right to demand an accounting of the value of his interest. Dissolution and Winding Up Persons Liable to Render Account: a. The winding up partner b. The surviving partner c. The person or partnership continuing the business. Legal Aspects of Business: Forms of Business By: Glenn R. Romano Special Senior Lecturer - PLM Assistant City Prosecutor - Manila Limited Partnership Limited Partnership - one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. Limited Partnership Characteristics of a Limited Partnership 1. There is a statutory requirements for its formations. There are formalities that must be complied as stated in Art 1844. 2. At least one general partner who are liable to creditors. Limited Partnership Characteristics of a Limited Partnership 3. There are at least one limited partner. 4. A limited partner is not a proper party to a proceedings for or against the partnership. Limited Partnership Characteristics of a Limited Partnership 5. A limited partner’s interest is freely assignable and the assignee acquires all the rights of the limited partner. 6. As a general rule, the name of a limited partner does not appear in the firm name. Limited Partnership Characteristics of a Limited Partnership 7. There is no prohibition to engaged in another kind of business 8. Limited character of the partnership must be indicated Limited Partnership Sign and swear to a certificate, which states: (a) The name of the partnership, adding thereto the word "Limited"; (b) The character of the business; (c) The location of the principal place of business; Limited Partnership Sign and swear to a certificate, which states: (d) The name and place of residence of each member, general and limited partners being respectively designated; (e) The term for which the partnership is to exist; Limited Partnership Sign and swear to a certificate, which states: ( f ) The amount of cash and a description of and the agreed value of the other property contributed by each limited partner; Limited Partnership Sign and swear to a certificate, which states: (g) 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; Limited Partnership Sign and swear to a certificate, which states: (h) The time, if agreed upon, when the contribution of each limited partner is to be returned; Limited Partnership Sign and swear to a certificate, which states: (i) The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution; Limited Partnership Sign and swear to a certificate, which states: ( j) 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; Limited Partnership Sign and swear to a certificate, which states: (k) The right, if given, of the partners to admit additional limited partners; Limited Partnership Sign and swear to a certificate, which states: (l) The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority; Limited Partnership Sign and swear to a certificate, which states: (m) The right, if given, of the remaining general partner or partners to continue the business on the death, retirement, civil interdiction, insanity or insolvency of a general partner; and Limited Partnership Sign and swear to a certificate, which states: (n) The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution. Limited Partnership Formal Requirements: 1. Partners must sign and swear to a certificate of limited partnership; and 2. Must be filed with the SEC. Limited Partnership v The contributions of a limited partner may be cash or property, but not services. Limited Partnership v The contributions of a limited partner may be cash or property, but not services. Limited Partnership The surname of a limited partner shall not appear in the partnership name unless: (1) It is also the surname of a general partner. (2) Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared. Limited Partnership vA limited partner whose surname appears in a partnership name contrary to the provisions of the first paragraph is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner. Limited Partnership vA limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business. Limited Partnership Rights of Limited Partners, in general: 1. Right to require that partnership books be kept at the principal place of business. 2. Right to inspect and copy partnership books 3. To demand full and true accounting 4. To demand formal accounting Limited Partnership Rights of Limited Partners, in general: 5. To ask for dissolution and winding up by decree of the court 6. To receive profits or other compensation by way of income 7. To receive the return of his contribution Limited Partnership v If a limited partnership is not successfully created, the partners will be liable as that of a general. v A single indivuidual may be a general partner and a limited partner in the same partnership at the same time. Limited Partnership Allowable Transactions: 1) Granting loan to the partnership 2) Transacting other business with it 3) Receiving pro rate share of partnership assets with general creditors Limited Partnership Prohibited Transactions 1) Receiving or holding as collateral security any partnership property 2) Receiving any payment, conveyance, or release from liability if it will Limited Partnership Preference of a limited partner 1) Return of their contributions 2) Their compensation by way of income 3) Any other matter Limited Partnership Under 2nd paragraph, Art. 1857, limited partner may demand, as a matter of right, the return of his contribution, after compliance with the following conditions: 1) On the dissolution of the partnership Limited Partnership Under 2nd paragraph, Art. 1857, limited partner may demand, as a matter of right, the return of his contribution, after compliance with the following conditions: 2) Upon the arrival of the date specified in the certificate for the return Limited Partnership Under 2nd paragraph, Art. 1857, limited partner may demand, as a matter of right, the return of his contribution, after compliance with the following conditions: 3) After lapse of six month’s notice in writing, if no time of return of contribution or dissolution is fixed in the certificate Limited Partnership A limited partner has the right only to the demand and receive cash for his contribution except: 1) Stipulation to the contrary 2) Consent of all partners, general and limited Limited Partnership Limited partner may petition for a judicial dissolution: 1) Unjustifiable denial to return his contributions a) despite right to return, and b)insufficiency of partnership assets Limited Partnership Liabilities of a Limited Partner: 1) For unpaid contributions 2) As trustee for a) specific property to be contributed as stated in the certificate which was not contributed and which was wrongfully returned b)money or property wrongfully paid or conveyed Limited Partnership Waiver or compromise of liabilities, if: 1) There is consent of all partners, AND 2) Creditors are not prejudice Limited Partnership va limited partner’s interest is assignable and the assignee bacomes the substituted limited partner after the necessary amendments to the certificate is made. Limited Partnership Order of Preference of Payment on Dissolution: (1) Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners; Limited Partnership Order of Preference of Payment on Dissolution: (2) Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions; (3) Those to limited partners in respect to the capital of their contributions; Limited Partnership Order of Preference of Payment on Dissolution: (4) Those to general partners other than for capital and profits; (5) Those to general partners in respect to profits; (6) Those to general partners in respect to capital. Limited Partnership Order of Preference of Payment on Dissolution: (4) Those to general partners other than for capital and profits; (5) Those to general partners in respect to profits; (6) Those to general partners in respect to capital. Batas Pambansa Bilang 22 AN ACT PENALIZING THE MAKING OR DRAWING AND ISSUANCE OF A CHECK WITHOUT SUFFICIENT FUNDS OR CREDIT AND FOR OTHER PURPOSES. - enacted: April 3, 1979. Batas Pambansa Bilang 22 To commit a violation of B.P. Blg. 22,the following elements must be present and proved: (1) the drawing, making and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and Batas Pambansa Bilang 22 To commit a violation of B.P. Blg. 22,the following elements must be present and proved: (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.” Batas Pambansa Bilang 22 In the case of San Mateo, it was ruled that “Section 2 of B.P. 22 creates the presumption that the issuer of the check was aware of the insufficiency of funds when he issued a check and the bank dishonored it. This presumption, however, arises only after it is proved that the issuer had received a written notice of dishonor and that, within five days from receipt thereof, he failed to pay the amount of the check or to make arrangements for its payment.” Erlinda C. San Mateo vs. People of the Philippines, G.R. No. 200090, March 6, 2013 Batas Pambansa Bilang 22 The case of Jaime Alferez vs. People of the Philippines and Pingping Co, G.R. No. 182301, January 31, 2011, is instructive: “The presumption arises when it is proved that the issuer had received this notice, and that within five banking days from its receipt, he failed to pay the amount of the check or to make arrangements for its payment. The full payment of the amount appearing in the check within five banking days from notice of dishonor is a complete defense. Accordingly, procedural due process requires that a notice of dishonor be sent to and received by the petitioner to afford the opportunity to avert prosecution under B.P. Blg. 22.