RIGHTS OF A PARTNER

1. Property rights of a partner (Art. 1810)

a. His rights in specific partnership property;
b. His interest in the partnership; and
c. His right to participate in the management
 RIGHTS OF A PARTNER

The partner’s right in specific partnership property are as

follows: (Art. 1811)
1. Equal right to possess the specific partnership
property.

2. Partner’s right is not assignable without the consent

of his co-partners

A, B and C formed a partnership. The partnership owns a car.

Later, C assigns his rights on the car to X. Valid or not? No,
except when other partners consent.
 RIGHTS OF A PARTNER

3. Not subject to attachment or execution, except by

creditors of the partnership.
A, B and C are partners in a partnership. A is
indebted to X for P10,000. If A cannot pay in due time,
can A attach the specific car of the partnership?
Answer: No. His right in specific partnership
property is not subject to attachment .
 RIGHTS OF A PARTNER

4. Partner’s right not subject to legal support.

A, B and C formed a partnership. The partnership
owns a car. C has children to support. Can C use the
partnership car to support his children?
Answer: No. His right in specific partnership
property is not subject to legal support .
 RIGHTS OF A PARTNER

The partner’s interest in the partnership is his share in the

profits and surplus. (Art. 1812)
 is subject to attachment by creditors
 is Assignable, but-
o Assignee does not become a partner
o Partnership is not dissolved.
o Assignee cannot participate in the management
o Assignee cannot inspect the books of the
partnership except in cases of fraud.
o Assignee has the right to receive the profits
pertaining the assigning partner upon dissolution.
 Rules in the sharing of profits and losses:

Rules in the sharing of profits and losses:

1. Profit-
a. According to stipulation
b. If no stipulation, according to capital contribution
2. Losses-
a. According to stipulation
b. If no stipulation, according to profit sharing
c. If no stipulation and no profit-sharing, according
to capital contribution.
 Rules in the sharing of profits and losses:
Notes:

1. An industrial partner shall receive just and equitable share.

2. Profit and loss sharing can be entrusted to a third person but not to one of the partners.

3. The decision of the third person in the profit and loss sharing can be impugned or
cancelled if it is manifestly inequitable. But even if inequitable, the same cannot be
cancelled if:

a. The aggrieved partner has already begun to execute the decision;

b. He did not cancel the designation within 3 months from the time he had knowledge
thereof.

4. An industrial partner is exempted from losses by provision of law. However, it is

permissible to stipulate that even the industrial partner shall be liable for losses.
 RIGHTS OF A PARTNER

2. To associate another person with him in his share.

The share referred to is the partner’s share of the profits. The

associate shall not be admitted into the partnership without the consent of
all the partners, even if the partner having an associate should be a
manager. (Art. 1804)
 RIGHTS OF A PARTNER

3. To have access to and inspect and copy the partnership books at

reasonable hours. (Art.1805)

4. To demand a formal account of partnership affairs. (Art. 1809):

a. If he is wrongfully excluded from the partnership business or
possession of its property by his co–partners.

b. If the right exists under the terms of any agreement.

5. To ask dissolution of the firm at the proper time.

 RIGHTS OF A PARTNER

MANAGEMENT OF THE PARTNERSHIP

Who shall manage the partnership?
The management of the partnership may be vested by agreement in one,
or some, or all of the partners, or even in a third person, either in the
articles of partnership or after the partnership had already been
constituted. If there is no agreement, it is vested in all of the partners.

Rules to be observed when the manner of management has not been

agreed upon:
1. Every partner is considered an agent of the partnership.
2. Act of one if opposed by others, majority should prevail.
3. Acting partner must act in the name of the partnership.
4. Alteration on immovable property even if useful to the
partnership must be with the consent of all partners.
 DISSOLUTION OF THE PARTNERSHIP

What is dissolution, winding up and termination?

Dissolution - is the change in the relation of the partners caused by any
partner ceasing to be associated in carrying out of the business. (Art. 1828)

Winding up – is the process of settling business affairs after dissolution.

(Art. 1829)

Termination – is the point in time after all the partnership affairs have been
wound up.
 DISSOLUTION OF THE PARTNERSHIP

Causes of dissolution
1. Without violation of the agreement of the partners:
a. By the termination of the definite term or particular undertaking
specified in the agreement.
1. Of any partner who must act in good faith, when no definite term
or particular undertaking is specified;
2. Of all the partners who have not assigned their interest or
suffered them to be charged for their separate debts, either before or
after the termination of any specified term or undertaking.

b. By express will

c. By the expulsion in good faith of any partner from the business.

 DISSOLUTION OF THE PARTNERSHIP

2. In contravention of the agreement between the partners, by the

express will of any partner at anytime.

3. Dissolution by court decree when applied by a partner or for a partner:

a. A partner has been declared insanity in any judicial proceeding or is
shown to be of unsound mind.
b. A partner becomes in any other way incapable of performing his
part of the partnership contract;
c. A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business.
d. A partner willfully or persistently commits breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that is not reasonably practicable to carry on the
business in partnership with him.
e. The business of the partnership can only be carried on at a loss
 DISSOLUTION OF THE PARTNERSHIP

4. On the application of a purchaser of a partner’s interest:

a. At the termination of the specific term or particular undertaking.
b. At any time if the partnership was a partnership at will when the
interest was assigned or when the charging order was issued. (Art. 1831)

A Charging Order is an order of the court charging the interest of a

partner in the partnership consisting of his share of the surplus and
profits for the payment of a debt due his judgment creditor.

5. Death, retirement, insolvency, civil interdiction, insanity (DRICI) of any

of the general partners.
 DISSOLUTION OF THE PARTNERSHIP

Effects of Dissolution

1. The partnership is not terminated, but continues until the winding-up of

the partnership affairs is completed.

2. The authority of a partner to bind the partnership is terminated, except

those necessary to wind up the partnership affairs.

3. When an unlawful partnership is dissolved by a judicial decree, the

profits shall be confiscated in favor of the state.
 DISSOLUTION OF THE PARTNERSHIP
Does the act of a partner after the dissolution bind the partnership?
1. If the cause of dissolution of the partnership is due to the ACT, INSOLVENCY or
DEATH of a partner (AID) the act of a partner does not bind the partnership EXCEPT
if he has no prior knowledge of the dissolution when he consummated his act.

2. If the cause of the dissolution is other than AID of a partner, the act of a partner is
not binding to the partnership EXCEPT:
a. When the act is necessary for winding up purpose; and
b. When the act is to complete unfinished business of the partnership.

3. The partnership is also bound by the act of a partner if the transaction entered
into would normally bind the partnership if dissolution had not taken place, provided
the third party had extended credit to the partnership prior to the dissolution:
a. If the cause of the dissolution was not published in a newspaper of general
circulation; and
b. The third party had no prior knowledge or notice of the cause of dissolution.
 DISSOLUTION OF THE PARTNERSHIP

A, B and C are partners. A died causing dissolution. D, a

regular creditor of the partnership extended credit to the
partnership thru B. Assuming D had no knowledge of A’s death,
will the credit bind the partnership?

Answer: Yes, provided that D had no knowledge or notice of

the death, and such death was not published in a newspaper of
general circulation.
 DISSOLUTION OF THE PARTNERSHIP

Who can wind-up partnership affairs?

1. The person agreed by the partners.

2. Partner who has not wrongfully dissolved the

partnership.

3. Representative of the last surviving partner not

insolvent
 DISSOLUTION OF THE PARTNERSHIP

Order of Preference in the payment of partnership

liabilities:

1. Outside creditors

2. Partners aside from capital and profits

3. Partners with respect to their capital

4. Partners with respect to their profits

 WINDING UP OF THE PARTNERSHIP

A, B and C formed Y Partnership contributing the following:

A, P30,000; B, P20,000; and C, P10,000. The partnership is
indebted to the following:
X P60,000
Y P30,000
C P20,000 (partner in Y partnership)

Liquidate the partnership observing the order of preference,

step by step. Gross capital upon dissolution is P290,000.
 WINDING UP OF THE PARTNERSHIP
 Gross capital P290,000
 No. 1 – Outside creditors:
X P60,000
W P30,000 90,000
Balance P200,000
No. 2 – Inside creditors
C 20,000
Balance P180,000
No. 3 - Return of capital contribution
A P30,000
B P20,000
C P10,000 60,000
Balance P120,000
No. 4 – Partner’s profit
A -50% P60,000
B -33.33% P40,000
C - 16.67% P20,000 P120,000
 WINDING UP OF THE PARTNERSHIP

If the partner is insolvent, how will his individual

property be distributed?

1. First, give to the individual or separate creditors

2. Then to the partnership creditors

3. Then, to those owing to the other partners by

way of contribution.
 LIMITED PARTNERSHIP

What is a limited partnership?

It is one formed by two or more persons
having as members one or more general
partners and one or more limited partners.

The firm name must include the word Limited

or “Ltd.” otherwise the partnership is
considered a general partnership
 LIMITED PARTNERSHIP

General Partnership vs. Limited Partnership

1. GP - composed only of general partners.
LP - composed of at least one general partner and one limited
partner.

2. GP -maybe constituted in any form.

LP -must be contained in a certificate of limited partnership and
recorded in the Securities and Exchange Commission.

3. GP -must operate under a firm name which may or may not

include the name of one or more partners.
LP -must also operate under a firm name, followed by the word
“Limited”. Otherwise, it shall be considered as a general partnership.
 LIMITED PARTNERSHIP
Distinction between a General Partner and a Limited Partner
1. GP -can be held personally liable for partnership obligations after all of the
assets of the partnership have been exhausted.
LP -cannot be held liable.

2. GP -may participate in the management of the partnership.

LP -may not participate in the management of the partnership.

3. GP -may contribute money, property or industry to the common fund.

LP -may contribute money, or other property only.

4. GP -the name of a general partner may appear in the firm name.

LP -the name of a limited partner may not appear in the firm name.

5. GP -there is a limitation on the right of a GP to engage in other business or in

the same kind of business as that in which the partnership is engaged.
LP -there is no such limitation in the case of LP.
 LIMITED PARTNERSHIP
 Characteristics of a Limited Partnership
 1. It must be organized in accordance with the requirements if law.

2. There must be one or more general partners

3. There must be one or more limited partners contributing capital and

sharing in the profits.

4. Limited partners do not participate in the control of the business.

5. Limited partners are not bound by the obligation of the partnership.

6. Partnership debts shall be paid out of the common fund and the
separate properties of the general partners.
 LIMITED PARTNERSHIP
Facts About Limited Partner:
1. He can only contribute cash or property, never industry. Otherwise he shall be
considered an industrial or general partner in a limited partnership.

2. He is also liable as a general partner:

a. If he takes part in the control and management of the business
b. If his surname appears in the partnership name, unless
1. It is also the surname of a general partner.
2. His surname appears already in the name of the partnership prior to the
time he became a limited partner.

3. He can transact business with the partnership, and unless he is a general and
limited partner at the same time, he enjoys the same preference as an outside
creditor (if partnership is solvent; if not, outside creditors are always preferred.)
 LIMITED PARTNERSHIP

4. He can also be a general partner at the same time if stated in the articles of
partnership. He shall have rights, powers and restrictions of a general partner.

5. Marriage between partners

a. In a universal partnership - the partnership is dissolved.
b. In a particular partnership - the partnership subsists
c. General partner and limited partner - the partnership subsists

6. As a rule, his death will not dissolve the partnership except when there is
only one limited partner.

7. After the formation of a limited partnership, additional limited partners may

be admitted upon filing an amendment to the original certificate.
 LIMITED PARTNERSHIP

A, B, C and D are partners. A and B are general partners,

while C and D are limited partners. A dies. Is the
partnership dissolved?

Answer: Yes, unless it is continued by B the remaining

general partner if:

a. The right to do so is stated in the certificate, or

b. With the consent of all the other members.

 LIMITED PARTNERSHIP

Substituted Limited Partner

A person admitted to all the rights of a

limited partner who has died or has
assigned his interest in a partnership.
 LIMITED PARTNERSHIP

Causes of Dissolution of a limited partnership

1. Death of a general partner

2. Retirement of a general partner

3. Insolvency of a general partner

4. Insanity of a general partner

5. Civil interdiction of a general partner

 LIMITED PARTNERSHIP

Illustration:
A, B and C formed a limited partnership. A and B are general partners while
C is a limited partner. Each of them contributed P25,000. Upon dissolution,
the gross capital is P300,000 while the liabilities are as follows:
X P60,000
W P30,000
C (limited partner) P20,000
A (general partner) P10,000
Total 120,000

Prepare a step by step liquidation of the partnership assuming that the

profit and loss distribution of the partners is 50:25:25
 LIMITED PARTNERSHIP
Step 1: Pay outside creditors (including limited partner)
 Available for distribution P300,000
 Less: Payment of liabilities
X 60,000
W 30,000
C 20,000 110,000
Balance for distribution 190,000
Step 2: Payment of limited partner’s share in the profit
C 40,000
Balance 150,000
Step 3: Capital of limited partner 20,000
Balance 130,000
Step 4: General partners aside from profit and capital
A 10,000
Balance 120,000
Step 5: Profit of general partners
A P40,000
B 40,000 80,000
Balance 40,000
Step 6: C Capital of general partners:
A P 20,000
B 20,000 40,000
Note: C is included in Step No. 1 enumeration because if the partnership is solvent, a limited partner enjoys the same
preference as an outside creditor.