d. Kinds of Partnerships

Characteristics of Limited Partnership

• Formed by compliance with statutory requirements (Art. 1843)¹
• One or more general partners control the business (Art. 1843)
• One or more general partners and one or more limited partners. (Art. 1843) Limited partners contribute cash or other property, but not services (Art. 1845)² and share in the profits but become liable as general partners if, in addition to exercising their rights and powers as limited partners, they take part in the control of the business (Art. 1848)³ and, otherwise, are not personally liable for partnership obligations beyond their capital contributions
• May ask for the return of their capital contributions under conditions prescribed by law (Art. 1857)
• Partnership assets answer for partnership debts; general partners are liable after partnership assets have been exhausted (Arts. 1843 and 1816)

General Partnership v. Limited Partnership

Requirements for Formation of Limited Partnership

The signed and sworn certificate of limited partnership must state the matters required by Article 1844, including the following and the remaining applicable matters in Article 1844(1)(j)–(n):

• Name of partnership plus the word "Limited"
• Character of business
• Location of principal place of business
• Name/place of residence of members
• Term for partnership is to exist
• Amount of cash/value of property contributed
• Additional contributions
• Time agreed upon to return contribution of limited partner
• Sharing of profits/other compensation (Art. 1844)²⁰

Certificate must be filed with the SEC

• To validly form a limited partnership, all that is required is substantial compliance in good faith with all the requirements under Art. 1844²¹ as enumerated above.
• If no substantial compliance, then the firm becomes a general partnership as far as third persons are concerned (but as amongst the partners, still limited) (Jo Chung Cang v. Pacific Commercial Co.²²)

Amendment of Certificate of Partnership

• Whenever any of the ten changes or circumstances designated in Article 1864, paragraph 2²³, occurs.
• The instrument must be signed and sworn to by all members, including incoming members if any are added; where a substitution occurs, the assigning limited partner must likewise execute the writing.
• The writing effecting cancellation or amendment must be executed and recorded in accordance with Article 1865²⁴.

Note: Any person who suffers damage from relying on an untrue statement in the certificate may hold liable any party to the certificate who was aware of the falsity when signing it, or who learned of the untruth later but with enough time prior to such reliance to cause the certificate to be amended or cancelled, or to petition the court for that purpose under Article 1865²⁵ (Art. 1847²⁶; Walraven v. Ramsay, 55 N.W.d 853²⁷).

The retirement, death, insolvency, insanity, or civil interdiction of a general partner dissolves the partnership, unless the surviving general partners continue the business under an express right reserved in the certificate or with the unanimous consent of all members (Civil Code, Art. 1860)²⁸. Even where such continuation is permitted by the certificate or sanctioned by everyone, an amendment must still be effected under Articles 1864²⁹ and 1865. The certificate must be amended when a general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business continues under Article 1860 (Civil Code, Art. 1864)³⁰.

A limited partner does not become liable as a general partner unless, beyond exercising statutory rights and prerogatives as a limited partner, he participates in the control and management of the partnership business (Art. 1848³¹; Holzman v. Escamilla, 195 P. d. 833³²).

A person may concurrently hold the status of both a general partner and a limited partner, provided this fact is declared in the certificate. Such member retains all the authority, rights, and limitations of a general partner, but with regard to his capital contribution, his standing against other members is that of a limited partner (Art. 1853)³³.

General rule: A limited partner may advance loans to and conduct other transactions with the partnership.

Exceptions: He is prohibited from:

• Taking or holding any partnership asset as collateral security; or
• Receiving from the partnership or from a general partner any payment, conveyance, or discharge if the assets of the firm are inadequate at that time to satisfy obligations to third-party creditors.

Transgressing these prohibitions constitutes a fraud against creditors (Art. 1854)³⁴.

Note: A general partner faced with interference from co-partners may avail of the remedy of dissolution (Weil v. Diversified Properties, 319 F. Supp.)³⁵.

Partnership at will

One in which no fixed term is specified and is not formed for a particular undertaking or venture which may be dissolved by the express will of any partner acting in good faith (Civil Code, Art. 1830(1)(b)).

Partnership with a fixed term

One in which the partners agree to themselves the term of which the partnership is to subsist.

Separate personality – Civil Code, Articles 1768³⁶

Partnership by Estoppel – Civil Code, Article 1825³⁷

Common Types of Partnership

• Universal v. Particular Partnership
• Universal Partnership
• Universal Partnership of All Present Property (Art. 1779)³⁸

Comprises the following:

• Property which belonged to each of the partners at the time of the constitution of the partnership
• Profits which they may acquire from all property contributed
• Universal Partnership of Profits

Comprises all that the partners may acquire by their industry or work during the existence of the partnership (Art. 1780)³⁹.

But persons who are prohibited from giving donations or advantage to each other cannot enter into a universal partnership (Art. 1782)⁴⁰.

• Those made between persons who were guilty of adultery or concubinage at the time of the donation;
• Those made between persons found guilty of the same criminal offense, in consideration thereof; and
• Those made to a public officer or his wife, descendants and ascendants, by reason of his office. (Art. 739)⁴¹
• Particular Partnership (Art. 1783)⁴²

A particular partnership has for its objects:

• Determinate things
• Their use or fruits
• Specific undertaking
• Exercise of profession or vocation
• General v. Limited Partnership
• General Partnership

Consists of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts

• Limited Partnership

One formed by two or more persons 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 as distinguished from joint venture

The observation that a joint venture is for a single transaction while a partnership entails a continuing business is not entirely accurate in Philippine law. A partnership may be universal or particular and a particular partnership has for its object a specific undertaking (Roque v. COMELEC, G.R. No. 188456, 10 February 2010)⁴³.

Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular partnership or one which “has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation. (Realubit v. Jaso, G.R. No. 178782, 21 September 2011)⁴⁴

Particular Partnership

In a joint account, the participating merchants can transact business under their own name, and can be individually liable therefor. A partnership generally relates to a continuing business of various transactions of a certain kind. (Heirs of Kee v. Court of Appeals and Benguet Lumber Company, G.R. No. 126881, 3 October 2000)⁴⁵

Joint Venture

A joint venture is a form of partnership, and thus, to be governed by the laws on partnership. (Marsman Drysdale Land, Inc. v. Philippine Geoanalytics, Inc. and Gotesco Properties, Inc., G.R. No. 183374, 29 June 2010)⁴⁶

Under Section 35(h) of the Revised Corporation Code, a corporation may enter into a partnership, joint venture, or other commercial agreement with natural and juridical persons.⁴⁸ A joint venture agreement between and among corporations may be seen as similar to partnerships since the elements of partnership are present. (Narra Nickel Mining and Development Corp v. Redmont Consolidated Mines Corp, G.R. No. 195580, 28 January 2015)⁴⁷

A verbal agreement to form a joint venture company is valid and binding. The failure to reduce the agreement to writing does not affect its validity or enforceability as there is no law or regulation which provides that an agreement to incorporate must be in writing. (Fong v. Dueñas, G.R. No. 185592, 15 June 2015)⁴⁹

General professional partnership

A general professional partnership exists when two or more persons may also form a partnership for the exercise of a profession (Art. 1767 [2])⁵⁰.

Other Classifications of Partnership

• As to Legality of Existence
• De jure partnership- one which has complied with all the legal requirements for its establishment
• De facto- one which has failed to comply with all the legal requirements for its establishment
• As to purpose
• Commercial or trading partnership - one formed for the transaction of business
• Professional or non-trading partnership- one formed for the exercise of a profession