(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;
(b) As wages of an employee or rent to a landlord:
(c) partner; As an annuity to a widow or representative of a deceased
(d) As interest on a loan though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments
or otherwise.

Art. 1770. A partnership must have a lawful object or purpose

A partnership must have a lawful objet or purpose, and must be established for the common
benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial
decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions
of the Penal Code governing the confiscation of the instruments and effects of a crime.

Lawful object or purpose

A partnership must have a lawful object or purpose consistent with the principle that while the
parties to a contract have the freedom to stipulate on its terms, the same should not be contrary
to law, morals, good customs, public order or public policy. Although a partnership may have
been lawful at the start, it shall be deemed dissolved if "any event makes it unlawful for the
business of the partnership to be carried on, or for the members to carry it on partnership"

Effects of an unlawful partnership

a. If the illegality. of the partnership constitutes a crime
1) The partnership is void. Thus, it has no juridical personality.
2) The partners will be criminally prosecuted.
3) The proceeds of the crime and the instruments or tools with which it was committed
shall be forfeited in favor of the government, unless they be the property of a third
person not liable for the offense, but those articles which are not the subject of lawful
commerce shall be destroyed.
b. If the illegality of the partnership does not constitute a crime or there has been no criminal
prosecution
1) The partnership is void. Thus, it has no juridical personality.
2). The proceeds or profits, but not the contributions of the partners shall be forfeited.

Form of partnership contract

A partnership contract may be entered into in any form, i.e., oral or written since it is a
consensual contract. However, a particular form is required in the following cases:
a. Where immovable property or real rights thereto are contributed (regardless of the
amount thereof)
b. Where the partnership capital is P3,000.00 or more in money or property (without
immovable property)
 c. If the partnership is a limited partnership

Where immovable property or real rights thereto are contributed (regardless of the
amount thereof)
1) The partnership contract must be in a public instrument
2) An inventory or listing of the said property must be made, signed by the parties and attached
to the public instrument.
This second requirement is satisfied if the inventory is incorporated in the public instrument itself
especially in cases where there are only a few of such immovable property contributed.

Failure to comply with the above requirements produces the following effects:
1) The partnership contract is void.
2) The partnership does not acquire juridical personality.

Where the partnership capital is P3,000.00 or more in money or property (without

immovable property)
1) The partnership must be in a public instrument
2) Registered with the Securities and Exchange Commission (SEC)

Failure to comply with the above requirements produces the following effects:
1) The partnership contract is still valid. Accordingly, the partnership still acquires juridical
personality.
2) The liability of the partnership and members thereof to third persons are not affected.

If the partnership is a limited partnership

1) A certificate must be signed and sworn to by the partners
2) Recorded with the SEC.

Failure to comply with the above requirements produces the following effects:
1) The partnership will be considered a general partnership.
2) The partnership still has a juridical personality. This is, of course, subject to the rule
that if an immovable property was contributed, the partnership agreement must be in a public
instrument and an inventory of the immovable property contributed must have been made,
signed by the parties, and attached to the public instrument.

Requirement for registration with the SEC

a. The local government requires such registration for the purpose of the issuance of the
business permit of the partnership. Without such business permit, the partnership will be
considered as operating illegally. Before the filing of the application for business permit,
presentation of such registration is also required for the issuance of the barangay clearance.
Such registration will enable the local governments to assess the taxes, license fees and other
liabilities of the partnership.
b. The Revenue District Office of the Bureau of Internal Revenue (BIR) will operate its business
also requires the presentation of its registration with the SEC so that the partnership can be
issued a BIR Registration Certificate and be authorized to print receipts and invoices. Operating
a business without these documents constitutes a violation of internal revenue laws. Other
government agencies such as the Department of Labor and the Social Security System may
also require such registration to determine compliance with their rules and regulations.
c. Registration of the partnership with the SEC may also be required by third persons who may
want to know whether the partnership really exists

Acquisition of property by a partnership

As a juridical entity, a partnership may acquire in its own name not only immovable property or
interest in such property but property of all kinds, including movable property.

Conveyance of immovable property acquired in partnership name

immovable property or any interest in such property acquired by a partnership in its own name
can be conveyed only in the partnership name. In certain instances, however, the immovable
may not be under the name of the partnership for some purpose, such as for convenience.

When articles are kept secret among the members

If an association or society keeps its articles secret among its members, and each member may
contract in his own name with third persons, it shall have no juridical personality. In such a case,
it shall be governed not by the provisions of partnership, but by those relating to co-ownership.

Suits by or against voluntary association under the provision

a. It cannot sue as such because "(Only natural or juridical persons, or entities authorized
by law may be parties to a civil action."
b. It may be sued as such in its common name to prevent prejudice to third persons. When
two or more persons not organized as an entity with juridical personality enter into a
transaction, they may be sued under the common name by which they are generally or
commonly known.

KINDS OF PARTNERSHIP as to object, as to liability of the partners, as to duration, and

other kinds
a. As to object
1) Universal partnership
a) Universal partnership of all present property
b) Universal partnership of profits (
2) Particular partnership

b. As to liability of the partners

1) General partnership - One where all the partners are general partners who are liable to the
extent of their separate properties
2) Limited partnership - One where there is at least one general partner and at least one limited
partner.
c. As to duration
1) Partnership for a fixed term
2) Partnership for a particular undertaking
3)Partnership at will

d. Other kinds
1) Partnership by estoppel

KINDS OF PARTNERS
a. As to liability
1) General partner - One who is liable for partnership debts to the extent of his separate
property after all the assets of the partnership have been exhausted
2) Limited partner - One who is liable for partnership debts to the extent of his capital
contribution only.
3) General-limited partner - One who has all the rights and powers and is subject to all the
restrictions of a general partner, except that in respect to his contribution, he shall have all the
rights against the other members which he would have had if he were not also a general
partner. Hence, he shall be liable pro rata to partnership creditors to the extent of his separate
property after the partnership assets have been exhausted, but he can demand reimbursement
of the amount he has paid from the general partners.

b. As to contribution
1) Capitalist partner - One who contributes money and/or property to the common fund.
2) Industrial partner - One who contributes his services or industry to the partnership. Such
industry may be physical or intellectual industry.
3) Capitalist-industrial partner - One who contributes not only money and/or property, but also
services to the partnership.

c. Other classifications
1) Managing partner - One who manages the business or affairs of the partnership.
2) Liquidating partner - One who takes charge of the winding up of the affairs of the partnership
after it is dissolved.
3) Nominal partner - One who is not actually a partner but who may become liable as such to
third persons (such as a partner by estoppel.)
4) Ostensible partner - One who is active and known to the public as a partner, such as by
allowing his name to be included in the firm name.
5) Secret partner - One whose connection with the partnership is kept from the public.
6) Silent partner - One who has no voice or active part in the management of the business of
the partnership (though he shares in the profits and losses and may be known to the public as a
partner).
7) Dormant partner - One who does not participate in the management of the business and is
not known to the public as a partner, i.e., he is a secret and silent partner.
Kinds of universal partnership
a. Universal partnership of all present property
 b. Universal partnership of profits

Universal partnership of all present property as a concept

This is a partnership in which all the partners contribute all the properties which actually belong
to them to a common fund, with the intention of dividing the same among themselves, as well as
the profits which they may acquire therewith.

Universal partnership of all present property: Properties which shall belong to the
common fund
1) Properties belonging to the partners at the tine of the constitution of the partnership
(present properties).
2) Profits that may be acquired from the present properties.
3) Properties acquired by each partner after the formation of the partnership but only if
stipulated The property shall include:
a) The property itself, except that the stipulation does not cover properties acquired
by inheritance, legacy or donation.
b) The profits and fruits theretrom, including those from properties acquired by
inheritance, legacy or donation.

Universal partnership of profits as a concept

This comprises all that the partners may acquire by their work or industry during the existence of
the partnership.

Universal partnership of profits: Profits/properties belonging to the common fund

1) Profits acquired by the partners by their work or industry during the existence of the
partnership. (donation or inheritance are excluded)
2) The usufruct (the use) of the properties belonging to each partner at the time of the
constitution of the partnership.
3) The profits and fruits from the properties aforementioned
4) Profits and fruits, if stipulated, of properties acquired by each partner after the constitution of
the partnership.

When there is no specification of nature of universal partnership

When the articles of a universal partnership do not specify its nature, such universal partnership
only constitutes a universal partnership of profits.

Reason for the rule of Art. 1781. “Articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership of profits.”
A universal partnership is in effect a donation; hence, if the articles do not indicate its nature,
whether it is a univèrsal partnership of all present property of of profits, it shall be , considered
as the latter because it transmits less rights and privileges as only the use and fruits of the
partner's properties are contributed.
Persons who are prohibited from giving each other any donation or advantage cannot
enter into a universal partnership. The following donations are void:
a. Donations between spouses during the marriage, except moderate gifts given on the
occasion of a family rejoicing, The prohibition applies to persons living together as husband and
wife without the benefit of marriage; otherwise, they will be in a better position than those who
are legally married.
b. Those made between persons who were guilty of adultery or concubinage at the time of the
donation.
c. Those made between two persons found guilty of the same criminal offense, in consideration
thereof.
d. Those made to a public officer or his wife, descendants or ascendants, by reason of his
office.
(REASON: they may make it appear that they entered into a universal partnership to hide their
actual intention of donating properties or rights to each other.)

Particular partnership as a concept

A particular partnership is one whose object or purpose is specifically defined, as distinguished
from a universal partnership which covers a very broad or unlimited scope of activities.

Object of a particular partnership

a. Determinate things,
b The use or fruits of determinate things
c. Specific undertaking, as for example a partnership is formed for the construction of 5
residential apartments.
d. Exercise of a profession, as for example, à law firm or an auditing firm.