Law on Business Organizations Reviewer

PARTNERSHIP failure to comply with the requirements of

Article 1772, first paragraph.
Art. 1767. By the contract of partnership
two or more persons bind themselves to Partnership, a juridical person
contribute money, property, or industry to As an independent juridical person, a
a common fund with the intention of partnership may enter into contracts,
dividing the profits among themselves. acquire and possess property of all kinds in
its name, as well as incur obligations and
Definition bring civil or criminal actions. Thus, a
Partnership is a contract whereby two or partnership may be declared insolvent even
more persons bind themselves to if the partners are not. It may enter into
contribute money, property or industry to a contracts and may sue and be sued in its
common fund with the intention of dividing firm name or by its duly authorized
profits among themselves. representative. It is sufficient that service
of summons be served on any partner.
Elements
1. Intention to form a contract of Partners cannot be held liable for the
partnership obligations of the partnership unless it is
2. Participation in both profits and losses shown that the legal fiction of a different
3. Community of interests juridical personality is being used for a
fraudulent, unfair or illegal purpose.
Basic Features
1. Voluntary agreement Effect of failure to comply with statutory
2. Association for profit requirements
3. Mutual contribution to a common fund Under Art 1772
4. Lawful purpose or object Partnership still acquires personality despite
5. Mutual agency of partners failure to comply with the requirements of
6. Articles must not be kept secret execution of public instrument and
7. Separate juridical personality registration of name in SEC.

Characteristics Under Arts 1773 and 1775

1. Consensual – perfected by mere Partnership with immovable property
consent. contributed, if without requisite inventory,
2. Bilateral – formed by two or more signed and attached to public instrument,
persons creating reciprocal rights and shall not acquire any juridical personality
obligations. because the contract itself is void. This is
3. Preparatory - entered into as a means also true for secret associations or societies.
to an end.
4. Nominate – has a special name or To organize a partnership not an absolute
designation. right
5. Onerous – contributions in the form of It is but a privilege which may be enjoyed
either money, property and/or industry only under such terms as the State may
must be made. deem necessary to impose.
6. Commutative – the undertaking of each
partner is considered as the equivalent Art. 1769. In determining whether a
of that of the others. partnership exists, these rules shall apply:
7. Principal – its existence or validity does
not depend on some other contract. 1. Except as provided by Article 1825,
persons who are not partners as to
Principle of Delectus Personae (choice of each other are not partners as to third
persons) – a person has the right to select persons.
persons with whom he wants to be
associated with in partnership. 2. Co-ownership or co-possession does
not of itself establish a partnership,
Art. 1768. The partnership has a juridical whether such co-ownership or co-
personality separate and distinct from that possessors do or do not share any
of each of the partners even in case of profits made by the use of the property.

1
3. The sharing of gross returns does not partnership, they become subject to
of itself establish a partnership, liabilities of partners (doctrine of
whether or not the persons sharing estoppel).Whether or not the parties call
them have a joint or common right or their relationship or believe it to be a
interest in any property from which the partnership is immaterial. Thus, with the
returns are derived. exception of partnership by estoppel, a
partnership cannot exist as to third persons
4. The receipt by a person of a share of if no contract of partnership has been
the profits of a business is prima entered into between the parties
facie evidence that he is a partner in the themselves.
business, but no such inference shall be
drawn if such profits were received in Co-ownership or co-possession
payment: There is co-ownership whenever the
ownership of an undivided thing or right
a. As a debt by installments or belongs to different persons.
otherwise.
Clear intent to derive profits from
b. As wages of an employee or rent to operation of business
a landlord. Co-ownership does not of itself establish
the existence of a partnership, although it is
c. As an annuity to a widow or one of its essential elements. This is true
representative of a deceased even if profits are derived from the joint
partner. ownership. The profits must be derived
from the operation of business by
d. As interest on a loan, though the the members of the association and
amount of payment vary with the not merely from property ownership. The
profits of the business. law does not imply a partnership between
co-owners because of the fact that they
e. As the consideration for the sale of develop or operate a common property,
a goodwill of a business or other since they may rightfully do this by virtue of
property by installments or their respective titles. There must be a clear
otherwise. intent to form a partnership.

In general, to establish the existence of a Existence of fiduciary relationship

partnership, all of its essential features or
characteristics must be shown as being Partners have a well-defined fiduciary
present. In case of doubt, art.1769 shall relationship between them. Co-owners do
apply. This article seeks to exclude from the not. Should there be dispute; the remedy of
category of partnership certain partners is an action for dissolution,
features enumerated herein which, by termination and accounting. For co-owners
themselves, are not indicative of the it would be one, for instance, for non-
existence of a partnership. performance of contract. People can
become co-owners without a contract but
Persons not partners as to each other they cannot become partners without one.
Persons who are partners as between
themselves are partners as to third persons. Persons living together without benefit
Generally, the converse is true: if they are of marriage
not partners between themselves, they Property acquired governed by rules on co-
cannot be partners as to third persons. ownership.
Partnership is a matter of intention, each
partner giving his consent to become Sharing of gross returns not even
a partner. However, whether a partnership presumptive evidence of partnership
exists between the parties is a factual The mere sharing of gross returns alone
matter. Where parties declare they are not does not even constitute prima facie
partners, this, as a rule, settles the question evidence of partnership, since in a
between them. But where a person
partnership, the partners share profits after
misleads third persons into believing that
they are partners in a non-existent satisfying all of the partnership’s liabilities.
Reason for the rule asserting its termination. One who alleges
Partner interested in both failures and partnership cannot prove it merely by
successes; it is the chance of loss or gain evidence of an agreement using the term
that characterizes a business. Where “partner”. Non-use of the term, however,
the contract requires a given portion of is entitled to weight. The question of
gross returns to be paid over, the portion is whether a partnership exists is not always
paid over as commission, wages, rent, etc. dependent upon the personal arrangement
or understanding of the parties. Parties
Where there is evidence of mutual intending to do a thing which in law
management constitutes partnership are partners.
Where there is further evidence of mutual
management and control, partnership may Legal intention is the crux of partnership.
result. Parties may call themselves partners but
their contract may be adjudged something
Receipt of share in the profits strong quite different. Conversely, parties may
presumptive evidence of partnership expressly state that theirs in not a
An agreement to share both profits partnership yet the law may determine
and losses tends strongly to establish the otherwise on the basis of legal intent.
existence of a partnership. It is not However, courts will be influenced to some
conclusive, however, just prima facie and extent by what the parties call their
may be rebutted by other circumstances. contract.

When no such inference will be drawn Tests and incidents of partnership

Under par. 4 of art. 1769, sharing of profits In determining whether a partnership
is not prima facie evidence of partnership in exists, it is important to distinguish
the cases enumerated under subsections (a) between tests or indicia and incidents of
– (e). In these cases, the profits are not partnership. Only those terms of a contract
shared as partner but in some other upon which the parties have reached an
respects or purpose. The basic test actual understanding, either expressly or
of partnership is whether the business is impliedly, may afford a test by which to
carried on in behalf of the person sought to ascertain the legal nature of the contract.
be held liable. Some of the typical incidents of a
partnership are:
Sharing of profits as owner 1. The partners share in profits and losses.
It is not merely the sharing of profits, but 2. They have equal rights in the mgt and
the sharing of them as co-owner of the conduct of the partnership business.
business or undertaking that makes one 3. Every partner is an agent of the
partner. Test: Does the recipient have an partnership, and entitled to bind the
equal voice as proprietor in the conduct and others by his acts. He may also be liable
control of the business? Does he own a for the entire partnership obligations.
share of the profits as proprietor of the 4. All partners are personally liable for
business producing them? One must have the debts of the partnership with their
an interest with another in the profits of a separate property except that limited
business as profits. partners are not bound beyond the
amount of their investment.
Burden of proof and presumption 5. A fiduciary relation exists between
The burden of proving the existence of a the partners.
partnership rests on the party having the 6. On dissolution, the partnership is not
affirmative of that issue. The existence of terminated, but continues until the
a partnership must be proved and will not winding up of partnership is completed.
be presumed. The law presumes that those Such incidents may be modified by
acting as partners have entered into a stipulation of the partners.
contract of partnership. Where the law
presumes the existence of partnership, the Similarities between a partnership and a
burden of proof is on the party denying its corporation
existence. When a partnership is shown to 1. Both have juridical personality separate
exist, the presumption is that it continues and distinct from that of the individuals
and the burden of proof is on the person composing it;
2. Both can only act through its agents; Right to return of contribution where
3. Both are organizations composed of an partnership is unlawful
aggregate of individuals; Partners must be reimbursed the amount of
4. Both distribute profits to those who their respective contributions. The partner
contribute capital to the business; who limits himself to demanding only the
5. Both can only be organized where there amount contributed by him need not resort
is a law authorizing is organization; to the partnership contract on which to
6. Partnerships are taxable base his claim or action. Since the purpose
as corporations. for which the contribution was made has
not come into existence, the manager or
Art. 1770. A partnership must have a lawful administrator must return it, and he who
object or purpose, and must be established has paid his share is entitled to recover it.
for the common benefit or interest of the
partners. When an unlawful partnership is Right to receive profits where partnership
dissolved by a judicial decree, the profits is unlawful
Law does not permit action for obtaining
shall be confiscated in favor of the
earnings from an unlawful partnership
State, without prejudice to the provisions because for that purpose, the partner will
of the Penal Code governing the have to base his action upon the
confiscation of the instruments and effects partnership contract, which is null and
of a crime. Object or purpose of partnership without legal existence by reason of its
unlawful object; and it is self-evident that
The provision of the 1st paragraph what does not exist cannot be a cause
reiterates 2 essential elements of a of action. Profits earned do not constitute
contract of partnership: or represent the partner’s contribution. He
1. Legality of the object; and must base his claim on the contract which is
2. Community of benefit or interest of the void. It would be immoral and unjust for the
partners. The parties possess absolute law to permit a profit from an industry
freedom to choose the transaction or prohibited by it. T he courts will refuse to
transactions they must engage in. The recognize its existence, and will not lend
only limitation is that the object must their aid to assist either of the parties
be lawful and for the common benefit thereto in an action against each other.
of the members. The illegality of the Therefore, there cannot be no accounting
object will not be presumed; it must demanded of a partner for the profits which
appear to be of the essence of the may be in his hands, nor can recovery be
relationship. had.

Effects of an unlawful partnership Effect of partial illegality of partnership

1. The contract is void and the partnership business
never existed in the eyes of the law; Where a part of the business is legal and
2. The profits shall be confiscated in favor part illegal, a n account of that which is
of the government; legal may be had. Where, w/o the
3. The instruments or tools and proceeds knowledge or participation of the partners,
of the crime shall also be forfeited in the firm’s profits in a lawful business has
favor of the government; been increased by wrongful acts, the
4. The contributions of the partners shall innocent partners are not precluded as
not be confiscated unless they fall against the guilty partners from recovering
under #3. their share of the profits.

A partnership is dissolved by operation of Effect of subsequent illegality of

law upon the happening of an event which partnership business
makes it unlawful. A judicial decree is Contract will not be nullified. Where the
not necessary to dissolve an unlawful business for which the partnership is
partnership. However, advisable that formed is legal when the partnership is
judicial decree be secured. 3 rd persons who entered into, but afterward becomes illegal,
deal w/ partnership w/o knowledge of an accounting may be had as to the
illegal purpose are protected. business transacted prior to such time.
Community of interest between the is in writing or at least evidenced by some
partners for business purposes note or memorandum.
The salient features of an ordinary
partnership are a community of interest in Partnership implied from conduct
profits and losses, a community of interest Binding effect
in the capital employed, and a community Existence of partnership may be implied
of power in administration. This community from the acts or conduct of the parties, as
of interest is the basis of the partnership well as from other declarations, and such
relation. However, although every implied contract would be as binding as a
partnership is founded on a community of written and express contract.
interest, e very community of interest does
not necessarily constitute a partnership. Ascertainment of intention of parties
Property used in the business may belong In determining whether a particular
to one or more partners, so that there is no transaction constitutes a partnership, as
joint property, other than joint earnings. between the parties, the intention as
To state that partners are co-owners of a disclosed by the entire transaction, and
business is to state that they have the as gathered from the facts and from the
power if ultimate control. But partners may language employed by the parties as well
agree upon concentration of management, as their conduct, should be ascertained.
leaving some of their members entirely
inactive or dormant. Only one of these Conflict between intention and terms
features, profit-sharing, seems to be of contract
absolutely essential. But a mere sharing of If the parties intend a general partnership,
profits of itself does not of necessity they are general partners although their
constitute a partnership. The court must purpose is to avoid the creation of such a
consider all the essential elements in light relation.
of the facts of the particular case before
deciding whether a partnership exists. Art. 1772. Every contract of partnership
having a capital of three thousand pesos or
Art. 1771. A partnership may be constituted more, in money or property, shall appear in
in any form, except where immovable a public instrument, which must be
property or real rights are contributed recorded in the Office of the Securities and
thereto, in which case a public instrument Exchange Commission. Failure to comply
shall be necessary .Form of partnership with the requirements of the preceding
contract paragraph shall not affect the liability of the
partnership and the members thereof to
General rule third persons. Registration of partnership
No special form required for validity or
existence of the contract of partnership. Partnership with capital of P3, 000 or more
Contract maybe made orally or in writing Requirements:
regardless of the value of the contributions. 1. The contract must appear in a public
instrument;
Where immovable property or real rights 2. It must be recorded or registered w/
are contributed the SEC. However, failure to comply w/
Execution of public instrument necessary the above requirements does not
for validity of contract of partnership. To prevent the formation of the
affect 3rd persons, the transfer of real partnership or affect its liability and
property to the partnership must be duly that of the partners to 3rd persons. But
registered in the Registry of Property. any partner is granted the right bylaw
to compel each other to execute the
When partnership agreement covered by contract in a public instrument.
the Statute of Frauds
An agreement to enter in a partnership at a Purpose of registration
future time, which by its terms is not to be Registration is necessary as a condition for
performed w/in a year from the making the issuance of licenses to engage in
thereof is covered by the Statute of Frauds. business and trade. In this way, the tax
Such agreement is unenforceable unless it liabilities of big partnerships cannot be
evaded and the public can determine more
accurately their membership and capital inventory of immovable property
before dealing with them. contributed because w/o its description and
designation, the instrument cannot be
When partnership considered registered subject to inscription in the Registry
The objective of the law is to make the of Property, and the contribution cannot
recorded instrument open to all and to give prejudice 3rd persons.
notice thereof to interested parties. This
objective is achieved from the date the Art. 1774. Any immovable property or an
partnership papers are presented to and interest therein may be acquired in the
left for record in the Commission. This is the
partnership name. Title so acquired can be
effective date of registration. If the
certificate of recording is issued on a conveyed only in the partnership name.
subsequent date, its effectively retroacts to Acquisition or conveyance of property by
date of presentation. partnership

Art. 1773. A contract of partnership is void, Since partnership has juridical personality of
whenever immovable property is its own, it may acquire immovable property
contributed thereto, if an inventory of said in its own name. Title so acquired can
property is not made, signed by the parties, be conveyed only in the partnership name.
and attached to the public instrument.
Partnership with contribution of immovable Art. 1775. Associations and societies, whose
property articles are kept secret among the
members, and wherein any one of the
Where immovable property contributed, members may contract in his own name
failure to comply w/ the following with third persons, shall have no juridical
requisites will render the partnership personality, and shall be governed by the
contract void: provisions relating to co-ownership. Secret
1. The contract must be in a public partnerships without juridical personality
instrument;
2. An inventory of the property Partnership relation is created only by the
contributed must be made, signed by voluntary agreement of the partners. It is
the parties, and attached to the public essential that the partners are fully
instrument. Art. 1773 is intended informed not only of the agreement but of
primarily to protect 3rd persons. W/ all matters affecting the partnership. Secret
regard to 3rdpersons, a de facto partnerships are not by nature
partnership or partnership by estoppel partnerships. Secret partnerships shall be
may exist. There is nothing to prevent governed by the provisions relating to co-
the court from considering the ownership.
partnership agreement an ordinary
contract from which the parties’ rights Importance of giving publicity to articles
and obligations to each other may be of partnership
inferred and enforced. It is essential that the arts of partnership be
given publicity for the protection not only of
When inventory is not required the members themselves but also 3rd
An inventory is required only whenever persons from fraud and deceit. A member
immovable property is contributed. If not who transacts business for the secret
contributed or if personal property, no partnership in his own name becomes
inventory required. personally bound to 3rd persons unaware of
the existence of such association.
Importance of making inventory of real Partnership liability may still
property in a p a r t n e r s h i p result, however, in cases of estoppel.
An inventory is very important in
a partnership to how much is due from each Art. 1776. As to its object, a partnership is
partner to complete his share in the either universal or particular. As regards the
common fund and how much is due to each liability of the partners, a partnership may
of them in case of liquidation. The be general or limited. Classifications of
execution of a public instrument of partnership
partnership would be useless if there is no
As to extent of its subject matter not avowed or made known to the public by
1. Universal partnership. (Art. 1777) any of the partners.
a. Universal partnership of all present Open or notorious partnership: one whose
property. (Art. 1778) existence is avowed or made known to the
b. Universal partnership of profits. public by the members of the firm.
(Art. 1780)
2. Particular partnership. (Art. 1783) As to purpose
Commercial or trading partnership: one
As to liability of the partners formed or the transaction of business.
General partnership: one consisting of
general partners who are liable pro rata and Professional or non-trading partnership:
subsidiary and sometimes solidarily w/ their one formed for the exercise of a profession.
separate property for partnership debts.
Kinds of partners
Limited partnership: one formed by two or Under the Civil Code
more persons having as members one or 1. Capitalist partner: one who contributes
more general partners and one or more money or property to the common
limited partners, the latter not being fund.
personally liable for the obligations of the 2. Industrial partner: one who contributes
partnership. only his industry or personal service.
3. General partner: one whose liability to
As to duration 3rd persons extends to his separate
Partnership at will: one in w/c no time is property.
specified and is not formed for a particular 4. Limited partner: one whose liability to
undertaking or venture and w/c may be 3rd persons is limited to his capital
terminated at any time by mutual contribution.
agreement of the partners, or by the will of 5. Managing partner: one who manages
any one partner alone; or one for a fixed the entity.
term or particular undertaking w/c is 6. Liquidating partner: one who takes
continued after the end of the term or charge of the winding up of partnership
undertaking w/o express agreement. affairs upon dissolution.
Partnership with a fixed term: one w/c the 7. Partner by estoppel: one who is not
term for w/c the partnership is to exist is really a partner but is liable as a partner
fixed or agreed upon or one formed for for the protection of innocent 3rd
a particular undertaking. persons. He is one represented as being
a partner but who is not so between
As to the legality of its existence the partners themselves.
De jure partnership: one w/c has complied 8. Continuing partner: one who continues
w/ all the legal requirements for the business of a partnership after it
its establishment. has been dissolved by reason of the
De facto partnership: one w/c has failed to admission of a new partner, or the
comply w/ all the legal requirements for its retirement, death or expulsion of one
establishment. or more partners.
9. Surviving partner: one who remains
As to representation to others after a partnership has been dissolved
Ordinary or real partnership: one w/c by the death of any partner.
actually exists among the partners and also 10. Subpartner: one who, not being
as to 3rd persons. a member of the partnership, contracts
Ostensible partnership or partnership or w/ a partner w/reference to the latter’s
partnership by estoppel: one w/c in reality share in the partnership.
is not a partnership, but is considered a
partnership only in relation to those who, Other classifications
by their conduct or admission, are 1. Ostensible partner: one who takes
precluded to deny or disprove its existence. active part and known to the public as a
partner.
As to publicity 2. Secret partner: one who takes active
Secret partnership: one wherein the part in the business but is not known to
existence of certain persons as partners is be a partner by outside parties nor held
 out as a partner by the other partners. Property w/c belonged to each of them at
He is an actual partner. the time of the constitution of the
3. Silent partner: one who does not take partnership;
any active part in the business although Profits w/c they may acquire from the
he may be known to be a partner. property contributed.
4. Dormant partner: one who does not
take active part in the business and is Contribution of future property
not known or held out as a partner. He General rule: future properties cannot be
would be both a silent and a secret contributed. The very essence of the
partner. contract of partnership that the properties
5. Original partner: one who is a member contributed be included in the partnership
of the partnership from the time of its requires the contribution of things
organization. determinate. The position of a partner is
6. Incoming partner: a person lately, or like that of a donor, and donations
about to be, taken into an existing cannot comprehend future property. Thus,
partnership as a member. property subsequently acquired by
7. Retiring partner: one withdrawn from 1.inheritance; 2. Legacy; or 3. Donation
the partnership; a withdrawing partner. cannot be included by stipulation except
Art. 1777. A universal partnership may the fruits thereof. Hence, any stipulation
refer to all the present property or to including property so acquired is void.
all the profits. Profits from other sources (not from
properties contributed) will become
Art. 1778. A partnership of all present common property only is there’s a
property is that in which the partners stipulation.
contribute all the property which actually
belongs to them to a common fund, with Art. 1780. A universal partnership of profits
the intention of dividing the same among comprises all that the partners may acquire
themselves, as well as all the profits they by their industry or work during
may acquire therewith. the existence of the partnership. Movable
or immovable property which each of the
Art. 1779. In a universal partnership of all partners may possess at the time of the
present property, the property which celebration of the contract shall continue to
belongs to each of the partners at the time pertain exclusively to each, only the
of the constitution of the partnership usufruct passing to the partnership.
becomes the common property of all the
partners, as well as all the profits which Universal partnership of profits explained
they may acquire there with. A stipulation A universal partnership of profits is one w/c
for the common enjoyment of any other comprises all that the partners may acquire
profits may also be made; but the property by their industry or work during the
which the partners may acquire existence of the partnership and the
subsequently by inheritance, legacy or usufruct of movable or immovable property
donation cannot be included in such w/c each of the partners may possess at the
stipulation, except the fruits thereof. time of the celebration of the contract.

Universal partnership of all present Ownership of present and future property

property explained The partners retain their ownership over
A universal partnership of profits is one w/c their present and future property. What
comprises all that the partners may passes to the partnership are the profits or
acquire by their industry or work during the income and the use or usufruct of the same.
existence of the partnership and the Consequently, upon dissolution, such
usufruct of movable or immovable property property is returned to the partners who
w/c each of the partners may possess at the own it.
time of the celebration of the contract. In
this kind of partnership, the following Profits acquired through chance
become the common property of all the Since the law only speaks of profits w/c
partners: the partners may acquire by their industry
or work, profits acquired purely by chance
are not included.
 Art. 1783. A particular partnership has for
Fruits of property subsequently acquired its object determinate things, their use or
Fruits of property subsequently acquired by fruits, or a specific undertaking, or the
the partners do not belong to exercise of a profession or vocation.
the partnership. Such profits, however, may
be included by express stipulation. Particular partnership explained
A particular partnership is one w/c is
Art. 1781. Articles of universal partnership, neither a universal partnership of present
entered into without specification of its property nor a universal partnership of
nature, only constitute a universal profits. The fundamental difference
partnership of profits. between a universal partnership and a
particular partnership lies in the scope of
Presumption in favor of universal their subject matter or object. In the
partnership of profits former, the object is vague and
Reason for presumption: universal indefinite, contemplating a general business
partnership of profits imposes less w/ some degree of continuity, while in the
obligations on the partners, since they latter, it is limited and well-defined, being
preserve the ownership of their separate confined to an undertaking of a
property. single, temporary, or ad hoc nature.

Art. 1782. Persons who are prohibited from Business of partnership need not be
giving each other any donation or continuing in nature
advantage cannot enter into a universal The carrying on of a business of a
partnership. Limitations upon the right to continuing nature is not essential to
form a partnership constitute a partnership. An agreement to
undertake a particular piece of work or a
Persons who are prohibited by law to give single transaction or a limited number of
donations cannot enter into a universal transactions and immediately divide the
partnership for the reason that each of the resulting profits would seemt o fall w/in the
partners virtually makes a donation. To meaning of the term “partnership” as used
allow it would be permitting them to do in the law.
indirectly what the law expressly prohibits.
A partnership formed in violation of this Rule under American law
article is null and void. Consequently, no The above is not true under the Uniform
legal personality is acquired. A husband and Partnership Act w/c does not include joint
wife, however, may enter into a particular ventures w/c exists for a single transaction
partnership or be members thereof. or a limited number of transactions.
Relevant provisions:
Joint venture
Art. 87: Donations between spouses during While a joint venture is not a formal
marriage void, except moderate gifts on partnership in the legal or technical sense,
occasion of family rejoicing. Also applies both are governed, subject to certain
to those living together as husband and qualifications, practically by the same rules
wife w/o valid marriage. or principles of partnership. This is logical
Art. 739: The following donations are void: since in a joint venture, like in
Those made between persons who are a partnership, there is a community of
guilty of adultery or concubinage at the interest in the business and a mutual right
time of the donation (no need for of control and an agreement to share jointly
conviction; preponderance of evidence only in profits and losses.
required);
Those made between persons found guilty Corporation as a partner
of the same criminal offense, While under the Philippine Civil Code, a
inconsideration thereof; joint venture is a form of partnership w/ a
c.)Those made to a public officer or his wife, legal personality separate and distinct from
descendants and ascendants, by reason of the parties composing it, and should thus
his office. be governed by the law of partnership,
the Supreme Court has recognized the
distinction between these two business
forms, and has held that although a have contributed it up to actual delivery
corporation cannot enter into a partnership without necessity of any demand;
contract, it may, however, engage in a joint 4. Shall preserve said properties with the
venture if the nature of the venture is diligence of a good father of a family
authorized by its charter. pending their delivery to the
partnership;
Art. 1784. A partnership begins from the 5. And shall indemnify the partnership for
moment of the execution of the contract, any damage caused it by the retention
unless it is otherwise stipulated. (1679) of said properties or by the delay in
their contribution.
Art. 1785. When a contract for a fixed term
or particular undertaking is continued after Art. 1787. When the capital or part thereof
the termination of such term or particular which a partner is bound to contribute
undertaking without any express consists of goods, their appraisal must be
agreement, the rights and duties of the made in the manner prescribed in the
partners remains the same as they were at contract of partnership, and in the absence
such termination, so far as is consistent of stipulation, it shall be made by experts
with a partnership at will. chosen by the partners, and according to
current prices, the subsequent changes
A continuation of the business by the thereof being for the account of the
partners or such of them as habitually acted partnership.
therein during the term, without any
settlement or liquidation of the partnership Art. 1788. A partner who has undertaken to
affairs, is prima facie evidence of a contribute a sum of money and fails to do
continuation of the partnership. so becomes a debtor for the interest and
damages from the time he should have
Partnership at will is one in which no term complied with his obligation.
of existence has been fixed and which may
be terminated at the will of any partners. The same rule applies to any amount he
may have taken from the partnership
Art. 1786. Every partner is a debtor of the coffers, and his liability shall begin from the
partnership for whatever he may have time he converted the amount to is own
promised to contribute thereto. use.

He shall also be bound for warranty in case Liability of partner for estafa
of eviction with regard to specific and Failure to return the money taken, there is
determinate things which he may have the element of fraudulent appropriation of
contributed to the partnership, in the same the money delivered to a partner with
cases and in the same manner as the specific instructions for the use of the
vendor is bound with respect to the vendee. partnership, then estafa is committed under
He shall also be liable for the fruits thereof the Revised Penal Code.
from the time they should have been
delivered, without the need of any demand. Art. 1789. An industrial partner cannot
engage in any business for himself, UNLESS
Obligations of partners to contribute: the partnership expressly permits him to do
1. Shall deliver at the beginning of the so; and if he should do so, the capitalist
partnership or, if a different date has partners may either exclude him from the
been agreed upon, at the stipulated firm or avail themselves of the benefits
time the properties he agreed to which he may have obtained in violation of
contribute; this provision, with a right to damages in
2. Shall answer for eviction, in case the either case.
partnership is deprived of the
ownership of any specific property he Industrial partner is one who contributes
contributed; his industry or labor in the partnership.
3. Shall answer to the partnership for the
fruits of the properties whose delivery Industrial partner barred from engaging in
he delayed from the date he should business
To prevent any conflict of interest between compensate them with the profits and
the industrial and the partnership, and to benefits which he may have earned for the
insure faithful compliance by said partner partnership by his industry. However, the
with his prestation. courts may equitably lessen this
responsibility if through the partner’s
Art. 1790. Unless there is a stipulation to extraordinary efforts in other activities of
the contrary, the partners shall contribute the partnership, unusual profits have been
equal shares to the capital of the realized.
partnership.
Partner liable for damages caused the
Art. 1791. If there is no agreement to the partnership
contrary, in case of an imminent loss of the Art. 1794 follows the general rule of
business of the partnership, any partner contracts that where a person is at fault in
who refuses to contribute an additional the fulfillment of his obligations he shall be
share to the capital, except an industrial liable for the payment of damages. The
partner, to save the venture, shall be partner’s fault, however, must be
obliged to sell his interest to the other determined in accordance with the
partners. circumstances of person, time and place.

Art. 1792. If a partner authorized to Liquidation necessary to ascertain

manage collects a demandable sum, which damages
was owed to him in his own name, from a It is first necessary that a liquidation of the
person who owned the partnership another business thereof be made to the end that
sum also demandable, the sum thus the profits and losses may be known and
collected shall be applied to the two credits the causes of the latter and the
in proportion to their amounts, even responsibility of the defendant as well as
though he may have given a receipt for his the damages which each partner may have
own credit only; but should he have given it suffered, may be determined.
for the account of the partnership credit,
the amount shall be fully applied to the Art. 1795. The risk of specific and
latter. determinate things, which are not fungible,
contributed to the partnership so that only
The provisions of this article are understood their use and fruits may be for the common
to be without prejudice to the right granted benefit, shall be borne by the partner who
to the debtor by Art. 1252, but only if the owns them.
personal credit of the partner should be
more onerous to him. If the things contributed are fungible, or
cannot be kept without deteriorating, or if
Requisites: they were contributed to be sold, the risk
1. Two existing debts shall be borne by the partnership. In the
2. Both debts must be demandable absence of stipulation, the risk of things
3. The one who collected the debt is a brought and appraised in the inventory,
partner who is authorized to manage shall also be borne by the partnership, and
and is actually managing the in such case the claim shall be limited to the
partnership value at which they were appraised.

Art. 1793. A partner who has received, in Risk of Specific and determinate things
whole or in part, his share of a partnership The risk of specific and determinate things
credit, when the other partners have not which are not fungible, like a boat, only the
collected theirs, shall be obliged, if the use of which is contributed, shall be borne
debtor should thereafter become insolvent, by the partner as the ownership thereof is
to bring to the partnership capital what he not transferred to the partnership. This
received even though he may have given follows the general rule that the thing
receipt for his share only. perished with the owner.

Art. 1794. Every partner is responsible to Things fungible or perishable

the partnership for damages suffered by it If the things contributed are fungible or
through his fault, and he cannot cannot be kept without deteriorating
(perishable) like wine, oil, etc., even if they also receive a share in the profits in
are contributed only for the use of the proportion to his capital.
partnership, the risk of loss shall be for the
account of the partnership for the latter Rules in profit sharing:
cannot make use of them without their 1. The partners share the profits in
getting consumed or presumed. accordance with the ratio established
by their contract.
Things contributed to be sold 2. If there is no such stipulation in the
If the things contributed are to be sold, the partnership contract, then:
partnership bears the risk of loss, for 1. If all are capitalist partners they
obviously the partnership is the intended have the profits in proportion to
owner; otherwise, the firm cannot make the their capital contributions;
sale. 2. If there are capitalist as well as
industrial partners, the industrial
Things brought and appraised in inventory partner get a share each that is
The partnership bears the risk of loss of just and equitable while the
things brought and appraised in capitalist partners divide the
the inventory as this has the effect remainder in proportion to their
of an implied sale thus making the capital contributions; and
partnership the owner of said things. 3. If there is a capitalist-industrial
partner, he gets a share in the
Art. 1796. The partnership shall be profits as an industrial partner and
responsible to every partner for the an additional share in proportion to
amounts he may have disbursed on behalf his capital contribution to be
of the partnership and for the determined as in (b), above.
corresponding interest, from the time the
expenses are made; it shall also answer to Rules in loss sharing:
each partner for the obligations he may 1. The stipulation in the partnership
have contracted in good faith in the interest agreement regarding loss sharing must
of the partnership business, and for the risk be followed.
inconsequence of its management. 2. If there is no such agreement, but the
contract provides for a profit sharing
Responsibility of the partnership to a ration, the profit sharing ratio shall also
partner be the loss sharing ration.
If a partner has advanced funds for the 3. In the absence of loss sharing and profit
partnership, he is entitled to recover the sharing stipulations in the contract,
amounts advanced by him with interest. then the loss shall be borne by the
This must be so for the reason that a partners in proportion to their capital
partner is a mere agent of the partnership contributions; but a purely industrial
and under the rules of agency, an agent partner is exempted from participation
who advances funds for his principal may in the loss.
recover the same interest.
Share of industrial partner in profits and
Art. 1797. The profits and losses shall be losses
distributed in conformity with the Unless agreed upon, the industrial partner
agreement. If only the share of each partner shall receive such share in the profits as
in the profits has been agreed upon, the may be just and equitable under the
share of each in the losses shall be in the circumstances. As for the losses, the
same proportion. industrial partner is not liable. However,
In the absence of stipulation, the share of under Art. 1816, if the partnership has a
each partner in the profits and losses shall contractual debt and it cannot pay, the
be in proportion to what he may have industrial partner equally with the capitalist
contributed, but the industrial partner shall partners, can be compelled by the creditor
not be liable for the losses. As for the to pay his pro rata share out of his own
profits, the industrial partner shall receive property or assets.
such share as may be just and equitable
under the circumstances. If besides his Art. 1798. If the partners have agreed to
services he has contributed capital, he shall entrust to a third person the designation of
the share of each one in the profits and partner’s capital contribution.
losses, such designation may be impugned
only when it is manifestly inequitable. In no Appointed as manager after the
case may a partner who has begun to constitution of the partnership
execute the decision of the third person, or Partner appointed in arts of partnership
who has not impugned the same within a may execute all acts of administration
period of three months from the time he notwithstanding the opposition of the other
had knowledge thereof, complain of such partners, unless he should act in bad faith.
decision. His power is revocable only upon just and
lawful cause and upon the vote of the
The designation of profits and losses cannot partners representing the controlling
be entrusted to one of the partners. interest.
Reason: revocation represents change in
Reason for the provision terms of contract.
Admittedly, the designation of profits and In case of mismanagement: Usual remedies
losses cannot be entrusted to one of the allowed by law including dissolution.
partners as the fulfillment of a contract
cannot be left to one of the contracting Appointment as manager after the
parties. It may, however, be entrusted to a constitution of the partnership
third person by common interest. Appointment may be revoked at any time
for any cause what so ever.
Art. 1799. A stipulation which excludes one
or more partners from any share in the Reason: revocation not founded on a
profits or losses is void. change of will on the part of the partners.
Appointment not condition of contract. It is
Stipulation to exclude a partner from merely a simple contract of agency, which
profits and losses is void may be revoking at any time. It is believe
The law does not allow a provision in the that the vote for revocation must also
contract of partnership excluding one or represent the controlling interest.
more partners from sharing in the profits
and losses. The reason is that a partnership Scope of the power of the managing
is organized for the common benefit or partner
interest of the partners. General rule: partner appointed as manager
has all the powers of a general agent as well
Reason for exclusion of industrial partner as all the incidental powers necessary to
An industrial partner is not liable for losses carry out the object of the partnership in
because if the partnership fails to realize the transaction of its business.
any profits, the industrial partner would Exception: When powers of manager is
have contributed his labor in vain. specifically restricted. A managing partner
Furthermore, the industrial partner cannot may not bind the partnership by contract
withdraw the work already done by him for foreign to its business.
the partnership.
Compensation for service rendered
Art. 1800. The partner who has been Partner Generally not entitle to
appointed manager in the articles of the compensation, In the absence of an
partnership may execute all acts of the agreement to the contrary, each member of
administration despite the opposition of his the partnership assumes the duty to give his
partners, unless he should act in Bad faith., time, attention, and skill to the
and his powers is irrevocable without the management of its affairs, as may be
just or lawful cause. The vote of the reasonably necessary to the success of the
partners representing the controlling common enterprise; and for this service a
interest shall be necessary for such share of the profits is his only
revocation of power. A power granted after compensation. In managing partnership
the partnership has constituted may affairs, a partner is practically taking care of
revoked at any time. Each partner has a his own interest or managing his own
right to an equal voice in the conduct of the business. In the absence of any prohibition
partnership business. This right is not in the arts. Of partnership for the payment
dependent on the amount or size of the of salaries to general partners, there is
nothing to prevent the partners to enter respective duties;
into a collateral verbal agreement to that 3. There is no stipulation that one of them
effect. shall not act without the consent of all
EXCEPTIONS: In proper cases, the law the others.
may imply a contract for compensation;
1. A partner engaged by his co-partners to
perform services not required of him in ART. 1802 In case it should have been
fulfilment of the duties and in capacity stipulated that none of the managing
other than that of a partner. partner shall act without the consent of the
2. When there is extraordinary neglect on others, the concurrence of all shall be
the part of one partner to perform his necessary for validity of the acts, and the
duties, imposing entire burden on absence or disability of any one of them
remaining partner. cannot alleged, unless there is imminent
3. One partner may employ the other danger of grave or irreparable injury to the
to do work for him outside of and partnership.
independent of the co-partnership.
4. Partners exempted by terms of When unanimity of action stipulated
partnership from rendering services concurrence necessary for validity of acts
may demand pay for services rendered. The partners may stipulate that none of the
5. Where one partner is entrusted with managing partners shall act without the
management and devotes his whole consent of the others. In such a case, the
time and devotion at the instance of the unanimous consent of all the managing
other partners who are attending to partners shall be necessary for the validity
their individual business and giving no of their acts. This consent is
time or attention to the partnership so indispensable that neither absence nor
business. disability of any one of them may allege as
excuse to dispense with requirement.
Exception: When there is imminent danger
Art. 1801. If two or more partners have of grave or irreparable injury to the
been intrusted with the management of the partnership then a partner may act alone
partnership without the specification of without consent of partner who is absent or
their respective duties or without the under disability.
stipulation that one of them shall not act
without the consent of all others, each one Consent of managing partners not
separately execute all acts of necessary in routine transactions
administration, but if anyone of them The requirement of written authority refers
should oppose the act of each other, the evidently to formal and unusual written
decision of the majority shall prevail. In the contracts.
case of tie the partners owning the
controlling interest shall decide the matter. Art. 1803. When the manner of
Where respective duties of two or more management has not agreed upon, the
managing partners not specifies. following rules shall observed:

Each one may separately perform acts 1. All partners shall be considered agents
of administration and whatever any one of them may do
1. If one or more of the managing partners alone shall bind the partnership without
shall oppose the acts of the others, prejudice to the provision of article
then the decision of the majority of the 1801
managing partners shall prevail. Right
to oppose can be exercise only by those 2. None of the partners may, without the
entrusted with mgt. consent of others, make any important
2. In case of tie, matter shall be decided by alteration in the immovable property of
the vote of the partners owning the the partnership, even if it may be useful
controlling interest. to the partnership, but if there ids
refusal of the consent by the other
REQUISITES FOR APPLICATION OF RULE partners is manifestly prejudicial to the
1. Two or more partners have been interest of the partnership, the court’s
appointed as managers; intervention may be sought.
2. There is no specification of their
Rules when manner of the management not become a member of the partnership,
that has not agreed upon all partners even if the other partners know about the
considered as managers and agents agreement. Not being a member of
All partners shall have equal rights in the the partnership, he does not acquire the
mgmt. and conduct of partnership affairs. rights of a partner nor is he liable for its
All of them shall considered mgrs. and debts.
agents and whatever any one of them may
do alone shall bind the partnership. If there Reason for the rule
is timely opposition, however, the matter Partnership is based on mutual trust and
shall decided by majority vote. In case confidence among the partners. Inclusion of
of tie, vote of partners representing new partner would be a modification of the
controlling interest. original contract of partnership requiring
unanimous consent of all the partners.
Unanimous consent required for Prohibition applies even if person
alteration of immovable property associated is already a partner.
The consent need not be express. It may
presume from the fact of knowledge of the Art. 1805. The partnership books shall be
alteration without interposing any kept, subject to any agreement between
objection. Prohibition only applies the partners, at the principal place of the
to immovable property because of the business of the partnership, and every
greater importance of this kind of property, partner shall at any reasonable hour have
and the alteration thereof must be access to and may inspect and copy any of
important. This would be an act of strict them.
dominion. If refusal to give consent is
manifestly prejudicial to the interest of Keeping of partnership books
the partnership, court intervention maybe Partner with duty to keep partnership
sought. Consent may presume from silence books
(lack of opposition despite knowledge).If The duty to keep true and correct books
alteration is necessary for preservation of showing the firm’s accounts, such books
the property, consent of the other partners being at all times open to inspection of all
not required. members of the firm, primarily rests on the
managing or active partner. It is presume
Art. 1804. Every partner may associate that the partners have knowledge of the
another person with him in his share, but contents of the partnership books and that
the associates shall not admitted into the said books state accurately the state
partnership without the consent of all other of accounts, but errors can corrected.
partners, even of the partner having an
associate should be a manager of Rights with the respect to partnership
subpartnership nature books
Books should kept at the principal place of
The partnership formed between a business as each partner has the right to
member of a partnership and a third free access to them and to inspect or copy
Person for a division of the profits coming any of them at any reasonable time, even
to him from the partnership enterprise is after dissolution. Inspection rights not
termed subpartnership. absolute can restrained from using info
It is a partnership within a partnership and for other than partnership purpose.
is distinct and separate from the main or
principal partnership. Access to partnership books
Rights can exercise at any reasonable hour.
Right of the person associated with the This means reasonable hours on business
partnership’s share days throughout the year and not merely
Subpartnership agreements do not during some arbitrary period of a few days
affect the composition, existence, or chosen by the managing partners.
operations of the firm. The subpartners are
partners interest, Art. 1806. Partners shall render on demand
true and full information of all things
However, in the absence of the mutual affecting the partnership to any partner or
assent of all the parties, a subpartner does the legal representative of any deceased
partner or of any partner under legal i.e. the winding up of partnership affairs
disability. Duty to render information, there is completed.
must be no concealment between partners
in all matters affecting the partnership. Duty to account for secret and similar
Information must use only for partnership profits
purpose. Not just on demand but partner The duty of a partner to account as a
also has duty of voluntary disclosure. fiduciary operates to prevent from making a
However, duty to render info does notarise secret profit out of the operation of the
with respect to matters appearing partnership and from carrying on the
in partnership books since each partner has business for his private advantage or
the right to inspect those. Good faith not a business in competition w/ the firm
only requires that a partner should not w/o consent of other partners. Violation
make a false statement but also that he may be ground for dissolution.
should abstain from any false concealment.
Duty to account for earnings accruing even
Art. 1807. Every partner must account the after termination of partnership
partnership for any benefit, and hold as If a partner uses info obtained by him from
trustee for it any profits derived from him the partnership for his own account w/o the
without the consent of the partners from consent of the other partners, he is liable to
any transaction connected with the account for any benefit he might obtain.
formation, conduct, or liquidation of the
partnership or from any use by him of his Duty to make full disclosure of information
property. belonging to partnership
A partner is also subject to the fiduciary
The relation between the partners duty of undivided loyalty and complete
is essentially fiduciary involving trust and disclosure of info of all things affecting the
confidence, each partner considered in law, partnership. By Information is meant
as he is, in fact, the confidential agent of information, which can be used for the
the others. The duties of a partner are purposes of the partnership. Info cannot
analogous to those of a trustee. use for a partner’s private gain – even if
after termination.
Duty to act for common benefit
Cannot use and apply exclusively to own Duty not to acquire interest or right
individual benefit partnership assets or adverse to partnership
results of knowledge and info gained in If partner does, he holds it in trust for the
character of partner. Managing partners benefit of the partnership and must account
particularly owe a fiduciary duty to inactive to the firm for the profits of the transaction,
partners. unless it appears that the others consented

Duty begins during the formation Art. 1808. The Capitalist partners cannot
of partnership engage for their own account in any
Principle of good faith applies not only operation, which is of the kind of business
during partnership but during the in which the partnership is engaged, unless
negotiations leading to the formation of the there is a stipulation to the contrary. Any
partnership. Also, a person who agreed w/ capitalist partner violating this prohibition
another to form a partnership has the shall bring to the common funds any profit
obligation to account for commissions and accruing to him from his transactions, and
discounts received in acquiring property for shall personally bear all the losses.
the future partnership.
Prohibition against partner engaging the
Duty continues even after the dissolution business
of the partnership Prohibition relative – Prohibition against
Duty of partner to act w/ utmost good faith capitalist partner to engage in business is
towards his co-partners continues relative, unlike the industrial partner who is
throughout the entire life of the partnership absolutely prohibited from engaging in any
even after dissolution for whatever reason business for himself. Capitalist partner is
or whatever means, until the relationship is only prohibited from engaging for his own
terminated, account in any operation which is the same
as or similar to the business in which the
partnership is engaged and which is Art. 1810. The property rights of a partner
competitive w/ said business are:
VIOLATION – Obligation to bring to 1. His rights in specific partnership
common fund any profits derived and in property;
case of losses, he shall bear them alone.
Partners, however, by stipulation may 2. His interest in the partnership;
permit it. The law permits him to carry on a
business not connected or competing with 3. His right to participate in the
that of the partnership. Law is silent on management, extent of property rights
whether he can engage in same line of of a partner.
business for the account of another.
Prohibition still applies because of fiduciary Principal Rights
position imposing duties of utmost good 1. Rights in specific partner property;
faith. He may not carry on any other 2. Interest in partnership;
business in rivalry w/ the partnership. 3. Right to participate in management.

Reason for prohibition RELATED RIGHTS

Fiduciary nature of relationship imposes 1. Right to reimbursement for amounts
obligation of utmost good faith. Rule advanced to partnership and to
prevents use of info obtained in course indemnification for risks inconsequence
of transaction of partnership business or of management (art. 1796).
because of connection w/ firm regarding 2. Right of access and inspection of
business secrets and clientele of firm to its partnership books (art. 1805).
prejudice. 3. Right to true and full information of all
things affecting partnership (art. 1806).
Art. 1809. Any partner shall have the right 4. Right to formal account of partnership
to a formal account as partnership affairs: affairs under certain circumstances (art.
1809).
1. If he is wrongfully excluded from the 5. Right to have partnership dissolved also
partnership business or possession of under certain conditions (arts. 1830-
its property by his co-partner; 1831).

2. If the right exists under the terms of any Partnership property and partnership
agreement; capital distinguished

3. Provided by article 1807;

4. Whenever other circumstances

render it just and reasonable, Right of
the partner to a formal account.

General rule: During existence of

partnership, a partner is not entitled to a
formal account of partnership affairs.
Reason: rights of partner amply protected
in arts1805 and 1806. In addition, it would
cause much inconvenience and unnecessary
waste of time.

Exception: In the special and unusual

situations enumerated under art. 1809.
Right of partner to demand an accounting
w/o bringing about dissolution is
a necessary corollary to right to share in
profits. A formal account is a necessary
incident to the dissolution of the
partnership.
Partnership Partnership
 property capital
Changes Variable: its Constant: it
value value may remains
vary from day unchanged
today w/ as the
changes in amount is fix
market value by
agreement
of the
partners, and
is not
affected by
fluctuations
in the value
of the
partnership
property,
although it
may be
increased
and
decreased by
 partners;
unanimous
consent of
the partners. 2. A partner’s right in specific partnership
Assets Includes not The property is not assignable except in
Included only the aggregate connection with the assignment of rights of
original of the all the partners in the same property;
capital individual
contributions, contributions 3. A partner’s right in specific partnership
but also all made by the property is not subject to attachment or
property partners in execution, except on a claim against the
subsequently establishing partnership;
acquired or continuing
because of the 4. A partner’s right in specific partnership
the partnership. property is not subject to legal support
partnership under art. 291 nature of a partner’s right in
or w/ specific partnership property
partnership
funds, Art. 1811 contemplates tangible property
including but not intangible things. A partner is a co-
partnership owner w/ his partners of specific
name and partnership property, but the rules on co-
goodwill. ownership do not necessarily apply. The
legal incidents of this tenancy in partnership
Ownership of certain property are distinctively characteristic of the
Property use by the partnership – Where partnership relation. They are as follows:
there is no express agreement that property
used by a partnership constitutes Equal rights of possession - Ordinarily, a
partnership property, such use does not partner has an equal right to possess
make it partnership property, and whether specific partnership property for
it is so depends on the intention of the partnership purposes. None of the partner
parties, w/c may be shown by proving an scan possesses and uses the
express agreement or acts of particular specific partnership property other than for
conduct. The intent of the parties is the partnership purposes w/o the consent
controlling factor. of the other partners. Should any of them
Property acquired by a partner with use the property for his own benefit, he
partnership funds – Unless a contrary must account, like a stranger, to the others
intention appears, property acquired by a for the profits derived there from or the
partner in his own name w/ partnership value of his wrongful possession or
funds is partnership property. However, occupation. A partner wrongfully excluded
if the property was acquired after from possession of partnership property
dissolution but before the winding up of the by a co-partner has a right to formal
partnership affairs, it would be his separate account and may even apply for a
property but he would be liable to account judicial decree of dissolution. On the death
to the partnership for the funds used in its of a partner, his right in specific partnership
acquisition. property vests in the surviving partners. By
agreement, the right to possess specific
Art. 1811. A partner is co-owner with his partnership property may surrender. In the
partners of specific partnership property. absence of special agreement, however,
The incidents of this co-ownership are such neither partner separately owns, or has the
that; exclusive right of possession of any
partnership property or any proportional
1. A partner, subject to the provision of this part thereof. Each has dominion over
title and any agreement between the the entire partnership property. The
partner, has an equal right with his partners possession of partnership property by one
to possess specific partnership property for partner is the possession of all until his
partnership purposes; but he has no right to possession becomes adverse. A partner
possess such property for any other cannot initiate title by adverse possession
purpose without the consent of his until and unless he makes an adverse claim.
 partnership and not to the partners.
Right not assignable - A partner cannot However, their interest in the partnership
separately assign his right to specific is. The method of reaching a judgment
partnership property but all of them can debtor’s interest in partnership property is
assign their rights in the same property. specifically set forth in art.1814.

Reasons for non-assignability: Art. 1812. A partner’s interest in the

1. It prevents interference by outsiders in partnership is his share of the profits and
partnership affairs; surplus.
2. It protects the right of other partners
and partnership creditors to have Share of profits and surplus – The partner’s
partnership assets applied to firm interest in the partnership consists of his
debts; share in the undistributed profits during the
3. It is often impossible to determine the life of the partnership as a going concern
extent of a partner’s beneficial interest and his share in the undistributed surplus
in a particular partnership asset. Reason after its dissolution.
for impossibility: Each partner, having a
beneficial interest in the partnership Profits: the excess of returns over
property considered as a whole, has a expenditure in a transaction or series of
beneficial interest in each part. Where, transactions; or the net income of the
however, none of the above reasons partnership for a given period.
apply, an authorized assignment by a
partner of his right in specific Surplus: the assets of the partnership after
partnership property is void, but it may partnership debts and liabilities are paid
be regarded as a valid assignment of and settled and the rights of the partners
the partner’s interest in the among themselves are adjusted. It is the
partnership. The law allows a retiring excess of assets over liabilities. If the
partner to assign his rights in liabilities are more than the assets, the
partnership property to the partner(s) difference represents the extent of the loss.
continuing the business.
Art.1813. A conveyance by a partner by his
Right limited to share of what remains whole interest in the partnership does not
after partnership debts has been paid of itself dissolve the partnership, or, against
Strictly speaking, no particular partnership the other partners in the absence of
property or any specific or an aliquot part agreement, entitle the assignee, during the
thereof can be considered the separate or continuance of the partnership, to interfere
individual property of any partner. The in the management or administration of the
whole of partnership property belongs to partnership business or affairs, or to require
the partnership considered as a juridical any information or account of the
person, and a partner has no interest in it partnership transactions, or to inspect the
but his share of what remains after all partnership books; however it merely
partnership debts are paid. Consequently, entitles the assignee to receive the
specific partnership property is not subject accordance with his contract, the profits to
to attachment, execution, garnishment, or which the assigning partner would
injunction, w/o the consent of all the otherwise be entitled.
partners except on a claim against the
partnership. For the same reason that the In case of fraud in the management of the
property belongs to the partnership, the partnership, the assignee may avail himself
partners cannot claim any right under the of the usual remedies. In case of dissolution
homestead or exemption laws when it is of the partnership, the assignee is entitle to
attached for partnership debts. However, a receive his assignor’s interest and may
judgment creditor may levy upon a require an account from the date only of
partner’s interest in the partnership itself the last account agreed to by all partners.
because it is actually his property, by means Effect of assignment of partner’s whole
of a “charging order.” The right of interest in partnership.
the partners to specificpartnership
property is not subject to legal support A partner’s right in specific partnership
since the property belongs to the property is not assignable but he may assign
his interest in the partnership to any of his preferred rights of the partnership creditors
co-partners or to a third Person irrespective on due application to a competent court by
of the consent of the other partners, in the any judgement creditor of the partner, the
absence of agreement to the contrary. court which entered the interest of the
debtor partner with payment of the
Rights withheld from assignee unsatisfied amount of such judgement debt
1. To interfere in the management. with the interest thereon; and may then or
2. To require any information or account. later appoint a receiver of his share of the
3. To inspect any of the partnership books. profits, and of any other money due or to
fall due to him in respect of the partnership,
No one can be compelled to be partners w/ and make all other orders, directions and
someone else. The assignment does not accounts and inquiries which the debtor
divest the assignor of his status and rights partner might have made, or which
as a partner nor operate as dissolution. circumstances of the case may require. The
The law, however, provides the non- interest charged may redeem at any time
assigning collaborates w/ a ground before foreclosure, or in any case of a sale
for dissolving the partnership if they being directed by the court, may be
so desire. purchase without thereby causing
dissolution:
Remedy of other partners
Dissolution of partnership not intended – 1. With separate property, by any one or
Many partnership agreements are made more of the partners;
merely as security for loans, the assigning
partner never intending to destroy the 2. With partnership property, by any one
partnership relation. If the assigning partner or more of the partners with the
neglects his duties after assignment, consent of all the partners a whose
the other partners may dissolve the interest are not so charged or sold,
partnership under art. 1830. nothing in this title shall be held to
Dissolution of partnership intended – A deprive a partner of his right, if any,
partner’s conveyance of his interest in the under the exemption laws, as regards
partnership operates as dissolution of the his interest in the partnership.
partnership only when it is clear that the
parties contemplated and intended the Application for a charging order after
entire withdrawal from the partnership of securing judgement on his credit
such partner and the termination of the While a separate creditor of a partner
partnership as between the partners. cannot attach or levy upon specific
partnership property for the satisfaction of
Rights of assignee of partner’s interest his credit because partnership assets are
1. To receive in accordance w/ his contract reserved for partnership creditors, he can
the profits accruing to the assigning secure a judgment on his credit and then
partner; apply to the proper court for a “charging
2. To avail himself of the usual remedies order”, subjecting the interest of the debtor
provided by law in the event of fraud in partner in the partnership w/ the payment
the management; of the unsatisfied amount of such judgment
3. To receive the assignor’s interest in case w/ interest thereon w/ the least
of dissolution; interference w/ the partnership business
4. To require an account of partnership and the rights of the other partners.
affairs, but only in case the partnership By virtue of the charging order, any amount
is dissolved, and such account shall or portion thereof w/c the partnership
cover the period from the date only of would otherwise pay to the debtor-partner
the last account agreed to by all should instead be given to the judgment
partners. The purchaser of a partner’s creditor. This remedy, however, is w/o
interest may apply to the court for prejudice to the preferred rights of
dissolution after the termination of the partnership creditors whose claims should
specified term or undertaking or at any be satisfied first.
time if the partnership is one at will.
Availability of other remedies
Art. 1814. Without prejudice to the Art. 1814 have made this an exclusive
remedy so that a writ of execution will not synonymous with “company,” “house,” and
be proper. However, if the judgment debt “concern.”
remains unsatisfied, the court may resort to
other courses of action notwithstanding the Importance of having a firm name
issuance of the charging order. A partnership must have a firm name under
which it will operate. A firm name is
Redemption or purchase of interest necessary to distinguish the partnership,
charged which has a distinct and separate juridical
Redemptioner – The interest of the debtor- personality from the individuals composing
partner so charged may be redeemed or the partnership and from other
purchased w/ the separate property of any partnerships and entities.
one or more of the partners, or w/
partnership property but w/ the consent of Right of the partners to choose firm name
all the partners whose interests are not so The partners enjoy the utmost freedom in
charged or sold. the selection of the partnership name.
As a general rule, they may adopt any firm
Redemption Price – The value of name desired.
the partner’s interest in the partnership has
no bearing on the redemption price w/c is Use of misleading name – The partners
likely to be lower since it will be dependent cannot use a name that is identical or
on the amount of the unsatisfied judgment deceptively confusingly similar to that
debt. of any existing partnership or corporation or
to any other name already protected by law
Right of redeeming non-debtor partner – or is patently deceptive, confusing or
There deeming non-debtor partner does contrary to existing laws, as to mislead the
not acquire absolute ownership over the public by passing itself off as another
debtor-partner’s interest but holds it in partnership or corporation, or its goods or
trust for him consistent w/ principles of services as those of such other company.
fiduciary relationship.
Liability inclusion of name in the firm name
Rights of partner under exemption laws – Persons who, not being partners, include
A partner cannot claim any right under the their names in the firm name do not acquire
homestead laws or exemption laws when the rights of a partner but shall be subject
specific partnership property is attached for to the liability of a partner insofar as 3rd
partnership debt. W/ respect, however, to Persons without notice are concerned. Such
the partner’s interest in the partnership as persons become partners by estoppel. Art.
distinguished from his interest in specific 1815 does not cover the case of a limited
partnership property, the partner may avail partner who allows his name to be included
himself of the exemption laws after in the firm name, orof a person continuing
partnership debts have been paid. A the business of a partnership after
partner’s interest or share in the dissolution, who uses the name of the
partnership property is really his property. dissolved partnership or the name of
a deceased partner as part thereof.
Art. 1815. Every partnership shall operate
under a firm name, which may or may not Art. 1816. All partners, including industrial
include the name of one or more of the ones, shall be liable pro rata with all their
partners, those who, not being members of property and after all the partnership assets
the partnership, include their names in the have been exhausted, for the contracts
firm name, shall be subject to liability of a which may be entered into in the name and
partner for the account of the partnership, under its
signature and by a person authorized to act
Requirement of the firm name for the partnership. However, any partner
Meaning of word “firm” – The name, title, may enter into a separate obligation to
or style under which a company transacts perform a partnership contract.
business; a partnership of two or more
persons; a commercial house. In its Article 1816 distinguished from article
common acceptation, the term implies a 1787
partnership. The term is also used as
Article 1816 applies in cases where third Art. 1818. Every partner is an agent of the
party creditors are concerned as it falls partnership for the purpose of its business,
under the heading of section 3. “Obligations and the act of every partner, including the
of the Partners with Regard to Third execution in the partnership name of any
Persons.” Article 1797 applies only where instrument, for apparently carrying on in
the issue is among the partners as it falls the usual way the business of the
under the heading of Section 1, Chapter 2, partnership of which he is a member binds
which states: “Obligations of the Partners the partnership, unless the partner so
Among Themselves.” The pro rata liability acting has in fact no authority to act for the
of partners to third persons under Article partnership in the particular matter, and
1816 being a clear mandate of the law, any the person with whom he is dealing has
stipulation changing or modifying such knowledge of the fact that he has no
liability is void except as among the such liability.
partners.
An act of a partner which is not apparently
Refers to partnership obligations for the carrying on of business of the
Article 1816 which refers to the payment of partnership in the usual way does not bind
partnership obligations arising from the partnership unless authorized by the
contracts clearly imposes subsidiary and other partners.
joint (pro rata) liability for contractual debts
owing to third persons upon all the Except when authorized by the other
partners, including industrial partners who partners or unless they have abandoned the
ordinarily are not liable for losses. The business, one or more but less than all the
liability is subsidiary because the partners partners have no authority to:
cannot be made answerable with their
separate property unless the partnership 1. Assign the partnership property in trust
property has first been exhausted. for creditors or on the assignee’s
promise to pay the debts of the
Pro rata liability – Literally, pro rata liability partnership.
means proportionate distribution of
liability. In the law of obligations, the 2. Dispose of the goodwill of the business.
concurrence of two or more debtors in one
and the same obligation makes it prima 3. Do any other act which would make it
facie a joint (pro rata) obligation, and the impossible to carry on the ordinary
debts is presumed divided into as many business of a partnership.
equal shares as there are debtors and each
one of them is bound to pay only his share. 4. Confess a judgment.

Art. 1817. Any stipulation against the

5. Enter into a compromise concerning a
liability laid down in the preceding article
partnership claim or liability.
shall be void, except as among the partners.

Industrial partner cannot exempt himself 6. Submit a partnership claim or liability to

from liability to third persons arbitration.
Each one of the industrial partners is liable
to third persons for the debts of the firm 7. Renounce a claim of the partnership.
and if he has paid such debts out of his
private property during the life of the No act of a partner in contravention of a
partnership, when its affairs are settled he restriction on authority shall bind the
is entitled to credit for the amount so paid, partnership to persons having knowledge of
and if its results that there is not enough the restriction.
property in the partnership to pay him, then
the capitalist partners must pay him. Our Art. 1819. Where title to real property is in
conclusion is that neither on principle nor the partnership name, any partner may
on authority can the industrial partner be convey title to such property by a
relieved from liability to third persons for conveyance executed in the partnership
the debts of the partnership. name; but the partnership may recover
such property unless the partner's act binds
the partnership under the provisions of the
first paragraph of article 1818, or unless partnership, except in the case of fraud on
such property has been conveyed by the the partnership, committed by or with the
grantee or a person claiming through such consent of that partner.
grantee to a holder for value without
knowledge that the partner, in making the Notice to partner is notice to partnership
conveyance, has exceeded his authority. Clearly a third person desiring to give notice
to a partnership of some matter pertaining
Where title to real property is in the name to the partnership business need not
of the partnership, a conveyance executed communicate with all of the partners. If
by a partner, in his own name, passes the notice is delivered to a partner, that is an
equitable interest of the partnership, effective communication to the partnership.
provided the act is one within the authority
of the partner under the provisions of the Knowledge before becoming partner
first paragraph of Article 1818. Where the knowledge or notice had been
received by the partner before he became a
Where title to real property is in the name partner, and his partners are ignorant of
of one or more but not all the partners, and this, and he is not the partner acting in the
the record does not disclose the right of the particular matter, there is no doubt that
partnership, the partners in whose name there has been neither knowledge of nor
the title stands may convey title to such notice to the partnership.
property, but the partnership may recover
such property if the partners’ act does not Art. 1822. Where, by any wrongful act
bind the partnership under the provisions or omission of any partner acting in the
of the first paragraph of Article 1818, unless ordinary course of the business of the
the purchaser or his assignee, is a holder for partnership or with the authority of co-
value, without knowledge. partners, loss or injury is caused to any
person, not being a partner in the
Where the title to real property is in the partnership, or any penalty is incurred, the
name of one or more or all the partners, or partnership is liable therefor to the same
in a third person in trust for the extent as the partner so acting or omitting
partnership, a conveyance executed by a to act.
partner in the partnership name, or in his
own name, passes the equitable interest of Partner liable for wrongful act of a partner
the partnership, provided the act is one The partners are liable for the negligent
within the authority of the partner under operation of a vehicle by a partner, acting in
the provisions of the first paragraph of the course of business, which results in a
Article 1818. traffic accident.

Where the title to real property is in the If he is driving a partnership-owned vehicle

name of all the partners a conveyance for purposes of his own, the acting partner
executed by all the partners passes all their alone is liable it is not a partnership tort.
rights in such property.
Partnership may proceed against negligent
Art. 1820. An admission or representation partner
made by any partner concerning Where a partnership is liable to a third
partnership affairs within the scope of his person, there is a right of indemnity against
authority in accordance with this Title is the partner whose negligence caused the
evidence against the partnership. injuries.

Art. 1821. Notice to any partner of any Art. 1823. The partnership is bound to
matter relating to partnership affairs, and make good the loss:
the knowledge of the partner acting in the
particular matter, acquired while a partner 1. Where one partner acting within the
or then present to his mind, and the scope of his apparent authority receives
knowledge of any other partner who money or property of a third person
reasonably could and should have and misapplies it.
communicated it to the acting partner,
operate as notice to or knowledge of the
2. Where the partnership in the course of and if he has made such representation or
its business receives money or property consented to its being made in a public
of a third person and the money or manner he is liable to such person, whether
property so received is misapplied by the representation has or has not been
any partner while it is in the custody of made or communicated to such person so
the partnership. giving credit by or with the knowledge of
the apparent partner making the
Partnership bound by partner’s breach of representation or consenting to its being
trust made:
The partnership is liable for the conversion
(misappropriation) of money or property 1. When a partnership liability results, he
entrusted to the partnership by a third is liable as though he were an actual
person. The effect under Article 1824 is the member of the partnership.
same whether by the partnership and
subsequently misappropriated by a partner. 2. When no partnership liability results, he
is liable pro rata with the other persons,
Art. 1824. All partners are liable solidarily if any, so consenting to the contract or
with the partnership for everything representation as to incur liability,
chargeable to the partnership under otherwise separately.
Articles 1822 and 1823.
When a person has been thus represented
Law imposes solidary liability to be a partner in an existing partnership, or
The law imposes solidary liability upon the with one or more persons not actual
partners and the partnership in cases of partners, he is an agent of the persons
torts and acts of conversion by a partner as consenting to such representation to bind
provided in Art. 1824. It may be stated that them to the same extent and in the same
the liability of a partner for a debt of the manner as though he were a partner in fact,
partnership depends upon whether the with respect to persons who rely upon the
debts is contractual or it arises from tort or representation. When all the members of
conversion. If it arises from contract, the the existing partnership consent to the
liability is subsidiary and pro rata; if it arises representation, a partnership act or
from tort or conversion, the liability is obligation results; but in all other cases it is
solidary. the joint act or obligation of the person
acting and the persons consenting to the
Business partners solidarily liable representation.
Arts. 1711 and 1712 of the New Civil Code
and Sec. 2 of the Workmen’s Compensation Estoppel – A preclusion, in law, which
Act reasonably indicate that in prevents a man from alleging or denying a
compensation cases, the liability of business fact, in consequence of his own previous
partners should be merely joint and not act, allegation, or denial of a contrary tenor.
solidary, and one of them happens to be
insolvent, the amount awarded to the Person bound by his representation
dependents of the deceased employee A person who hold himself out as a partner
would only be partially satisfied, which is in a business, or consents to his being so
evidently contrary to the intent and held out, is liable on contracts made with
purpose of the law to give full protection to third persons who deal with the persons
the employee. carrying on the business on the faith of the
representation. He is stopped to deny the
Art. 1825. When a person, by words spoken apparent agency.
or written or by conduct, represents
himself, or consents to another Art. 1826. A person admitted as a partner
representing him to anyone, as a partner in into an existing partnership is liable for all
an existing partnership or with one or more the obligations of the partnership arising
persons not actual partners, he is liable to before his admission as though he had been
any such persons to whom such a partner when such obligations were
representation has been made, who has, on incurred, except that this liability shall be
the faith of such representation, given satisfied only out of partnership property,
credit to the actual or apparent partnership, unless there is a stipulation to the contrary.
Incoming partner liable for existing b. By the express will of any partner,
obligations who must act in good faith, when
A newly admitted partner is liable for no definite term or particular is
obligations of the partnership at the time of specified.
his admission. The obligation of the
incoming partner shall be satisfied only out c. By the express will of all the
of partnership property. This is not a harsh partners who have not assigned
rule because the incoming partner their interests or suffered them to
“partakes of the benefit of the partnership be charged for their separate debts,
property, and an established business. He either before or after the
has every means of obtaining full termination of any specified term or
knowledge of protecting himself, because particular undertaking.
he may insist on the liquidation or
settlement of existing partnership debts. On
d. By the expulsion of any partner
the other hand, the creditors have no
from the business bona fide in
means of protecting themselves.
accordance with such a power
conferred by the agreement
Art. 1827. The creditors of the partnership
between the partners
shall be preferred to those of each partner
as regards the partnership property.
2. In contravention of the agreement
Without prejudice to this right, the private
between the partners, where the
creditors of each partner may ask the
circumstances do not permit a
attachment and public sale of the share of
dissolution under any other provision of
the latter in the partnership assets.
this article, by the express will of any
partner at any time.
Art. 1828. The dissolution of a partnership
is the change in the relation of the partners
3. By any event which makes it unlawful
caused by any partner ceasing to be
for the business of the partnership to
associated in the carrying on as
be carried on or for the members to
distinguished from the winding up of the
carry it on in partnership.
business.

Art. 1829. On dissolution the partnership is 4. When a specific thing which a partner
not terminated, but continues until the had promised to contribute to the
winding up of partnership affairs is partnership, perishes before the
completed. delivery; in any case by the loss of the
thing, when the partner who
“Dissolution,” “Winding up,” and contributed it having reserved the
“Termination” explained ownership thereof, has only transferred
Dissolution, winding up, and termination to the partnership the use or enjoyment
should not be confused because they are of the same; but the partnership shall
distinct terms in law. Dissolution not be dissolved by the loss of the thing
“designates the point in time when the when it occurs after the partnership has
partners cease to carry on the business acquired the ownership thereof.
together: termination is the point in time
when all partnership affairs are wound up; 5. By the death of any partner.
winding up is the process of settling
partnership affairs after dissolution.” 6. By the insolvency of any partner or of
the partnership.
Art. 1830. Dissolution is caused:
7. By the civil interdiction of any partner.
1. Without violation of the agreement
between the partners: 8. By decree of court under the following
article.
a. By the termination of the definite
term or particular undertaking Causes of dissolution in general
specified in the agreement. Generally, a partnership may be dissolved
by causes: (1) without violation of the
agreement between the partners; or (2) in agreement, or otherwise so conducts
contravention of the agreement. Other himself in matters relating to the
specific causes are; (3) an event which partnership business that it is not
makes the business of the partnership reasonably practicable to carry on the
unlawful; (4) loss of a specific thing which a business in partnership with him.
partner had promised to contribute to the
partnership; (5) the death of a partner; (6) 5. The business of the partnership can
the insolvency of any partner or of the only be carried on at a loss.
partnership itself; (7) civil interdiction of
any partner; and lastly (8) by judicial 6. Other circumstances render a
decree. dissolution equitable.

Partnership ceased upon expiration of On the application of the purchaser of a

term; no more juridical personality partner's interest under Article 1813 or
A partnership having ceased to exist since 1814:
1959, the partnership has no more juridical
personality nor capacity to sue and be sued. 1. After the termination of the specified
(Reynolds Philippine Corporation vs. Court term or particular undertaking.
of appeals, G.R. No. 36187, Jan. 17, 1989)
2. At any time if the partnership was a
Effect of Withdrawal before expiration of partnership at will when the interest
the term was assigned or when the charging
Under Article 1830, even if there is a order was issued.
specified term, one partners cause its
dissolution by expressly withdrawing eve n Who may petition for dissolution
before the expiration of the period, with or Dissolution of a partnership may be decreed
without justifiable cause. Of course, if the by the court on application either (1) by a
cause is not justified or no cause was given, partner or, in case he has assigned his
the withdrawing partner is liable for interest, (2) by his assignee.
damages but in no case can he be
compelled to remain in the firm. With his Art. 1832. Except so far as may be
withdrawal, the number of members is necessary to wind up partnership affairs or
decreased, hence, the dissolution. And in to complete transactions begun but not
whatever way we view the situation, the then finished, dissolution terminates all
conclusion is inevitable that the partners authority of any partner to act for the
were to be guided in the liquidation of the partnership:
partnership by the provisions of its duly
registered articles of partnership. (Roxas vs. 1. With respect to the partners
Maglana, G.R. L-30616, Dec. 10, 1990)
a. When the dissolution is not by the
Art. 1831. On application by or for a partner act, insolvency or death of a
the court shall decree a dissolution partner.
whenever:
b. When the dissolution is by such act,
1. A partner has been declared insane in insolvency or death of a partner, in
any judicial proceeding or is shown to cases where article 1833 so
be of unsound mind. requires.

2. A partner becomes in any other way 2. With respect to persons not partners,
incapable of performing his part of the as declared in article 1834.
partnership contract.
General Rule
3. A partner has been guilty of such If the cause of dissolution is not by act,
conduct as tends to affect prejudicially death, or insolvency of a partner, the
the carrying on of the business. authority ceases immediately.
Exception
4. A partner willfully or persistently For the purposes of winding-up partnership
commits a breach of the partnership affairs.
 place if more than one) at which
Art. 1833. Where the dissolution is caused the partnership business was
by the act, death or insolvency of a partner, regularly carried on.
each partner is liable to his co-partners for
his share of any liability created by any The liability of a partner under the first
partner acting for the partnership as if the paragraph, No. 2, shall be satisfied out of
partnership had not been dissolved unless: partnership assets alone when such partner
had been prior to dissolution:
1. The dissolution being by act of any
partner, the partner acting for the 1. Unknown as a partner to the person
partnership had knowledge of the with whom the contract is made.
dissolution.
2. So far unknown and inactive in
2. The dissolution being by the death or partnership affairs that the business
insolvency of a partner, the partner reputation of the partnership could not
acting for the partnership had be said to have been in any degree due
knowledge or notice of the death or to his connection with it.
insolvency.
The partnership is in no case bound by any
General Rule act of a partner after dissolution:
If the cause of dissolution is the death, act,
or insolvency of a partner, authority of a 1. Where the partnership is dissolved
partner to bind ceases upon the knowledge because it is unlawful to carry on the
of the dissolution. business, unless the act is appropriate
for winding up partnership affairs.
If dissolution is caused by act of one of
parties, co-partners are also liable to 2. Where the partner has become
contribute towards a liability as if no insolvent.
dissolution has happened, provided that
there is no notice or the partner does not 3. Where the partner has no authority to
have knowledge of the dissolution. wind up partnership affairs; except by a
transaction with one who —
Art. 1834. After dissolution, a partner can
bind the partnership, except as provided in a. Had extended credit to the
the third paragraph of this article: partnership prior to dissolution and
had no knowledge or notice of his
1. By any act appropriate for winding up want of authority.
partnership affairs or completing
transactions unfinished at dissolution. b. Had not extended credit to the
partnership prior to dissolution,
2. By any transaction which would bind and, having no knowledge or notice
the partnership if dissolution had not of his want of authority, the fact of
taken place, provided the other party to his want of authority has not been
the transaction: advertised in the manner provided
for advertising the fact of
a. Had extended credit to the dissolution in the first paragraph,
partnership prior to dissolution and No. 2 (b).
had no knowledge or notice of the
dissolution. Nothing in this article shall affect the
liability under article 1825 of any person
b. Though he had not so extended who after dissolution represents himself or
credit, had nevertheless known of consents to another representing him as a
the partnership prior to dissolution, partner in a partnership engaged in carrying
and, having no knowledge or notice on business.
of dissolution, the fact of
dissolution had not been advertised General Rule
in a newspaper of general Dissolution terminates the authority of the
circulation in the place (or in each partners to bind partnership.
Exceptions assignee, upon cause shown, may obtain
Any act appropriate for winding-up winding up by the court.
partnership affairs or completing
transactions unfinished at dissolution Who may wind up Partnership Affairs?
Partner designated in the agreement.
If third persons that transacted had no In absence of agreement, the part that did
actual knowledge of the dissolution. no wrongfully dissolved the partnership.
*Persons extending credit prior to
dissolution are entitled to notice of If all partners died, the legal representative
dissolution. If they had no notice or of the last surviving partner provided that
knowledge of dissolution, they may hold the partner is not insolvent.
the retired partner for obligations made by
continuing partners after dissolution. Winding up of a dissolved partnership may
be done
Art. 1835. The dissolution of the Extrajudicially by the partners themselves.
partnership does not of itself discharge the Judicially under the control of a competent
existing liability of any partner. court.
*Managing partner or winding-up partner
A partner is discharged from any existing has the right to sell firm property even after
liability upon dissolution of the partnership the life of the partnership has expired.
by an agreement to that effect between
himself, the partnership creditor and the Art. 1837. When dissolution is caused in any
person or partnership continuing the way, except in contravention of the
business; and such agreement may be partnership agreement, each partner, as
inferred from the course of dealing against his co-partners and all persons
between the creditor having knowledge of claiming through them in respect of their
the dissolution and the person or interests in the partnership, unless
partnership continuing the business. otherwise agreed, may have the
partnership property applied to discharge
The individual property of a deceased its liabilities, and the surplus applied to pay
partner shall be liable for all obligations of in cash the net amount owing to the
the partnership incurred while he was a respective partners. But if dissolution is
partner, but subject to the prior payment of caused by expulsion of a partner, bona fide
his separate debts. under the partnership agreement and if the
expelled partner is discharged from all
General Rule partnership liabilities, either by payment or
Dissolution of a partnership does not itself agreement under the second paragraph of
discharge the existing liability of any article 1835, he shall receive in cash only
partner. the net amount due him from the
Exception partnership.
A partner can be discharged from any
existing liability upon dissolution of the When dissolution is caused in contravention
partnership provided that there is an of the partnership agreement the rights of
agreement between the partnership the partners shall be as follows:
creditor and the person or partners
continuing the business. 1. Each partner who has not caused
*Individual properties of the deceased dissolution wrongfully shall have:
partner shall be liable to all obligations of
the partnership made while he was a a. All the rights specified in the first
partner. paragraph of this article.

Art. 1836. Unless otherwise agreed, the b. The right, as against each partner
partners who have not wrongfully dissolved who has caused the dissolution
the partnership or the legal representative wrongfully, to damages breach of
of the last surviving partner, not insolvent, the agreement.
has the right to wind up the partnership
affairs, provided, however, that any 2. The partners who have not caused the
partner, his legal representative or his dissolution wrongfully, if they all desire
 to continue the business in the same
name either by themselves or jointly If the partnership was dissolved in
with others, may do so, during the contravention of the agreement
agreed term for the partnership and for 1. The remaining partners have the right
that purpose may possess the to sell partnership property to pay the
partnership property, provided they partnership’s liabilities and the surplus
secure the payment by bond approved is distributed to the remaining partners
by the court, or pay any partner who as well.
has caused the dissolution wrongfully, 2. As against the guilty partner for the
the value of his interest in the dissolution of the partnership, the
partnership at the dissolution, less any remaining partners have the right to
damages recoverable under the second recover damages for breach.
paragraph, No. 1 (b) of this article, and 3. The remaining partners may also
in like manner indemnify him against all continue the business up to end of the
present or future partnership liabilities. stipulated term of the partnership.

3. A partner who has caused the Art. 1838. Where a partnership contract is
dissolution wrongfully shall have: rescinded on the ground of the fraud or
misrepresentation of one of the parties
a. If the business is not continued thereto, the party entitled to rescind is,
under the provisions of the second without prejudice to any other right,
paragraph, No. 2, all the rights of a entitled:
partner under the first paragraph,
subject to liability for damages in 1. To a lien on, or right of retention of, the
the second paragraph, No. 1 (b), of surplus of the partnership property
this article. after satisfying the partnership
liabilities to third persons for any sum
b. If the business is continued under of money paid by him for the purchase
the second paragraph, No. 2, of this of an interest in the partnership and for
article, the right as against his co- any capital or advances contributed by
partners and all claiming through him.
them in respect of their interests in
the partnership, to have the value 2. To stand, after all liabilities to third
of his interest in the partnership, persons have been satisfied, in the
less any damage caused to his co- place of the creditors of the partnership
partners by the dissolution, for any payments made by him in
ascertained and paid to him in cash, respect of the partnership liabilities.
or the payment secured by a bond
approved by the court, and to be 3. To be indemnified by the person guilty
released from all existing liabilities of the fraud or making the
of the partnership; but in representation against all debts and
ascertaining the value of the liabilities of the partnership.
partner's interest the value of the
good-will of the business shall not Right of partner to rescind contract of
be considered. partnership
If one is induced by fraud or
Rights of partners upon dissolution misrepresentation to become a partner, the
1. Dissolution is caused without violation contract is voidable. If the contract is
of the agreement. annulled, the injured party is entitled to
2. In contravention of the agreement. restitution. Here, the fraud or
misrepresentation vitiates consent.
If partnership is dissolved without However, until the partnership contract is
violation of the agreement annulled by a proper action in court, the
1. All partners may have the property sold partnership relations exist and
for payment of partnership liabilities. the defrauded partner is liable for all
2. If there is surplus, after paying the obligations to third persons.
liabilities of the firm, it shall be given in 1. Right of injured partner where
cash to the partners. partnership contract rescinded
2. Right of retention of partnership 7. The individual property of a deceased
property partner shall be liable for the
3. Right to be subrogated in place of contributions specified in No. 4.
creditors of partnership
4. Right to be indemnified by the guilty 8. When partnership property and the
partner against all liabilities of the individual properties of the partners are
partnership. in possession of a court for distribution,
partnership creditors shall have priority
Art. 1839. In settling accounts between the on partnership property and separate
partners after dissolution, the following creditors on individual property, saving
rules shall be observed, subject to any the rights of lien or secured creditors.
agreement to the contrary:
9. Where a partner has become insolvent
1. The assets of the partnership are: or his estate is insolvent, the claims
against his separate property shall rank
a. The partnership property. in the following order:

b. The contributions of the partners a. Those owing to separate creditors.

necessary for the payment of all the
liabilities specified in No. 2. b. Those owing to partnership
creditors.
2. The liabilities of the partnership shall
rank in order of payment, as follows: c. Those owing to partners by way of
contribution.
a. Those owing to creditors other than
partners. Rules for settling accounts between the
partners
b. Those owing to partners other than 1. The assets of the partnership
for capital and profits. 2. Liabilities of the partnership
3. Application of assets
c. Those owing to partners in respect 4. Contribution by the partners
of capital.
Assets of the partnership
d. Those owing to partners in respect 1. Partnership property
of profits. 2. The contributions of the partners
necessary for the payment of all
3. The assets shall be applied in the order liabilities
of their declaration in No. 1 of this
article to the satisfaction of the Order of application of the assets
liabilities. 1. Those owing to partnership creditors
2. Those owing to partners other than for
4. The partners shall contribute, as capital and profits such as loans given
provided by article 1797, the amount by the partners or advances for
necessary to satisfy the liabilities. business expenses
3. Those owing for the return of the
5. An assignee for the benefit of creditors capital contributed by the partners
or any person appointed by the court 4. The share of the profits, if any, due to
shall have the right to enforce the each partner
contributions specified in the preceding
number. Order of application of partner who
become insolvent or his estate his
6. Any partner or his legal representative insolvent, the claims against his separate
shall have the right to enforce the property
contributions specified in No. 4, to the 1. Those owing to separate creditors
extent of the amount which he has paid 2. Those owing to partnership creditors
in excess of his share of the liability. 3. Those owing to partners by way of
contribution
Liability of deceased partner’s 6. When a partner is expelled and the
individual property remaining partners continue the
The individual property of a deceased business either alone or with others
partner shall be liable for his share of the without liquidation of the partnership
contributions necessary to satisfy the affairs.
liabilities of the partnership incurred while
he was a partner. The liability of a third person becoming a
partner in the partnership continuing the
Art. 1840. In the following cases creditors of business, under this article, to the creditors
the dissolved partnership are also creditors of the dissolved partnership shall be
of the person or partnership continuing the satisfied out of the partnership property
business: only, unless there is a stipulation to the
contrary.
1. When any new partner is admitted into
an existing partnership, or when any When the business of a partnership after
partner retires and assigns (or the dissolution is continued under any
representative of the deceased partner conditions set forth in this article the
assigns) his rights in partnership creditors of the dissolved partnership, as
property to two or more of the against the separate creditors of the retiring
partners, or to one or more of the or deceased partner or the representative
partners and one or more third of the deceased partner, have a prior right
persons, if the business is continued to any claim of the retired partner or the
without liquidation of the partnership representative of the deceased partner
affairs. against the person or partnership
continuing the business, on account of the
2. When all but one partner retire and retired or deceased partner's interest in the
assign (or the representative of a dissolved partnership or on account of any
deceased partner assigns) their rights consideration promised for such interest or
in partnership property to the for his right in partnership property.
remaining partner, who continues the
business without liquidation of Nothing in this article shall be held to
partnership affairs, either alone or with modify any right of creditors to set aside
others. any assignment on the ground of fraud.

3. When any partner retires or dies and The use by the person or partnership
the business of the dissolved continuing the business of the partnership
partnership is continued as set forth in name, or the name of a deceased partner as
Nos. 1 and 2 of this article, with the part thereof, shall not of itself make the
consent of the retired partners or the individual property of the deceased partner
representative of the deceased liable for any debts contracted by such
partner, but without any assignment of person or partnership.
his right in partnership property.
Dissolution of a partnership by change of
4. When all the partners or their members
representatives assign their rights in Causes
partnership property to one or more 1. New partner is admitted
third persons who promise to pay the 2. Partner retires
debts and who continue the business 3. Partner dies
of the dissolved partnership. 4. Partner withdraws
5. Partner is expelled from partnership
5. When any partner wrongfully causes a 6. Other partners assign their rights
dissolution and the remaining partners to sole remaining partner
continue the business under the 7. All the partners assign their rights in
provisions of article 1837, second partnership property to third persons.
paragraph, No. 2, either alone or with *Any change in membership dissolves a
others, and without liquidation of the partnership and creates a new one
partnership affairs. *When a business of a dissolved
partnership is continued by former or
without new partners, the old creditors are person or partnership continuing the
creditors of the person or partnership that business, at the date of dissolution, in the
is continuing the business. absence of any agreement to the contrary.

Art. 1841. When any partner retires or dies, Right to demand an accounting of
and the business is continued under any of partnership affairs must be directed
the conditions set forth in the preceding against
article, or in article 1837, second paragraph, 1. Winding-up partners
No. 2, without any settlement of accounts 2. Surviving partners
as between him or his estate and the 3. The person the partnership continuing
person or partnership continuing the the business
business, unless otherwise agreed, he or his
legal representative as against such person Art. 1843. A limited partnership is one
or partnership may have the value of his formed by two or more persons under the
interest at the date of dissolution provisions of the following article, having as
ascertained, and shall receive as an ordinary members one or more general partners and
creditor an amount equal to the value of his one or more limited partners. The limited
interest in the dissolved partnership with partners as such shall not be bound by the
interest, or, at his option or at the option of obligations of the partnership.
his legal representative, in lieu of interest,
the profits attributable to the use of his General partner Limited partner
right in the property of the dissolved Personally liable for Liability extends
partnership; Provided, That the creditors of partnership only to his capital
the dissolved partnership as against the obligations contribution.
separate creditors, or the representative of Have equal right in No share in
the retired or deceased partner, shall have management of management of
priority on any claim arising under this partnership partnership.
article, as provided article 1840, third May contribute May contribute
paragraph. money, property or money and property
industry
Rights of retiring of properties of Proper party to Not proper party to
deceased, partner when business proceedings proceedings
continued Interest cannot be Interest is assignable
To have the value of the interest of assigned to make with assignee
the retiring partner or deceased partner in new partner acquiring all rights of
the partnership determined as of the date the limited partner
of dissolution. His name may Name not included
appear in the firm in firm name
To receive thereafter, as an ordinary name
creditor, an amount equal to the value of Prohibited from No prohibition
his share in the dissolved partnership with engaging in a
interest, or, at his option, in place of business like
interest, the profits attributable to the use partnership’s
of his right. His retirement, His retirement,
insolvency and insolvency and
General Rule death dissolves the death does not
When partner retires from the partnership, partnership dissolve the
he is entitled to the payment of what may partnership
be due to him after liquidation.
Exception Characteristics of limited partnership
No liquidation needed when there is 1. Must be formed in accordance with the
settlement as to what retiring partner shall requirements of the law.
receive. 2. There must be one or more general
partners who control the management
Art. 1842. The right to an account of his of the business.
interest shall accrue to any partner, or his 3. There must be one or more limited
legal representative as against the winding partners contributing to the capital and
up partners or the surviving partners or the
 sharing in the profits but have nothing l. The right, if given, of one or more of
to do with the management. the limited partners to priority over
4. Obligations of the partnership must be other limited partners, as to
paid out of common fund and in the contributions or as to
separate properties of the general compensation by way of income,
partners. and the nature of such priority.

Art. 1844. Two or more persons desiring to m. The right, if given, of the remaining
form a limited partnership shall: general partner or partners to
continue the business on the death,
1. Sign and swear to a certificate, which retirement, civil interdiction,
shall state — insanity or insolvency of a general
partner.
a. The name of the partnership,
adding thereto the word "Limited". n. The right, if given, of a limited
partner to demand and receive
b. The character of the business. property other than cash in return
for his contribution.
c. The location of the principal place
of business. 2. File for record the certificate in the
Office of the Securities and Exchange
d. The name and place of residence of Commission.
each member, general and limited
partners being respectively A limited partnership is formed if there has
designated. been substantial compliance in good faith
with the foregoing requirements.
e. The term for which the partnership
is to exist. Qualifications of limited partnership
f. The amount of cash and a 1. The partners must sign and swear to a
description of and the agreed value certificate of limited partnership
of the other property contributed 2. Must file for record the certificate in
by each limited partner. the office of the Securities and
Exchange Commission
g. The additional contributions, if any,
to be made by each limited partner Art. 1845. The contributions of a limited
and the times at which or events on partner may be cash or property, but not
the happening of which they shall services.
be made.
Limited partners can only contribute money
h. The time, if agreed upon, when the and property and cannot contribute
contribution of each limited partner services to the partnership to protect
is to be returned. persons dealing with the firms with frauds.

i. The share of the profits or the other Art. 1846. The surname of a limited partner
compensation by way of income shall not appear in the partnership name
which each limited partner shall unless:
receive by reason of his
contribution. 1. It is also the surname of a general
partner.
j. The right, if given, of a limited
partner to substitute an assignee as 2. Prior to the time when the limited
contributor in his place, and the partner became such, the business has
terms and conditions of the been carried on under a name in which
substitution. his surname appeared.

k. The right, if given, of the partners to A limited partner whose surname appears
admit additional limited partners. in a partnership name contrary to the
provisions of the first paragraph is liable as
a general partner to partnership creditors A limited partner is excluded from any
who extend credit to the partnership active voice in the control of the affairs of
without actual knowledge that he is not a the firm.
general partner. Limited partner cannot perform acts of
administration
Limited partner’s surname is not included Limited partners may not perform any act
in the firm name provided these of administration with respect to the
circumstances interests of the partnership, not even in the
1. If the surname of general partner is the capacity of agents of the managing
same with limited partner’s partners.
2. If the limited partner’s surname was ART. 1849. After the formation of a limited
included and was carried on the new partnership, additional limited partners may
partnership be admitted upon filling an amendment to
*If the limited partner’s surname was the original certificate in accordance with
included in the firm name, he is liable as a the requirements of Article 1865.
general partner.
The writing to amend a certificate
Art. 1847. If the certificate contains a false 1. Shall conform to the requirements of
statement, one who suffers loss by reliance Article 1844 as far as necessary to set
on such statement may hold liable any forth clearly the change in the
party to the certificate who knew the certificate which it is desired to make.
statement to be false: 2. Be signed and sworn to by all members,
and an amendment substituting a
1. At the time he signed the certificate. limited partner.
ART. 1850. A general partner shall all have
2. Subsequently, but within a sufficient the rights and powers and be subject to all
time before the statement was relied the restrictions and liabilities of a partner in
upon to enable him to cancel or amend a partnership without limited partners.
the certificate, or to file a petition for its However, without the written consent or
cancellation or amendment as provided ratification of the specific act by all the
in article 1865. limited partners, a general partner or all of
the general partners have no authority to:
Liability for false statement in certificate
Under this provision, any partner to 1. Do any act in contravention of the
the certificate containing a false statement certificate.
is liable provided the following requisites 2. Do any act which would make it
are present: impossible to carry on the ordinary
1. He knew the statement to be false at business of the partnership.
the time he signed the certificate,
or subsequently, but having sufficient 3. Confess a judgement against the
time to cancel or amend it or file a partnership.
petition for its cancellation or
amendment, he failed to do so. 4. Possess partnership property, or assign
2. The person seeking to enforce liability their rights in specific partnership
has relied upon the false statement in property, for other than a partnership
transacting business with the purpose.
partnership.
3. The person suffered loss as a result of 5. Admit a person as a general partner.
reliance upon such false statement.
6. Admit a person as a limited partner,
ART. 1848. A limited partner shall become unless the right so to do is given in the
liable as a general partner unless, in certificate.
addition to the exercise of his rights and
powers as a limited partner, he takes part in 7. Continue the business with partnership
the control of the business. property on the death, retirement,
Limited partner has no control in business insanity, civil interdiction or insolvency
of a general partner, unless the right so
to do is given in the certificate.
 3. Non-participation in the management
Powers of general partner in limited of the business.
partnership
The general partner shall have all the right ART. 1853. A person may be a general
and powers and be subject to all the partner and a limited partner in the same
restrictions and liabilities of a partner in a partnership at the same time, provided that
partnership without limited partners.
this fact shall be stated in the certificate
ART. 1851. A limited partner shall have the provided for in Article 1844.
same rights as a general partner to:
A person who is a general, and also at the
1. Have the partnership books kept at the same time a limited partner, shall have all
principal place of business of the the rights and powers and be subject to all
partnership, and at a reasonable hour restrictions of a general partner; except
to inspect and copy any of them.
that, in respect to his contribution, shall
2. Have on demand true and full have the rights against the other members
information of all things affecting the which he would have had if he were not
partnership, and a formal account of also a general partner.
partnership affairs whenever
circumstances render it just and ART. 1854. A limited partner also may loan
reasonable. money to and transact other business with
the partnership and unless he is also a
3. Have dissolution and winding up by general partner, receive on account of
decree of court. resulting claims against the partnership,
with general creditors, a pro rata share of
A limited partner shall have the right to the assets. No limited partner shall in
receive a share of the profit or other respect to any such claim:
compensation by way of income and to the
return of his contribution as provided in 1. Receive or hold as collateral security
Articles 1856 and 1857. any partnership property.

Rights of limited partner 2. Receive from a general partner or the

It has lesser rights than a general partner. It partnership any payment, conveyance,
may exercise rights similar to a general or release from liability, if at the time
partner. the assets of the partnership are not
sufficient to discharge partnership
ART. 1852. Without prejudice to the liabilities to persons not claiming as
provisions of Article 1848, a person who has general or limited partners.
contributed to the capital of a business
conducted by a person or partnership The receiving of collateral security, or a
erroneously believing that he has become a payment, conveyance, or release in
limited partner in a limited partnership, is violation of the foregoing provisions is a
not, by reason of his exercise of the rights fraud on the creditors of the partnership.
of a limited partner, a general partner with
the person or in the partnership carrying on Loans and business transactions with
the business, or bound by the obligations of limited partners
such person or partnership; provided that A limited partner is allowed to loan money
on ascertaining the mistake he promptly to the firm; transact other business with the
renounces his interest in the profits of the partnership, and receive a pro rata share in
business, or other compensation by way of the assets with general creditors.
income.
Limited partner not allowed to hold
Conditions for exemption from liability collateral security
1. Prompt renunciation of interest and/ or A limited partner may not receive
income upon ascertaining the mistake. partnership property as collateral security.
2. Non-inclusion of limited partner’s name
in the firm name.
ART. 1855. Where there are several limited the return of the contribution or for the
partners the members may agree that one dissolution of the partnership.
or more of the limited partners shall have a
priority over other limited partners as to In the absence of any statement in the
the return of their contributions, as to their certificate to the contrary or the consent of
compensation by way of income, or as to all members, a limited partner, irrespective
any other matter. If such an agreement is of the nature of his contribution, has only
made it shall be states in the certificate, and the right to demand and receive cash in
in the absence of such a statement all the return for his contribution.
limited partners shall stand upon equal
footing. A limited partner may have the partnership
dissolved and its affairs wound up when:
ART. 1856. A limited partner may receive
from the partnership the share of the 1. He rightfully but unsuccessfully
profits or the compensation by way of demands the return of his contribution.
income stipulated for in the certificate;
provided, that after such payment is made, 2. The other liabilities of the partnership
whether from the property of the have not been paid, or the partnership
partnership or that of a general partner, the property is insufficient for their
partnership assets are in excess of all payment as required by the first
liabilities of the partnership except liabilities paragraph, No. 1, and the limited
to limited partners on account of their partner would otherwise be entitled to
contributions and to general partners. the return of his contribution.

ART. 1857. A limited partner shall not Conditions of a limited partner entitled to
receive from a general partner or out of return of his contribution
partnership property any part of his 1. All liabilities of the partnership have
contributions until: been paid or there are assets sufficient
to pay partnership liabilities.
1. All liabilities of the partnership, except 2. The consent of all the partners is
liabilities to general partners and to obtained.
limited partners on account of their 3. The certificate is cancelled or so
contributions, have been paid or there amended as to set forth the withdrawal
remains property of the partnership or reduction of the contribution.
sufficient to pay them.
When limited partner may demand return
2. The consent of all members is had, 1. The partnership is dissolved
unless the return of the contribution 2. The date specified for its return has
may be rightfully demanded under the arrived
provisions of the second paragraph. 3. If no term is specified, after six months’
notice in writing to all other partners.
3. The certificate is cancelled or so
amended as to set forth the withdrawal Limited partner to receive cash
or reduction. It will be noted that the limited partner has
a right to demand and receive cash only in
Subject to the provisions of the first return for his contribution even when he
paragraph, a limited partner may rightfully contributed property.
demand the return of his contribution:
ART. 1858. A limited partner is liable to the
1. On the dissolution of a partnership. partnership:

2. When the date specified in the 1. For the difference between his
certificate for its return has arrived. contribution as actually made and that
stated in the certificate as having been
3. After he has given six months’ notice in made.
writing to all other members, if no time
is specified in the certificate, either for 2. For any unpaid contribution which he
agreed in the certificate to make in the
 future at the time and on the return of his contribution, to which his
conditions stated in the certificate. assignor would otherwise be entitled.

A limited partner holds a trustee for the An assignee shall have the right to become
partnership: a substituted partner if all the members
1. Specific property stated in the consent thereto or if the assignor, being
certificate as contributed by him, but thereunto empowered by the certificate,
which was not contributed or which has gives the assignee that right.
been wrongfully returned.
An assignee becomes a substituted limited
2. Money or other property wrongfully partner when the certificate is
paid or conveyed to him on account of appropriately amended in accordance with
his contribution. Article 1865.

The liabilities of a limited partners as set The substituted limited partner has all the
forth in this article can be waived or rights and powers, and is subject to all the
compromised only by the consent of all restrictions and liabilities of his assignor,
members; but a waiver or compromise shall except those liabilities of which he was
not affect the right of a creditor of a ignorant at the time he became a limited
partnership who extended credit or whose partner and which could not be ascertained
claim arose after the filling and before a for the certificate.
cancellation or amendment of the
certificate, to enforce such liabilities. The substitution of the assignee as a limited
partner does not release the assignor from
When a contributor has rightfully received liability to the partnership, under article
the return in whole or in part of the capital 1847 and 1858.
of his contribution, he is nevertheless liable
to the partnership for any sum, not in Limited partner’s interest assignable
excess of such return with interest, A limited partner’s interest in the
necessary to discharge its liabilities to all
partnership is assignable. The assignee,
creditors who extended credit or whose
claims arose before such return. however, of a limited partner’s interest
does not necessarily become a substituted
Limited partner liable to partnership for limited partner.
sum returned
A limited partner whose contribution has ART. 1860. The retirement, death,
been rightfully returned is still liable to the insolvency, insanity or civil interdiction of a
partnership for an amount not in excess of general partner dissolves the partnership,
the sum returned plus interest as may be unless the business is continued by the
necessary to pay the claims of persons who remaining general partners:
extended credit or whose claims arose
before the return. 1. Under a right so to do stated in the
certificate.
ART. 1859. A limited partner’s interest is
assignable. 2. With the consent of all members.

A substitute limited partner is a person It must be observed that the death, etc., of
admitted to all the rights of a limited a general partner dissolves the partnership
partner who has died or has assigned his while the death of a limited partner does
interest in a partnership. not cause the dissolution of the firm, unless
there is only one limited partner.
An assignee, who does not become a
substituted limited partner, has no right to ART. 1861. On the death of a limited
require any information or account of the partner his executor or administrator shall
partnership transactions or to inspect the have all the rights of a limited partner for
partnership books; he is only entitled to the purpose of settling his estate, and such
receive the share of the profits or other power as the deceased had to constitute his
compensation by way of income, or the assignee a substituted limited partner.
 contribution respectively, in proportion to
The estate of a deceased limited partner the respective amounts of such claims.
shall be liable for all his liabilities as a
limited partner. Art. 1864. The certificate shall be cancelled
when the partnership is dissolved or all
ART. 1862. On due application to a court of limited partners cease to be such.
competent jurisdiction by any creditor of a A certificate shall be amended when:
limited partner, the court may charge the
interest of the indebted limited partner 1. There is a change in the name of the
with payment of the unsatisfied amount of partnership or in the amount or
such claim, and may appoint a receiver, and character of the contribution of any
make all other orders, directions, and limited partner.
inquiries which the circumstances of the
case may require. 2. A person is substituted as a limited
partner.
The interest may be redeemed with the
separate property of any general partner, 3. An additional limited partner is
but may not be redeemed with partnership admitted.
property.
4. A person is admitted as a general
The remedies conferred by the first partner.
paragraph shall not be deemed exclusive of
others which may exist. 5. A general partner retires, dies, becomes
insolvent or insane, or is sentenced to
ART. 1863. In settling accounts after civil interdiction and the business is
dissolution the liabilities of the partnership continued under article 1860.
shall be entitled to payment in the following
order: 6. There is a change in the character of the
1. Those to creditors, in the order of business of the partnership.
priority as provided by law, except
those to limited partners on account of 7. There is a false or erroneous statement
their contributions, and to general in the certificate.
partners.
8. There is a change in the time as stated
2. Those to limited partners in respect to in the certificate for the dissolution of
their share of the profits and other the partnership or for the return of a
compensation by way of income on contribution.
their contributions.
9. A time is fixed for the dissolution of the
3. Those to limited partners in respect to partnership, or the return of a
the capital of their contributions. contribution, no time having been
specified in the certificate.
4. Those to general partners other than
for capital and profits. 10. The members desire to make a change
in any other statement in the certificate
5. Those to general partners in respect to in order that it shall accurately
profits. represent the agreement among them.

6. Those to general partners in respect to Art. 1865. The writing to amend a

capital. certificate shall:

Subject to any statement in the certificate 1. Conform to the requirements of article

or to subsequent agreement, limited 1844 as far as necessary to set forth
partners share in the partnership assets in clearly the change in the certificate
respect to their claims for capital, and in which it is desired to make.
respect to their claims for profit or for
compensation by way of income on their 2. Be signed and sworn to by all members,
and an amendment substituting a
 limited partner or adding a limited or Art. 1866. A contributor, unless he is a
general partner shall be signed also by general partner, is not a proper party to
the member to be substituted or proceedings by or against a partnership,
added, and when a limited partner is to except where the object is to enforce a
be substituted, the amendment shall limited partner's right against or liability to
also be signed by the assigning limited the partnership.
partner.
Art. 1867. A limited partnership formed
The writing to cancel a certificate shall be under the law prior to the effectivity of this
signed by all members. Code, may become a limited partnership
under this Chapter by complying with the
A person desiring the cancellation or provisions of article 1844, provided the
amendment of a certificate, if any person certificate sets forth:
designated in the first and second
paragraphs as a person who must execute 1. The amount of the original contribution
the writing refuses to do so, may petition of each limited partner, and the time
the court to order a cancellation or when the contribution was made.
amendment thereof.
2. That the property of the partnership
If the court finds that the petitioner has a exceeds the amount sufficient to
right to have the writing executed by a discharge its liabilities to persons not
person who refuses to do so, it shall order claiming as general or limited partners
the Office of the Securities and Exchange by an amount greater than the sum of
Commission where the certificate is the contributions of its limited partners.
recorded, to record the cancellation or A limited partnership formed under the law
amendment of the certificate; and when prior to the effectivity of this Code, until or
the certificate is to be amended, the court unless it becomes a limited partnership
shall also cause to be filed for record in said under this Chapter, shall continue to be
office a certified copy of its decree setting governed by the provisions of the old law.
forth the amendment.
CORPORATIONS
A certificate is amended or cancelled when TITLE I - GENERAL PROVISIONS
there is filed for record in the Office of the DEFINITIONS AND CLASSIFICATIONS
Securities and Exchange Commission, where
the certificate is recorded: Sec. 1. Title of the Code. – This Code shall
be known as “The Corporation Coder of the
1. A writing in accordance with the Philippines”.
provisions of the first or second
paragraph. Sec. 2. Corporation defined. - A corporation
is an artificial being created by operation of
2. A certified copy of the order of the law having the right of succession and the
court in accordance with the provisions powers, attributes and properties expressly
of the fourth paragraph. authorized by law or incident to its
existence.
3. After the certificate is duly amended in
accordance with this article, the Definition
amended certified shall thereafter be A corporation is an artificial being created
for all purposes the certificate provided by operation of law having the right of
for in this Chapter. succession and the powers, attributes and
properties expressly authorized by law or
A certificate is considered cancelled or incident to its existence.
amended when there is filed for record
1. A writing to amend the certificate; or Attributes
2. A certified copy of the order of the 1. It is an artificial being.
court in the event of an unjustified 2. It is created by operation of law.
refusal of a partner to sign the writing. 3. It has the right of succession.
4. It has only the powers, attributes and partnership.
properties expressly authorized by law Right of No right of Possesses
or incident to its existence. Succession succession right of
succession
Similarities between a partnership and a Extent of Partners Stockholders
corporation Liability to (except are liable only
1. Juridical personality separate and Third Persons limited to the extent
partners) of their
distinct from the individuals composing
are liable investments
it. personally as
2. Act only through its agents. and represented
3. Composed of an aggregate of subsidiarily by the shares
individuals. for subscribed by
4. Distribute profits to those who partnership them.
contribute to capital. debts to
5. May be organized only when there is a third
law authorizing it. persons.
6. Subject to income tax. Transferability A partner A stockholder
of interest cannot has the right
transfer to transfer his
Distinctions between a partnership and a interest so shares
corporation as to make a without the
partner prior consent
Point of without the of the other
Partnership Corporation
Comparison consent of stockholders.
Manner of By mere By law or all other
Creation agreement operation of existing
of the law partners.
parties Term of May be May not be
Number of By a Requires at existence established formed for a
Parties minimum of least five (5) for any term in excess
two (2) incorporators period of of 50 years
persons time extendible to
Commence- Generally From the date stipulated not more than
ment of from the of the by the 50 years.
Juridical moment of issuance of partners.
Personality execution of the certificate Firm name A limited A corporation
the contract of partnership may adopt a
incorporation is required firm name
of the to add the provided it is
Securities and word ‘Ltd.’ not identical
Exchange to its name. or deceptively
Commission similar to any
(SEC) registered
Powers May Can exercise firm name or
exercise only the contrary to
powers powers existing laws.
authorized expressly Dissolution May be May only be
by partners granted by dissolved at dissolved with
provided the law or any time by the consent of
same are incident to its the will of the state.
not contrary existence. any or all
to law, partners.
morals, Governing Civil Code Corporation
good Laws Code
customs,
public policy Advantages of a corporate form of
or public business organizations
order.
1. The capacity to hold property, to
Management When it is It is vested in
contract, to sue and be sued as a legal
not agreed the board of
upon, each directors or
unit or distinct entity.
partner is an trustees. 2. Exemption of shareholders from
agent of the individual liability.
3. Continuity of existence in spite of death 2. Quasi-public – are entities engaged in
or changes of members. rendering basic services of such public
4. Transferability of shares. importance as to entitle them to certain
5. Centralized management under a board privileges like eminent domain or use of
of directors. public property. Eg. Electric, gas, water
6. Standardized methods of organization, and telephone companies.
management and finance for the 3. Government-owned or controlled – are
protection of shareholders and entities organized by the government
creditors under statutory regulations. or corporations of which the
government is a majority stockholder.
Disadvantages of a corporate form of Eg. Philippine Air Lines
business organizations 4. Domestic – one incorporated under
1. The limited liability of the stockholders Philippine laws.
serves to limit the credit available to 5. Foreign – one formed, organized, or
the corporation. existing under any laws other than
2. The transferability of shares permits the those of the Philippines.
uniting of incompatible and conflicting 6. Corporation aggregate – one composed
interests in one enterprise. of more than one member or
3. The minority stockholders are usually corporator.
subservient to the wishes of the 7. Corporation sole – consists of one
majority. member or corporator and his
4. In big corporations, the stockholders’ successors.
voting rights have become largely 8. Religious corporations, sole or
theoretical because of widespread aggregate – organized, either as sole or
ownership, lukewarmness and aggregate, to administer properties of
disinterest in management, inertia, and the church.
inaccessible meeting places. 9. Ecclesiastical – organized for religious
5. In large corporations, management and purposes.
control has been separated from 10. Lay – organized for a purpose other
ownership. than religious
6. By and large corporations are subject to 11. Eleemosynary – organized for charitable
governmental restrictions, controls, and purposes.
report requirements not imposed on 12. Civil – are those than ecclesiastical and
other forms of business organizations. eleemosynary, whether public or
7. Corporate sphere of activity is limited in private.
the transaction of its business to the 13. Close – one wherein all the outstanding
state of the organization. stock is owned by the persons who are
8. The corporate form involves “double active in management and conduct of
taxation” on corporation income. the business.
14. Open – one in which all the members or
Sec. 3. Classes of corporations. – corporations have a vote in the election
Corporations formed or organized under of the directors and other officers.
this Code may be stock or non-stock 15. Multi-national – one having been
corporations. Corporations which have created or organized in one state
capital stock divided into shares and are conducts business or activities across
authorized to distribute to the holders of national boundaries and but subject to
such shares dividends or allotments of the the legal sanctions of the countries in
surplus profits on the basis of shares held which they operate.
are stock corporations. All other 16. Non-profit – organized without
corporations are non-stock corporations. contemplation of gains, profits or
dividends to their members on invested
Other kinds of corporations capital.
1. Quasi-corporations – from the word 17. De Jure – one created in strict or
“quasi”, meaning “as if”, are entities substantial conformity with the
that are not absolutely corporations but statutory requirements for
are considered as if they were. Eg. incorporation and whose right to exist
Public boards created by law as a corporation cannot be successfully
 attacked even in a direct proceeding for 2. The formulation of business and
that purpose by the State. financial plans.
3. Assembling the enterprise by
Sec. 4. Corporations created by special negotiations and obtaining some
laws or charters. – Corporations created by control over the subject matter by
special laws or charters shall be governed option or contracts made on behalf of
primarily by the provisions of the special the proposed corporation or on his own
law or charter creating them or applicable credit.
to them, supplemented by the provisions of 4. The making of arrangements for
this Code, insofar as they are applicable. financing the enterprise and the
floatation of securities.
Sec. 5. Corporators and incorporators, 5. Arrange tactful and painless methods
stockholders, and members. – Corporators for getting his own reward for the task
are those who compose a corporation, of promotion out of the prospective
whether as stockholders or members. investors and for reimbursement for his
Incorporators are those stockholders or expenses, contracts, and services
members mentioned in the articles of without frightening away those who are
incorporation as originally forming and expected to provide the funds.
composing the corporation and who are
signatories thereof. General rule: A corporation is not bound by
any agreement made by a promoter.
Corporators in a stock corporation are Exception to the rule: Unless and until the
called stock-holders or shareholders. corporation approves the agreement.
Corporators in a non-stock corporation are
called members. Sec. 6. Classification of shares. – The
shares of stock of stock corporations may
Components of a Corporation be divided into classes or series of shares,
1. Corporators – are those who composed or both, any of which classes or series of
a corporation, whether as stockholders shares may have such rights, privileges or
of members. The term includes restrictions as may be stated in the articles
incorporators, stockholders or of incorporation: Provided, That no share
members. may be deprived of voting rights except
2. Incorporators – are those stockholders those classified and issued as “preferred” or
or members mentioned in the articles “redeemable” shares, unless otherwise
of incorporation as originally forming provided in this Code: Provided, further,
and composing the corporation and That there shall always be a class or series
who are signatories thereof. of shares which have complete voting
3. Stockholders or shareholders – are rights. Any or all of the shares or series of
those corporators in a stock shares may have a par value or have no par
corporation. value as may be provided for in the articles
4. Members – are those corporators in a of incorporation: Provided, however, That
non-stock corporation. banks, trust companies, insurance
5. Promoters – is a self-constituted companies, public utilities, and building and
organizer who finds an enterprise or loan associations shall not be permitted to
venture and helps to attract investors, issue no-par value shares of stock.
form a corporation and launch it in
business, all with a view to promotion Preferred shares of stock issued by any
profits. corporation may be given preference in the
distribution of the assets of the corporation
Promotion – is the act of procuring the in case of liquidation and in the distribution
initial finances and the making of all of dividends, or such other preferences as
preparations necessary to launch a may be stated in the articles of
corporation. incorporation which are not violative of the
provisions of this Code: Provided, That
Activities of a promoter preferred shares of stock may be issued
1. The discovery and investigation of a only with a stated par value. The board of
promising business opportunity. directors, where authorized in the articles
of incorporation, may fix the terms and
conditions of preferred shares of stock or 8. Dissolution of the corporation.
any series thereof: Provided, That such
terms and conditions shall be effective Except as provided in the immediately
upon the filing of a certificate thereof with preceding paragraph, the vote necessary to
the Securities and Exchange Commission. approve a particular corporate act as
provided in this Code shall be deemed to
Shares of capital stock issued without par refer only to stocks with voting rights.
value shall be deemed fully paid and non-
assessable and the holder of such shares Definition
shall not be liable to the corporation or to A “stock” or share of stock is one of the
its creditors in respect thereto: Provided; units into which the capital stock has been
That shares without par value may not be divided. It represents the interest or right
issued for a consideration less than the that the holder of the stock or stockholder
value of five (P5.00) pesos per share: has in the corporation.
Provided, further, That the entire
consideration received by the corporation A stock certificate certifies that one is a
for its no-par value shares shall be treated holder or owner of a certain number of
as capital and shall not be available for shares of stock in the corporation. It is a
distribution as dividends. mere documentary evidence of the holder’s
ownership of shares and a convenient
A corporation may, furthermore, classify its instrument for the transfer of title.
shares for the purpose of insuring
compliance with constitutional or legal Classes or series of shares of stock subject
requirements. to restrictions
1. Shares shall not be deprived of voting
Except as otherwise provided in the articles rights except preferred or redeemable
of incorporation and stated in the shares but non-voting shares must still
certificate of stock, each share shall be be entitles to vote on matters specified
equal in all respects to every other share. in the last paragraph of Section 6 like
Where the articles of incorporation provide matters relating to amendment of the
for non-voting shares in the cases allowed articles of incorporation and dissolution
by this Code, the holders of such shares of the corporation.
shall nevertheless be entitled to vote on the 2. Where non-voting shares are provided
following matters: for there must always be a class or
series of shares with complete voting
1. Amendment of the articles of rights.
incorporation. 3. Banks, trust companies, insurance
companies, public utilities, and building
2. Adoption and amendment of by-laws. and loan associations shall not be
permitted to issue no-par value shares
3. Sale, lease, exchange, mortgage, pledge of stock.
or other disposition of all or 4. Preferred shares of stock which may be
substantially all of the corporate given preference in the distribution of
property. assets in case of liquidation and
distribution of dividends or other
4. Incurring, creating or increasing bonded preferences may be issued only with
indebtedness. stated par value.
5. The terms and conditions of preferred
5. Increase or decrease of capital stock. shares or series thereof may be fixed by
the board of directors only when
6. Merger or consolidation of the authorized by the articles of
corporation with another corporation incorporation the effectivity thereof
or other corporations. shall be reckoned from the filing of
certificate with the SEC.
7. Investment of corporate funds in 6. Shares without par value may not be
another corporation or business in issued for a consideration less than the
accordance with this Code. value of five (P5.00) pesos per share.
7. Unless otherwise provided by law the 4. Incurring, creating or increasing bonded
rights, privileges or restrictions on indebtedness;
classes or series of shares must be 5. Increase or decrease of capital stock;
stated in the articles of incorporation 6. Merger or consolidation of the
and in the stock certificates. corporation with another corporation
or other corporations;
Classes or series of shares 7. Investment of corporate funds in
1. Voting and Non-Voting Shares; another corporation of business in
General rule: Every member of a non- accordance with the Corporation Code;
stock corporation and every legal owner and
of shares in a stock corporation, has a 8. Dissolution of the corporation.
right to be present and vote at all
corporate meetings. Sec. 7. Founders’ shares. – Founders' shares
Exception to the rule: Unless there is a classified as such in the articles of
stipulation in contrary. incorporation may be given certain rights
2. Par Value and No-Par Value Shares and privileges not enjoyed by the owners of
Par value is the given fixed or definite other stocks, provided that where the
value of a share in the articles of exclusive right to vote and be voted for in
incorporation. the election of directors is granted, it must
3. Common and Preferred Shares. be for a limited period not to exceed five (5)
Preferred shares of stock may be: (a) years subject to the approval of the
preferred as to assets; (b) preferred as Securities and Exchange Commission. The
to dividends. Preferred as to dividends five-year period shall commence from the
may either be cumulative or non- date of the aforesaid approval by the
cumulative, or participating or non- Securities and Exchange Commission.
participating
4. Promotion Shares – are such stocks Definition
issued to those who may originally own Founders’ shares, generally common stock,
the mining ground or valuable rights are given to the founders or promoters of a
connected therewith, in consideration corporation in payment of money expended
of their deeding the same to the mining or services rendered in the promotion of it.
company when the company is
incorporated, or it may mean such stock Sec. 8. Redeemable shares. – Redeemable
as is issued to promoters. shares may be issued by the corporation
5. Shares of Escrow – are shares subject to when expressly so provided in the articles
an escrow agreement, that is, an of incorporation. They may be purchased or
agreement under which the shares are taken up by the corporation upon the
deposited by the grantor or his agent expiration of a fixed period, regardless of
with a third person, to be delivered by the existence of unrestricted retained
the depositary to the vendee or earnings in the books of the corporation,
subscriber only upon the happening of and upon such other terms and conditions
certain conditions. as may be stated in the articles of
6. Founder’s Shares; incorporation, which terms and conditions
7. Redeemable “Callable” Shares; must also be stated in the certificate of
8. Treasury Shares; stock representing said shares.
9. Other shares classified to comply with
constitutional or legal requirements. Definition
Redeemable (“Callable”) shares of stock
Instances when non-voting shares may which are usually preferred are frequently
vote issued subject to redemption at the option
1. Amendment of the articles of of either the corporation, the stockholder,
incorporation; or both, at a definite price representing
2. Adoption and amendment of by-laws; premium above the amount originally paid.
3. Sale, lease, exchange, mortgage, pledge
or other disposition of all or Sinking fund refers to a fund set-up by the
substantially all of the corporate corporation where cash is gradually set
property; aside in order to accumulate the amount
necessary to meet the redemption price of
redeemable shares of specified dates in the extension as may be determined by the
future. Securities and Exchange Commission.

Sec. 9. Treasury shares. - Treasury shares Sec. 12. Minimum capital stock required of
are shares of stock which have been issued stock corporations. – Stock corporations
and fully paid for, but subsequently incorporated under this Code shall not be
reacquired by the issuing corporation by required to have any minimum authorized
purchase, redemption, donation or through capital stock except as otherwise
some other lawful means. Such shares may specifically provided for by special law, and
again be disposed of for a reasonable price subject to the provisions of the following
fixed by the board of directors. (n) section.

Definition Sec.13. Amount of capital stock to be

Treasury shares are owned by the subscribed and paid for purpose of
corporation having been reacquired by the incorporation. – At least twenty-five
issuing corporation by “purchase, percent (25%) of the authorized capital
redemption, donation or through some stock as stated in the articles of
other lawful means.” It has no voting rights incorporation must be subscribed at the
or rights as to dividends or distributions. time of incorporation, and at least twenty-
five percent (25%) of the total subscription
TITLE II - INCORPORATION AND must be paid upon subscription, the
ORGANIZATION OF PRIVATE balance to be payable on a date or dates
CORPORATIONS fixed in the contract of subscription without
Definition need of call, or in the absence of fixed date
Incorporation is the act of creating a or dates, upon call for payment by the
corporation. board of directors: Provided, however, that
in no case shall the paid-up capital be less
Sec. 10. Number and qualifications of than five thousand (P5,0000) pesos.
incorporators. – Any number of natural
persons not less than five (5) but not more Amount to be subscribed and paid
than fifteen (15), all of legal age and a Illustration:
majority of whom are residents of the If X, Inc. has authorized capital
Philippines, may form a private corporation stock of P100, 000 divided into 1,000 shares
for any lawful purpose or purposes. Each of with par value of P100.00 per share, it must
the incorporators of s stock corporation be shown that at least P25, 000 or 250
must own or be a subscriber to at least one shares of the authorized capital stock must
(1) share of the capital stock of the be subscribed. Of the total subscription of
corporation. P25, 000, at least P6, 250.00 or 25% of total
subscription must be paid. It is not
Qualifications of incorporators necessary that each subscriber pay Twenty-
1. Must be a natural person. five percent (25%) on his subscription. On
2. Must be of legal age. the other hand, where the authorized
capital stock is stated at 2,000 no par value
Sec. 11. Corporate term. – A corporation shares , it must be shown that at least 500-
shall exist for a period not exceeding fifty no par value share have been subscribed.
(50) years from the date of incorporation The basis of computation is on the number
unless sooner dissolved or unless said of shares.
period is extended. The corporate term as
originally stated in the articles of Securities and Exchange
incorporation may be extended for periods Commission (SEC) may conduct compliance
not exceeding fifty (50) years in any single with paid-up capital requirements because
instance by an amendment of the articles of it has come to the knowledge of the
incorporation, in accordance with this Code; Commission that some corporation have
Provided, That no extension can be made been organized merely as fronts for some
earlier than five (5) years prior to the hidden objectives with no real intention of
original or subsequent expiry date(s) unless carrying out the purported purposes in their
there are justifiable reasons for an earlier articles of incorporation. If a bigger capital
stock is required, the abuse of the privileges the Philippines, and no association,
of a corporation would be minimized. partnership, or corporation the capital
of which is not wholly owned by citizens
Capital stock requirements under the of the Philippines, shall engage directly
special laws or indirectly in the retail trade business.
1. In case of mining and agricultural
incorporation, or corporation organized 7. Only vessels of domestic ownership are
for the purpose of the disposition , authorized to engage in coastwise
exploitation, development or utilization shipping in the Philippines. Vessels are
of natural resources of the Philippines, considered of domestic ownership
as well as corporation organized for the when such ownership is vested in some
operations of public utilities, the one or more of the following: (1)
Constitution provides that at least 60 % Citizens of the Philippines; (2) any
of the capital stock of such corporation corporation or any company composed
must be owned by citizens of the wholly of the citizens of the Philippines;
Philippines. (3) any corporation or company created
under the laws of the Philippines,
2. The Insurance Code provide that “no provided at least 75% of the capital
domestic insurance company shall, if a stock thereof or of any interested in
stock corporation, engage in business in said capital is wholly owned by the
the Philippines unless posses of a paid citizens of the Philippines.
up capital stock equal to at least two
million pesos”. Where the insurance Sec.14. Contents of articles of the
company is to engage in insurance incorporations. – All corporation organized
business it must have a “paid-up capital under this Code shall file with the Securities
stock of at least five million pesos” to and Exchange Commission articles of
be invested in securities specified by incorporation in any of the official
law, which securities are to be languages, duly signed and acknowledged
deposited with the Insurance by all of the incorporators containing
Commissioner. substantially the following matters, except
as otherwise prescribed by this Code or by
3. The Financing Company Act requires special laws:
that “at least sixty per centum of the
capital of financing companies must be 1. The name of the corporation.
owned by citizens of the Philippines and
shall have a paid-up capital of not less 2. The specific purpose or purposes for
than five hundred thousand pesos”. which the corporation is being
incorporated. Where the corporation
4. Commercial banks are required to have have more than one stated purpose,
a paid-up capital of 100 million pesos. the article of incorporation shall state
When a commercial bank having licence which the primary is and which is/are
to operate an expanded foreign the secondary purpose or purposes:
currency deposit system it must have a Provided, That a non-stock corporation
paid-up capital of at least 150 million may not include a purpose which would
pesos and when a commercial bank is change or contradict its nature as such.
authorized to engage in universal
banking it must have a paid up capital 3. The place where the principal office of
of at least 500 million pesos. the corporation is to be located, which
must be within the Philippines.
5. The New Constitution provides that:
“The ownership and management of 4. The term for which the corporation is to
mass media shall be limited to citizens exist.
of the Philippines or to corporations or
association wholly-owned and manage 5. The names, nationalities and residences
by such citizen”. of the incorporators.

6. Under the Retail Trade Nationalization

law “no person who is not a citizen of
6. The number of directors or trustees Incorporators may choose any name they
which shall not be less than five (5) nor see fit , however strange, uneuphonious, or
more than fifteen (15). unrhetorical it may be , provided it is one
not identical with or prejudicially similar to
7. The names, nationalities and residences a name which has previously been adopted
of the person who shall act as directors by and is being use by another corporation
or trustees until the first regular as its corporate name
directors or trustees are duly elected
and qualified accordance with this Change of Corporate name
Code. The change of the corporate name
doesn’t mean a new corporation, nor the
8. If it be a stock corporation, the amount successor of the original corporation. It is
of its authorized capital stock in lawful the same corporation with a different name
money of the Philippines, the number having its character with no respect change.
of shares which it is divided, and in case The corporation continues, as before,
the shares are par value shares, the par responsible in its new name for all debts or
value of each, the names, nationalities other liabilities it had previously contracted
and residences of the original or incurred.
subscriber, and the amount subscribed
and paid by each on his subscription, 2. Specific purpose or purposes.
and if some or all of the shares are The statement of the purpose has its
without par value, such fact must be principal function the affirmative
stated. authorization of the management to enter
into those contracts and business
9. If it be a non-stock corporation, the transactions which may be considered as
amount of its capital, the names, incidental to its attainment of the purposes.
nationalities and residences of the It also imposes implied limitations of their
contributors and the amount, authority by the exclusion of lines of activity
contributed by each. which are not covered.

10. Such other matters are not inconsistent 3. Principal office of the Corporation.
with law and which the incorporators The principal office of the corporation must
may deem necessary and convenient. be within the Philippines. It is where the
books of the corporation are kept and its
The Securities and Exchange Commission officers usually and ordinarily meet for the
shall not accept the articles of incorporation purpose of managing the affairs and
of any stock corporation unless transactions of the business of the
accompanied by a sworn statement of the corporation.
Treasurer elected by the subscriber
showing that at least 25% of the authorized 4. Terms of Existence of the Corporation.
capital stock of the corporation has been The corporation shall exist for a period not
subscribed, and at least 25% of the total exceeding fifty (50) years from the date of
subscription has been fully paid to him in incorporation unless sooner dissolved or
actual cash and/or in property the fair unless said period is extended.
valuation of which are equal to at least 25%
of the said subscription , such paid up 5. Names, Nationalities and residences of
capital being not less than five-thousand incorporators.
pesos (P5,000). The names, nationalities and residences of
the incorporators must be stated in the
Sec.15. Forms of Articles of Incorporation. articles of the corporation for the purpose
– Unless otherwise prescribed by special of complying with legal requirement that
law, articles of incorporation of all domestic majority of the incorporators must be
corporations shall supply substantially the residents of the Philippines and complying
following requirements in the form as with the statutory requirement on share
provided for by the SEC: ownership and in other instances where
Filipino Citizens are required.
1. The name of the corporation.
6. Number of directors and trustees.
The number of the director and trustees Property as subscription payment –
must not be less than five (5) nor more than Generally, all forms of tangible properties
fifteen (15). are acceptable for purposes of payment to
subscription provided that the three test of
7. Names, nationalities and residences of paid-up capital determination are complied
directors. with, i.e., ownership, existence and
A majority of the directors or trustees of all valuable, subject to certain restrictions as
corporation organized under this Code must may be imposed by law.
be a residents citizens of the Philippines.
SEC adopted the policy that
8. Amount of authorized capital stock. discourages the inclusion of intangible
A stock corporation must state the “amount assets as goodwill, lease-hold rights, or
of its authorized capital stock in lawful timber concession rights, payment of such
money of the Philippines, the number of properties Motor vehicle, real estate
shares into which it is divided, and in case properties and navigable vessels in payment
the shares are par value shares, the par of pre-incorporation subscription, increases
value of each, the names, nationalities, and of capital stock or in exchange for additional
residences of the original subscribers, and issuance of shares are allowed only by the
the amount subscribed and paid by each on SEC provided that:
his subscription, and if some or all the 1. There has been a proof of valid
shares are without par value, such fact must transfer;
be stated”. 2. All taxes due from the properties
has been paid; and
9. Non-stock Corporation. 3. Such properties have been
The Corporation Code requires the articles reasonably valued.
of the non-stock corporation to states: the
amount of its capital, the names, Papers to accompany articles with SEC
nationalities and residences of its The SEC requires the following papers to be
contributors and the amount contributed submitted to it with the articles of
by each. A non-stock corporation may have incorporation:
capital but it has no authorized capital 1. A verification slip executed by the
stock. Chief of the Record Section states
that the proposed name of the
10. Inclusion of other matters. corporation has been verified and
The articles of incorporation “may include found to be distinct/ not similar to
other matters that is not inconsistent with the names of already existing
law and which the incorporators may deem corporation or those pending
necessary and convenient”. registration.
2. Written undertaking to change
Sworn Statement of the Treasurer corporate name in case there is a
The Securities and Exchange Commission person, firm or entity with a prior
shall not accept the articles of incorporation right to the use of said name or one
of any stock corporation unless similar to it.
accompanied by a sworn statement of the 3. Sworn statement of assets and
Treasurer elected by the subscribers liabilities, duly executed under oath
showing that at least: by the corporate treasurer together
with the amount P50.00 to defray
1. 25% of the authorized capital stock has publication expenses.
been subscribed. 4. Bank certificate of deposit, issued
under oath by the bank manager or
2. 25% of the subscription has been fully any authorized bank officer, that
paid in actual cash or property. there is a deposit of the stated
amount representing the paid-up
3. The paid-up capital being not less than capital of the corporation either in
P5,000.00. the name of the treasurer in trust
for the corporation or in the name
SEC Policy of the corporation itself.
 5. Written authority to verify bank Law reserves the rights to modify the
deposit signed by the corporate charter
treasurer empowering the SEC and The constitution and the Corporation Code
/or the Central bank to check and reserved the right to amend the charter of a
inspect the existence of the bank private corporation. The constitution
deposit of the corporate paid-up provides that “no franchise or right be
capital. granted except under the condition that it
6. Taxpayer account number of the shall be subject to amendment, alteration,
incorporators pursuant to Executive or repeal by the National Assembly when
order No. 213. public interest so requires.
7. Registration Data Sheet, a
statement in statistical data form, Amendment of Articles of Incorporation
signed by an authorized The articles of incorporation may be
representative of the corporation amended for legitimate purposes that refer
regarding important information to any matter stated in the articles of
about the corporate seal, incorporation. It may refer to:
corporate name, principal office, 1. Change of corporate name;
capital structure, their subscription 2. Extension of term of corporation;
and TAN (SEC Bulletin, Oct. 1982). 3. Change in classes or series of shares;
4. Change in rights, privileges or
Sec. 16. Amendment of Articles of restrictions in share ownership;
Incorporation. – Unless otherwise 5. Increase or decrease in the number of
prescribed by this Code or by special law, directors; and
and for legitimate purposes, any provision 6. Change in purpose or purposes and
or matter stated in the articles of other necessary changes.
incorporation may be amended by a
majority vote of the board of directors or Vote or recent assent required in
trustees and the vote or written assent of amendment of the articles of incorporation
the stockholders representing at least two- shall be as follows:
thirds (2/3) of the outstanding capital stock, Stock Corporation – A majority vote of the
without prejudice to the appraisal rights of directors or trustees and the vote or written
dissenting stockholders in accordance with assent of the stockholders representing at
the provision of this Code, or the vote or least two- thirds (2/3) of the outstanding
written assent of two-thirds (2/3) of the capital stock. Under section 81 of the Code,
members if it be a non-stock corporation. a dissenting stockholder may exercise his
appraisal right if he is against the
The original and amended articles amendment to be made and demand
altogether shall contain all provision payment of the fair value of his shares.
required by law to be set out in the articles
of incorporation. Such articles, as amended Non-stock Corporation – A majority vote of
shall be indicated by underscoring the board of directors and the vote or written
change or changes made, and the copy assent of 2/3 of the members.
thereof duly certified under oath by the
corporate secretary and the majority of the The amendments to the articles of
directors or trustees stating the fact that incorporation shall take effect upon its
said amendments have been duly approved approval by the Securities and Exchange
by the required vote of the stockholders or Commission or from the filing with the said
members, shall be submitted to the Commission if not acted upon within six
Securities and Exchange Commission. months from the date of filing for a cause
not attributable to the corporation.
The amendment shall take effect upon its
approval by the Securities and Exchange Sec. 17. Grounds when articles of
Commission or from the date of filing with incorporation or amendment may be
the said Commission if not acted upon rejected or disapproved. – The Securities
within six (6) months from the date of filing and Exchange Commission may reject the
for a cause not attributable to the articles of incorporation or disapproved any
corporation. amendment thereto if the same is not in
compliance with the requirements of this