Introduction to

Partnership

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 MODULE CONTENT

COURSE TITLE: PRINCIPLES OF ACCOUNTING II

MODULE TITLE Introduction to Partnership
NOMINAL DURATION: 12 HRS

SPECIFIC LEARNING OBJECTIVES:

At the end of this module, you MUST be able to:
1. Discussed the introduction to partnership and corporation
2. Manifested knowledge on the principles of partnership and corporation
3. Showed capability to apply the knowledge of the provisions of
partnership and corporation
4. Identified and explained formation of partnership and corporation
5. Explained the requirements of financial statement accounting and
reporting for partnership and corporation.
6. Exhibited skills in problem solving particularly in business of
partnership and corporation.
TOPIC: (SUB TOPIC)
1. Definition of partnership
2. Characteristics of partnership
3. Kinds of partners
4. Articles of co-partnership
5. Kinds of partnership
6. Advantages and disadvantages of partnership
REFERENCE/S:
1. Amelia M. Arganda (Accounting Principles 1)
Carmen C. Herrero
Bernardo G. Del Rosario
Fourth Edition
Quad Alpha Centrum Bldg. 125 Pioneer Street Mandaluyong City
2. Amelia M. Arganda (Accounting Principles 2)
Carmen C. Herrero
Bernardo G. Del Rosario
Fourth Edition
Quad Alpha Centrum Bldg. 125 Pioneer Street Mandaluyong City

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 Information Sheet
ACCT 12 -1
Introduction to Partnership
Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:
1. Discuss the articles of co-partnership
2. Understand the definition of partnership
3. Discuss the characteristics of partnership
4. Discuss the kinds of partnership and kinds of partners

ASSESSMENT
ACCT 12 -1

ANSWER KEY
ACCT 12 -1

Definition of Partnership
A partnership is defined in a number of ways. According to Article 1976 of
the Partnership Law, "by the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with
the intention of dividing the profits among themselves." The Uniform Partnership
Act defines a partnership as "an association of two or more persons to carry on
as co-owners, a business for profits. Two persons may organize a partnership by
their voluntary agreement which is either oral or written. The partnership
contract is known as of partnership.

Characteristics of a Partnership
1. Separate legal personality. A partnership has a juridical personality separate
and distinct from that of each of the partners. As such, a partnership can acquire
property, incur obligations, may sue and be sued.
2. Mutual agency. Each partner can act as agent of the partnership in matters
which are within the nature of its business. Therefore, the act of one partner
binds the partnership.

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3. Limited life. Unlike a corporation which has a maximum life of fifty years,
the life of the partnership is limited or highly unpredictable. There are a number
of ways of terminating or dissolving a partnership. This includes death of any of
the partners, withdrawal or expressed will of the partners.
4. Unlimited liability. Each partner, except a limited partner is individually
liable for the debts of the firm. Thus, if the partnership assets is insufficient to
cover its liabilities, creditors may run after the personal assets of the general
partners because their liabilities for the debts of the firm is unlimited.
5. Division of Profits. Each partner is entitled to receive a share in the profits
realized by the business. The profit or loss is divided among the partners in
accordance with their agreement. In the absence of any stipulation. Profits or
losses will be shared by the partners in the ratio of their actual contributions in
the business. Industrial partners, however, does not share in the losses.

Kinds of Partners
1. Limited partner. A partner whose liability for the debts of the partnership is
limited to his capital contributions only.
2. General partner. One whose liability for partnership debts is unlimited and
therefore may extend up to his personal assets.
3. Capitalist partner. One whose contributions to the partnership consists of
money or property.
4. Industrial partner. A partner whose contribution to the firm is in the form
of services.
5. Dormant partner. One who is not known to be a partner and does not
participate in running the affairs of the business.
6. Secret partner. One who participates actively in managing the business but
he is not known as a partner

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 7. Silent partner. One who is known publicly as a partner but does not
participate in running the affairs of the firm.
6. Nominal partner. A partner who has no contributions at all but permits his
name to be used by the firm.
9. Capitalist-industrial partner. One whose contributions to the partnership
consist of money, property and services.

Articles of Partnership
The partners may enter into an oral contract for the purpose of organizing
a partnership; However, in order to avoid misunderstanding and disputes among
them as regards t0 the nature, scope and other matters pertaining to the
partnership, it is preferred that the agreement be reduced in writing.
This agreement is called the articles of partnership. The articles of
partnership must set forth the following important matters relating to the
partnership:
1. The name of the partnership, the partners forming a partnership and the
location of the business.
2. The nature and scope of the business;
3. The date of the formation of the partnership and its term of existence;
4. The contributions made by the partners and the capital credit given to them.
5. The books of accounts to be used by the partnership;
6. The rights, powers and obligations vested upon each partner;
7. The profit and loss sharing ratio including special compensations to partners
for services rendered to the firm;
8. Accounting for additional investments and withdrawals made by the
partners subsequent to the formation of the partnership;
9. Accounting for settlement of a Partner's interest upon his death or
withdrawal from the firm;
10. Provisions for settlement of misunderstanding and disputes; and
11. Provisions as regards to dissolution of the firm.

Kinds of Partnership
Partnership is classified as:
1. Trading and non-trading partnership. A trading partnership is one engaged
in the manufacture or the purchase and sale of merchandise while a non-trading
partnership is one engaged in rendering services. Examples of thi1s type of
partnership are: A firm of Certified Public Accountants, engineers, architects and
lawyers whose main activity is rendering professional services.
2. General and limited partnership. A general partnership is one in which all
the partners are general partners. As has been explained earlier, a general

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partner has an unlimited liability for the debts of the firm; hence, each of them
may be held individually liable for partnership debts beyond their capital
invested in the firm. A limited partnership, on the other hand, is one wherein
some of the partners have a limited liability for partnership debts which is equal
to the actual invested capital in the business. Partners whose liability is limited
to their capital contributions is known as a limited partner.
3. Universal and particular partnership. A universal partnership is of two
types, namely: A universal partnership of all present property and a universal
partnership of profits. A universal partnership of all present property is one
wherein the partners contribute to the common fund all the properties actually
belonging to each of them at the time the partnership is organized. The intention
of the partners is to divide among themselves said properties and whatever
profits which will be realized by the business. A universal partnership of profits
is a partnership which is defined under Article 1780 of the Partnership Law as
one which "comprises all that the partners may acquire by their industry or work
during the existence of the partnership." A particular partnership is an
organization of two or more per sons who combine themselves to undertake a
single individual transaction or enterprise and divide among themselves the
profits or whatever benefit that would be derived therefrom. It may be formed for
the exercise of a profession such as a partnership of CPA's, Engineers,
Architects, Lawyers, etc.
Advantages of Partnership
1. The capital of a partnership is bigger in amount since there are at least two
persons forming it.
2. In a partnership, there is better management because all partners are
considered as agents of the firm in matters within the scope of its business.
3. A partnership is much easier to organize than a corporation.
4. It does not have to comply with as many legal requirements of the government
nor its heavy burden of taxation.
5. A partnership can be organized for the practice of a profession such as a
partnership of CPA's, Doctors, Lawyers, Engineers, Architects, etc.
Disadvantages of Partnership
1. Disputes and misunderstanding may arise due to some acts of one partner
which binds the partnership.
2. Unlimited liability of the partners. General partners are liable for the debts of
the firm beyond their capital contributions made.
3. The life of the business is limited. The death, incapacity or withdrawal of a
partner will dissolve the partnership unlike a corporation whose maximum life
is fifty years. Any transfer of a partner's interest would necessitate the consent
of all the partners.
5. A partnership has a smaller amount of capital as compared to a corporation.

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February 2021
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PRINCIPLES OF
ACCOUNTING 12 Document No. Developed by:
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