College of Business Administration Education

Legal Management
Bolton Street, Davao City
Personal Law Notes
Jedi Bentillo
LAW ON PARTNERSHIP AND CORPORATIONS

(Otherwise: Law on Business

Organizations)
CONTENTS (BRIEF)
PART I. PARTNERSHIP
CHAPTER 1. GENERAL PROVISIONS
CHAPTER 2. OBLIGATIONS OF PARTNERS
CHAPTER 3. DISSOLUTION AND WINDING UP
CHAPTER 4. LIMITED PARTNERSHIP
PART II. PRIVATE CORPORATIONS
TITLE I. General Provisions
TITLE II. Incorporation and Organization of Private
Corporations
TITLE III. Board of Directors/Trustees/Officers
TITLE IV. Powers of Corporations
TITLE V. By Laws
TITLE VI. Meetings
TITLE VII. Stocks and Stockholders
TITLE VIII. Corporate Books and Records
TITLE IX. Merger and Consolidations
TITLE X. Appraisal Right
TITLE XI. Non-Stock Corporation
TITLE XII. Close Corporation
TITLE XIII. Special Corporations
CHAPTER 1. Educational Corporation
CHAPTER 2. Religious Corporation
TITLE XIV. Dissolution
TITLE XV. Foreign Corporations
TITLE XVI. Miscellaneous Provisions

PART I. PARTNERSHIP
Art. 1767. 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.
Definition
Partnership is a contract whereby two
or more persons bind themselves to
contribute money, property or industry
to a common fund with the intention of
dividing profits among themselves.
Elements
1. Intention to form a
contract of partnership
2.
Participation in both profits and
losses
3.
Community of
interests

Basic
Features

College of Business Administration Education

Legal Management
Bolton Street, Davao City
Personal Law Notes
Jedi Bentillo

1.
2.
3.
4.
5.
6.
7.

Voluntary agreement
Association for profit
Mutual contribution to a common
fund purpose or object
Lawful
Mutual agency of partners
Articles must not be kept secret
Separate juridical personality

Characteristic
s
1. Consensual perfected by mere
consent.
2. Bilateral formed by two or
more persons creating reciprocal
rights and obligations.
3. Preparatory - entered into as a
means to an end.
4. Nominate has a special name or
designation.
5. Onerous contributions in the form
of either money, property and/or
industry must be made.
6. Commutative the undertaking of
each partner is considered as the
equivalent of that of the others.
7. Principal its existence or validity
does not depend on some other
contract.
Principle of Delectus Personae
(choice of persons) a person has
the right to select persons with whom
he wants to be associated with in
partnership.

Art. 1768. The partnership has a

juridical personality separate and
distinct from that of each of the
partners even in case of failure to
comply with the requirements of
Article
1772,
first
paragraph.
Partnership,
a
juridical person
As an independent juridical person,
a partnership may enter into
contracts, acquire and possess
property of all kinds in its name,
as well as incur obligations and
bring civil or criminal actions. Thus,
a partnership may be declared
insolvent even if the partners are
not. It may enter into contracts
and may sue and be sued in its
firm name or by its duly authorized
representative.
It
is
sufficient
that service of summons be served
on any partner.
Partners cannot be held liable
for the obligations
of the
partnership unless it is shown
that the legal fiction of a different
juridical personality is being used
for a fraudulent, unfair or illegal
purpose.

College of Business Administration Education

Legal Management
Bolton Street, Davao City
Personal Law Notes
Jedi Bentillo

Efect of failure to comply with

statutory
requirements
Under Art 1772
Partnership still acquires personality
despite
failure to comply with the
requirementsofof public
execution
instrument
and
registration of name in SEC.

Under Arts 1773 and

1775
Partnership
with
immovable
property contributed, if without
requisite inventory, signed and
attached to public instrument, shall
not
acquire
any
juridical
personality because the contract
itself is void. This is also true for
secret associations or societies.
To organize a partnership not
an absolute right
It is but a privilege which may be
enjoyed only under such terms
as the State may deem necessary
to impose.
Art.
1769. In determining
whether
a partnership exists,
these rules shall apply:
1.

Except as provided by Article

1825, persons
who are
not
partners as to each other are
not partners as to third persons.

2.

Co-ownership
or
copossession
does not
of itself
establish
a
partnership,
whether such co-ownership or
co- possessors do or do not
share
any profits made by the
use of the property.

3.

The sharing of gross returns

does not of itself
establish
a
partnership, whether or
not the persons sharing them
have a joint or common right or
interest in any property from
which the returns are derived.

4.

The receipt by a person of a

share of the
profits
of
a
business
is
prima facie
evidence that he is a partner in
the business, but no such
inference shall be drawn if such
profits
were
received
in
payment:
a. As a debt by installments or
otherwise.
b.

As wages of an employee or
rent to a landlord.

c. As
an
annuity
to a
widow or representative of a
deceased partner.

College of Business Administration Education

Legal Management
Bolton Street, Davao City
Personal Law Notes
Jedi Bentillo

d. As interest on a loan, though the

amount of payment vary with the
profits of the business.

There is co-ownership whenever the

ownership of an undivided thing or
right belongs to different persons.

e.

Clear intent to derive profits

from operation of business
Co-ownership does not of itself
establish the existence of a
partnership, although it is one of its
essential elements. This is true
even if profits are derived from the
joint ownership.
The
profits
must be
derived from
the
operation
of
business
by the
members
of
the
association
and not merely
from
property
ownership.

As the consideration for the

sale of a goodwill of a business
or
other
property
by
installments or otherwise.

In
general,
to
establish
the
existence of a partnership, all of
its
essential
features
or
characteristics must be shown as
being present. In case of doubt,
art.1769 shall apply. This article
seeks to exclude from the category
of
partnership
certain
features enumerated
herein
which,
by themselves, are not
indicative of the existence of a
partnership.
Persons not partners as to each
other Persons
who
are
partners as between themselves
are partners as to third persons.
Generally, the converse is true: if
they are not
partners
between
themselves,
they cannot
be
partners
as
to third
persons.
Partnership
is
a
matter
of
intention, each partner
giving
his
consent
to
become a
partner.
However,
whether
a
partnership exists between the
parties
is
a
factual matter.
Where parties declare they are not
partners, this, as a rule, settles the
question between
them.
But
where
a
person misleads third
persons into believing that they
are
partners
in
a
nonexistent partnership, they become
subject to liabilities
of partners
(doctrine
of estoppel).
Whether or not the parties call their
relationship or believe it to be a
partnership is immaterial. Thus,
with the exception of partnership
by estoppel, a partnership cannot
exist as to third persons if
no
contract
of partnership
has
been entered into between the
parties themselves.
Co-ownership
possession

or

co-

The law does not imply a

partnership
between co-owners
because of the fact that they
develop or operate a common
property, since they may rightfully
do this by virtue of their respective
titles. There must be a clear intent
to form a partnership.
Existence of
relationship

fiduciary

Partners
have
a
well-defined
fiduciary
relationship
between
them. Co-owners do not. Should
there be dispute; the remedy of
partners is an action for dissolution,
termination and accounting. For
co-owners it would be one, for
instance, for non- performance of
contract. People can become
co-owners without a contract but
they cannot become partners
without one.
Persons
living
together
without benefit of marriage
Property acquired governed by
rules on coownershi
p.
Sharing of gross returns not
even presumptive evidence of
partnership
The
mere
sharing
of
gross
returns alone does
not even
constitute
prima
facie evidence
of
partnership,
since
in
a
partnership, the partners share
profits after satisfying all of the
partnerships liabilities.

College of Business Administration Education

Legal Management
Bolton Street, Davao City
Personal Law Notes
Jedi Bentillo

Reason for the

rule
Partner interested in both failures and
successes; it is the chance of loss or
gain that
characterizes
a
business.
Where the contract
requires a given portion of gross
returns to be paid over, the portion is
paid over as commission, wages, rent,
etc.
Where
there
is
evidence of
mutual management
Where there is further evidence of
mutual management and control,
partnership may result.
Receipt of share in the profits
strong presumptive evidence of
partnership
An
agreement
to
share
both
profits and losses tends strongly to
establish
the
existence
of
a
partnership. It is not conclusive,
however, just prima facie and may be
rebutted by other circumstances.
When no such inference will be
drawn Under par. 4 of art. 1769,
sharing of profits is not prima facie
evidence of partnership in the cases
enumerated under subsections (a)
(e). In these cases, the profits are not
shared
as
partner
but
in some
other respects
or
purpose.
The
basic
test of partnership is whether
the business is carried on in behalf of
the person sought to be held liable.
Sharing of profits as
owner
It is not merely the sharing of profits,
but the sharing of them as co-owner of
the business or undertaking that
makes
one partner. Test: Does the
recipient have an equal voice as
proprietor in the conduct and control
of the business? Does he own a
share of the profits as proprietor of the
business producing them? One must
have an interest with another in the
profits of a business as profits.
Burden
of
proof
and
presumption
The
burden
of
proving
the
existence of a partnership rests on
the party having the afirmative of
that issue. The existence of a
partnership must be proved and will
not be presumed. The law presumes
that those acting as partners have
entered
into
a contract
of

partnership.
Where
the law
presumes
the
existence
of
partnership, the burden of proof is
on the party denying its existence.
When a partnership is shown to
exist, the presumption is that it
continues and
the
burden
of
proof is on the person asserting its
termination. One who alleges
partnership cannot prove it merely
by evidence of an agreement
using the term partner. Non-use
of the term, however, is entitled
to
weight.
The
question
of
whether a partnership exists is not
always
dependent
upon
the
personal
arrangement
or
understanding
of
the
parties.
Parties intending to do a thing
which in law constitutes partnership
are partners.
Legal intention is the crux of
partnership.
Parties
may
call
themselves partners but their
contract
may
be
adjudged
something
quite
different.
Conversely, parties may expressly
state
that
theirs
in not
a
partnership yet the law may
determine otherwise on the basis
of legal intent. However, courts
will be influenced to some extent
by what the parties call their
contract.
Tests and incidents of
partnership
In
determining
whether
a
partnership exists,
it is
important
to
distinguish
between tests or indicia and
incidents of partnership. Only those
terms of a contract upon which the
parties have reached an actual
understanding,
either
expressly
or impliedly, may afford a test
by which
to ascertain the legal
nature of the contract. Some
of
the
typical
incidents of
a
partnership are:
1.
The partners share in profits
and losses.
2.
They have equal rights in the
mgt
and
conduct
of
the
partnership business.
3. Every partner is an agent of the
partnership, and entitled to bind
the others by his acts. He may
also be liable for the entire
partnership obligations.
4.
All partners are personally
liable
for the debts of the
partnership with their separate

College of Business Administration Education

Legal Management
Bolton Street, Davao City
Personal Law Notes
Jedi Bentillo

property
except
that
limited
partners are not bound beyond
the amount of their investment.
5.
A
fiduciary
relation
exists
between
the partners.
6. On dissolution, the partnership is
not terminated, but continues until
the winding up of partnership is

completed. Such incidents may

be modified by stipulation of the
partners.
Similarities
between
a
partnership and a corporation
1.
Both have juridical personality
separate and distinct from that
of the individuals composing it;

College of Business Administration Education

Legal Management
Bolton Street, Davao City
Personal Law Notes
Jedi Bentillo