Notes on Law of Partnerships

Introduction

• Topic: Law on Partnerships
• Purpose: Educational, not a substitute for legal advice
• Encourage subscription for more videos

Definition of Partnership

• Partnership: A contract where two or more persons contribute money, property, or industry to a common fund with the intention of sharing profits.
• Key Elements:
  • Two or more persons must bind themselves.
  • Intention to divide profits among themselves.

Characteristics of a Contract of Partnership

1. Consensual Contract: Perfected by mere consent (expressed or implied).
2. Nominate Contract: Recognized by name.
3. Bilateral Contract: Involves reciprocal rights/obligations.
4. Onerosity: Each party aims to procure benefits.
5. Commutative: Undertakings are considered equivalent.
6. Principal Contract: Does not rely on another contract.
7. Preparatory Contract: Means to achieve profits.
8. Fiduciary Nature: Involves trust and confidence among partners.

Principle of Lex Personae

• Definition: Choice of persons involved in the partnership.
• Partners have the right to choose who joins the partnership, affecting liabilities and obligations.
• Partners can dissolve the partnership in good faith based on this principle.

Evidence of Partnership Existence

• Best Evidence: Contract of partnership or articles of partnership.
• Mere execution of documents doesn’t guarantee existence; must exhibit the two key elements.

Essential Features of a Partnership

1. Contractual Relation: Must have a valid contract (consent, object, cause).
2. Legal Capacity of Parties: Each party must be capable of giving consent.
3. Mutual Contribution: Money, property, or industry must be contributed.
4. Lawful Object: The purpose must be lawful.
5. Profit Division: Primary purpose must be to obtain profits with at least one general partner.

Creation of a Partnership

• Can be created in any form (expressed or implied).
• Subject to the statute of frauds (certain agreements must be in writing).
• Capital Requirements:
  • If less than 3,000 pesos, no special form required.
  • If 3,000 pesos or more, must be in a public instrument and registered with SEC.

Contributions to Partnership

• Forms of Capital: Can include cash, negotiable instruments, property, or services.
• Property Contributions: Must be documented with an inventory attached to the public instrument for validity.

Lawful Purpose of Partnership

• Requirement: Must not be illegal or contrary to public policy.
• Illegality: A partnership for an unlawful purpose is void by operation of law.

Profit Sharing

• Agreement on Division: Partners can determine how profits are shared, not necessarily equally.
• Exclusion of partners from profit share does not affect the existence of the partnership.

Rules for Determining Existence of Partnership

1. Persons must be partners to each other to be considered partners to third persons (general rule).
2. Co-ownership does not establish a partnership unless funds are used to produce profit.
3. Sharing gross returns alone does not indicate partnership existence.
4. Receipt of profit share is prima facie evidence of partnership existence, with exceptions.

Tests for Existence of a Partnership

1. Agreement to contribute: Must agree to contribute to a common fund.
2. Intent to divide profits: Must intend to share profits.

• Burden of proof lies on the party claiming partnership existence.

Incidents of a Partnership

• Partners share in profits/losses, have equal rights in management, and are agents of the partnership.
• Personal liability for debts exists, except for limited partners.
• Fiduciary relationship among partners.
• Continuation until winding up of affairs.

Taxation of Partnerships

• Ordinary partnerships taxed at 30% income tax.
• Partners taxed on their individual income as well (0% to 35%).
• General professional partnerships (like law firms) not taxed as entities, but partners taxed individually.

Conclusion

• Recap of partnership law covered in this episode.
• Encouragement for viewers to apply learned concepts in practice.