CHAPTER ONE: Basic Considerations and Formation Limited Life – dissolved by admission,
death, insolvency, incapacity, withdrawal
BRIEF HISTORY or expiration specified. 2200 B.C. – Hammurabi, King of Babylon, provided Unlimited Liability – all partners except for the regulation of partnerships. limited partners are liable for all debts incurred by the partnership. Ancient Rome – partnership = societa Income taxes – per R.A. No. 9337, Middle Ages partnership, except GPP, are subject to o Italy – laws of partnership developed; Italian 30% rate of taxable income. merchants operated in limited partners. o U.S. – English setters brought partnership in Partners’ Equity Accounts – each U.S. partner has a capital account and a Partnership law evolved from withdrawal account Partnership Act of 1890 III. ADVANTAGES AND DISADVANTAGES Uniform Partnership Act, 1914 A. Advantage VS Proprietorships Uniform Limited Partnership Act, Greater financial capability 1916 Combines skills, expertise and o Philippines experience Before the effectivity of the new Relative freedom and flexibility in Civil Code (Aug. 30, 1950), there decision-making are 2 types of partnership: B. Advantage VS Corporations commercial and civil. Easier and less expensive Commercial or mercantile More personal and informal partnerships – Code of Commerce C. Disadvantages Civil or non-commercial Easily dissolved; unstable partnership – Old Civil Code Mutual agency and unlimited New Civil Code – Rules from the 2 liability create personal obligations American Uniform partnership Acts less effective in raising large were incorporated. amounts of capital IV. PARTNERSHIP DISTINGUISED FROM I. DEFINITION CORPORATION 1. Partnership – two or more persons bind Partnership Corporation themselves to contribute money, property or Created by industry/skills to a common fund, with the operation of Manner of Mere law (Articles intention of dividing the profit. Creation agreement of Civil Code of the Philippines, incorporation) Article 1767: Partnership for the At least five exercise of profession. not Uniform Partnership Act, Section exceeding No. of persons Two or more fifteen 6: association to carry-on, as co- (New law- owners, a business for profit. One person Civil Code of the Philippines, corporation) Article 1768: Has a juridical Issuance personality separate and distinct (Signing) of Commencement Execution of the certification from that of each of the partners. of Juridical articles of of Persons involved + partnership Personality partnerships incorporation 2. Profession – occupation that involves a by SEC higher education or its equivalent, and Every partner is mental rather than manual labor. an agent (if Vested on Management there is no the board of General professional managing directors partnerships – partnership of partner) profession Each partner, II. CHARACTERISTICS OF PARTNERSHIP except limited Stockholders partners, is are liable Mutual Contribution – without Extent of liable to the ONLY to the contribution, no partnership. Liability extent of his extent of their Division of Profits and Losses – each personal investment partner must share assets. Co-ownership of Contributed Assets Has the Right of capacity of – one partner contributes an asset; all Succession No right continued partners own it in a special sense. existence Mutual Agency – any partner can bind Not to the others to a contract if he is acting Any period exceed in 50 Terms of stipulated by years within his express or implied authority. Existence partners (New law – unlimited life) V. CLASSIFICATIONS treatment of excess contribution and A. According to object penalties for a partner’s failure to invest and All present property – all maintain the agreed capital. contributions become part of the 5. Rights and duties of each partner partnership fund. 6. Accounting period to be adopted, nature of Profits – all that the partners may accounting records, financial statements and acquire by their work during the audits by independent public accountants partnership and the use of whatever 7. Method of sharing profit or loss, frequency of the partners contributed at the time income measurement and distribution, of institution belong to the including any provisions for the recognition of partnership. differences in contributions Particular Partnership – object is 8. Drawings or salaries to be allowed to each determinate: exercise of profession partner or vocation. 9. Provision for arbitration of disputes, B. According to liability dissolution and liquidation General – all partners are liable. Limited – liable only to the extent of VIII. SEC REGISTRATION their personal contribution; shall Partnership having a capital of 3,000, in have at least one general partner. money or property, is valid and must be C. According to duration recorded with SEC. Fixed term or for a particular Philippine Accountancy Act of 2004, undertaking. Sec. 28 – SEC shall not register any Partnership at will – no term corporation organized for the practice of specified public accountancy D. According to purpose Dean Capistrano, IV Civil Code of the Commercial or trading – business Philippines – Purpose of registration is Professional or non-trading – to “set a condition for the issuance of profession the licenses to engage in business or E. According to legality of existence trade…” IX. ACCREDITATION TO PRACTICE PUBLIC De jure – complied all legal ACCOUNTANCY requirements De facto – failed to comply legal CPAs, partners and staff engaged in requirements public accountancy shall register with VI. KINDS OF PARTNERS the Professional Regulation Commission 1. General – liable to the extent of his separate and the Professional Regulatory Board property of Accountancy. 2. Limited – liable only to the extent of his o The Philippine Accountancy capital contribution: not allowed to contribute Act of 2004, Sec. 31 - industry or services 3. Capitalist – contributes money or property to the common fund 4. Industrial – contributes knowledge or personal services 5. Managing – appointed as manager 6. Liquidating – designated to wind up or settle the affairs after dissolution 7. Dormant – do not take an active part; not known as partner 8. Silent – do not take an active part; may be known as a partner 9. Secret – takes an active part; not known to be a partner by outside parties 10. Nominal or partner by estoppel – not a partner but represents himself as one. VII. ARTICLES OF PARTNERSHIP embodies the partnership agreement 1. Partnership name, nature, purpose and location 2. Names, citizenship and residences of partners 3. Date of formation and duration 4. Capital contribution of each partner, procedure for valuing non-cash investments,