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By the contract of partnership, two or more persons binds themselves

together to contribute money, property or industry to a common fund
with the intention of dividing the profits among themselves.

Two or more partnership may also form a partnership for the exercise of
a profession


Based on liability of partners

a. General partnership
b. Limited Partnership

Based on Taxation
a. General professional partnership
b. General co-partnership.

Based on liability of partners

General partnership partnership created and operated with a general


General partner is one whose liabilities or obligations are not limited only
to his/her capital contributions. Creditors have the right to go after the
personal properties of the general partner in the event of the partnerships

Limited partnership is a partnership consisting of a general partner

and a limited partner. A partner is considered limited when his/her
liability is limited only to his/her capital contributions. In the event of the
partnerships dissolution and partnership is insolvent, the creditors
cannot go after the personal properties of a limited partner

Based on Taxation

General professional partnership is a partnership formed for the

purpose of exercising the partners common profession and no part of
income of which is derived from engaging in any trade or business.

General co-partnership is a partnership created for the purpose of

obtaining profits from the conduct of trade or business.


A general professional partnership (GPP) is formed by persons for the

purpose of exercising their profession.

GPP is not a taxable entity since it acts only as a pass through entity
where its income is finally taxed to the partners comprising it.

A general professional partnership exempted from income taxation is

still required to fine an income tax return for the purpose of providing
proper information on the share of each partner.

The net income of GPP, for purposes of computing the distributive share
of the partners, shall be computed in the same manner as a corporation.

Tax Liability of Partners in a

General Professional Partnership
The following guidelines determine the tax liability of a partner is a general
professional partnership
1. Each partner shall report as gross income his/her distributive share,
actually or constructively received, in the net income of the partnership.
2. The partners in a GPP shall be liable for income tax only in their
separate and individual capacities.
3. On the partners distributive share in GPP, the individual partner can still
claim deductions incurred or paid by him/her subject to the following

If the GPP uses the itemized deductions, the partners may still claim
itemized deductions from the partnerships share. However, they are
precluded from claiming the same expenses already claimed by the GPP.

If the GPP avails of itemized deductions, the partners are not allowed to
claim the OSD form their share in the net income of the GPP. This means
that the OSD is in lieu of the items of deductions claimed both by GPP
and the partners.

If the GPP avails the OSD in computing its net income, the partners can
no longer claim further deductions from their share in the net income of
the GPP

The method of deductions on other gross income of the partner derived

from trade, business or practice of profession would follow the same
deduction availed of from GPPs distributive income.

If the GPP opts for the OSD, a partner may also use the OSD on other
gross income from trade, business or exercise of profession, but not to
include his/her share from the net income of the GPP.

The distributive share of the partners in a GPP shall be subject to

creditable withholding tax based on the following rates
10% - share in the net income is P720,000 or less
15% - Share in the net income exceeds P720,000

The amount of creditable withholding tax shall be withheld by the

GPP and deducted by each partner in his/her income tax due upon filing
his/her return.


A general co-partnership unlike a general professional partnership, is a

taxable entity.

Tax Liability of a Partner In Co-partnership

The following guidelines shall be observed in determining the tax
liability of a partner in a general co-partnership:
1. A general co-partnership is taxable on its income like a corporation.
2. The share of a partners in a general co-partnership subject to tax is
treated like a dividend, that is, the share is also subject to final tax.

Prob 1

TMG and Company is a general professional partnership, with Tabag,

Macariola and Garcia participating equally in the income and expenses.
The following are the data for the partnership and the partners in a
calendar year




Gross Income













Income subject
To final taxes


1. How much is the table income of the Partnership?

2. How much is the distributive share of each partners in the income of the
3. How much is the taxable income of Tabag?
4. Assume the partnership is a commercial partnership, how much is the
taxable income of the partnership?
5. Assume the same assumption in Question #4, how much is the taxable
income of Garcia?
6. Assume the same assumption as in Question #4, how much is the
distributive share of each partner?