Sole proprietorship a person personally conducts business under his name or a

business name. the business is an organization composed of the proprietor himself

and his employees but it has no personality separate and distinct from the
proprietor.
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 (CC Art. 1767)
Joint Accounts (cuentas en participcion) an arrangement whereby merchants may
interest themselves in the transactions of other merchants, contributing thereto the
amount of capital they may agree upon, and participating in favorable and
unfavorable results thereof in the proportion they may determine (Code of
Commerce, Art. 239). This is commonly called an accidental partnership and there
is no indication in the public that there is an existing arrangement because only the
ostensible partner is conducting the business.
Joint Venture an association of persons or companies jointly undertaking some
commercial enterprise; generally, all contribute assets and share risk. It requires a
community interest in the performance of the subject, a right to direct and govern
the policy connected therewith, and duty, which may be altered by agreement to
share both in profits and losses. (Kilosbayan vs Guingona)
Business trust it is a legal relation whereby one person, called the trustor, conveys
a property to another for the benefit of a person called the beneficiary. The person
in whom the confidence is reposed is called the trustee. (CC Art. 1440)
Cooperative duly registered association of persons, with common bond of interest,
who have voluntarily joined together to achieve lawful, common social or economic
end, making equitable contributions to the capital required and accepting a fair
share of the risk and benefits of the undertaking in accordance with the universally
accepted cooperative principles (RA 6938, Sec. 3)
Corporation an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence (Corpo Code, Sec, 2)
Sole Proprietorships the sole proprietorships, where the business enterprise is not
endowed with a separate juridical personality, (Excellent Quality Apparel, Inc. vs.
Win Multiple-Rich Builders, Inc., 578 SCRA 272) is less saddled with the many
requirement and regulations. The owner is in command of his whole business and
he stands to lose as much as he puts in and even more to the extent of all his
personal holdings, in the event the business venture goes bankrupt. Consequently,
the doctrine of limited liability does not apply in the sole proprietorship setting that
will limit the claims of business creditors to the assets of the business enterprise.

This is in contrast to a corporation where control of the corporate enterprise is

vested in the Board of Directors, and there is limited liability on the part of the
shareholders. Consequently, sole proprietorships work well only for carrying-on
simple or small business endeavors, and do not function well in cases of large
enterprises which require huge capital investments and specialized management
skills.
Yet, the sole proprietorship remains the basic structure upon which many of the
theories on liability draw their basis. The sole proprietor, who exercises both the
prerogatives of control and management and the main beneficiary of the income
and fruits of operation that flow from full ownership of the business enterprise,
remains personally liable for all debts and liabilities of the enterprise with all his
assets and properties, whether they be intended for business or those for personal
consumption or enjoyment. The business creditors of the sole proprietor can claim
satisfaction from both the business and personal assets of the sole proprietor, in the
same manner the non-business or personal creditors of the sole proprietor can claim
satisfaction from both the business and personal assets of the sole proprietor.
Perhaps this sate of things happen in a sole proprietorship because the income
coming from the business enterprise may also be flowed out from the business into
personal enjoyment or satisfaction of the sole proprietor, and vice versa.
In other words, sole proprietorship represents the highest form of unlimited
liability when it comes to the sole proprietor (i.e., a sole proprietor is liable for
assets, but for all his assets not exempt from execution), because he has in his
person not only the prerogatives of management but also the benefits of ownership,
and the flow of transactions and income is not limited within the confines of the
business.
Partnerships Article 1768 of the CC provides that 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 registration requirements of the said Code.
The most important distinction between the corporation and the partnership is in
their legal capacities, with the right of succession, a corporation has a stronger legal
personality, enabling it to continue despite the death, incapacity, withdrawal or
insolvency of any of its stockholders or members. In a partnership, the withdrawal,
death, incapacity or insolvency of any partner would automatically bring about the
dissolution of the partnership.
Limited liability is a main feature in a corporate setting, whereas partners are liable
personally for partnership debts not only to what they have invested in the
partnership but even as to their other properties.
Generally, every partner is an agent of the partnership and by his sole act, he can
bind the partnership, whereas in a corporation, only the Board of Directors or its
agents can bind the corporation.

In a partnership setting, although a partner has the power to sell or dispose of his
capital interest or propriety interest, the buyer or transferee does not assume
transferors position as partner, but merely has a right to demand for accounting or
distribution of the profits pertaining thereto. The principle of delectus personae
prevails in the partnership setting. In a corporate setting, every stockholder has the
right to transfer his shares in the corporation, and the buyer or transferee assumes
the role of stockholder of said shares when the transfer has been duly registered in
the corporate books. Free transferability of the units of ownership is a hallmark
feature in the corporate setting.
Does a defective incorporation process result into a partnership?
The clear distinctions between the corporation and partnership can best be
illustrated by discussing the issue of whether a defective incorporation which does
not result in the grant of a charter to a corporate being, would at least result into a
partnership.
The legal principle is that when parties come together and all the elements of a
particular contract are present, although the parties may have dominated it
otherwise, the law will impose such contractual relationship upon them. In other
words, the contract or legal relationship is what the law say it is, not how the parties
wish to call it. Therefore, if 5 or more persons agree to contribute money or property
to a common venture to be pursued in corporate medium, with the intention of
dividing the profits among themselves through their agreed distribution of shares of
stocks, but the business venture is pursued without a corporation being duly
incorporated and registered, would there have arisen at least among the parties a
contract of partnership?
Negative. Both corporate and partnership relationships are fundamentally
contractual relationships created by co-venturers who consent to e together under
said relationships. If the parties had intended to create an association in the form of
a corporation, a partnership cannot be created in its stead since such is not within
their intent, and therefore does not constitute a part of their consent to the
contractual relationship.
In addition, the important differences between the corporation and the partnership
cannot lead one to the conclusion that in the absence of the first, the contracting
parties would have gone along with the latter. Limited liability centralized
management and easy transferability of the units of ownership in a corporate
setting are by themselves strong factors for parties intention to be bound in the
corporate relationship, and one cannot presume that if these features were not met
that the parties would in the alternative wish to be covered by a partnership
relationship, which generally would involve unlimited liability, mutual agency among
the partners, and the delectus personae feature.

The essence of what constitutes the contractual relationship of partnership under

article 1767 is the coming together or what is known as delectus personae and not
just the joint venture. The essence of partnership is the personal relationship we
chose the other co-venturer/s and would not want to do the business with anybody
else. On the other hand, an investor who seeks to enter into a corporate relationship
perhaps does not even care about the personality of the other co-venturers, and is
most likely aware that he himself and others have the ability to transfer their
investments to third parties.
On the other hand, there are contrary views. Under section 21 of the corporation
code, when parties act and pretend to be a corporation, when in fact none exist, the
law would impute to them a juridical personality to validate the contract under the
corporation by estoppel doctrine; however, it would treat the parties as partners
since it expressly makes them liable as general partners.
Under such a view, the main issue would be the priority between the personal
creditors of the partners in a corporation by estoppel doctrine, and the
corporate creditors of the CBE, as to the assets invested into the venture. It would
presume that it would be the corporate creditors that would have priority over the
corporate assets as this seems to be the moving spirit of the CBE doctrine.
The Court took the position that such partnership relationship does not exist, for
ordinarily persons cannot be made to assume the relation of partners, as between
themselves, when their purpose is that no partnership shall existand it should be
implied only when necessary to do justice between the parties; thus, one who takes
no part except to subscribe for stock in a proposed corporation which is never
legally formed does not become a partner with other subscribers who engage in
business under the name of the pretended corporation, so as to be liable as such in
an action for settlement of the alleged partnership and contributions A
partnership relation between certain stockholders and other stockholders, who were
also directors, will not be implied in the absence of an agreement so as to make the
former liable to contribute for payment of debts illegally contracted by the latter.
Nor will it make the investor to a would-be corporation liable for losses sustained
from its operations under a partnership inter se theory. The key elements in
resolving the issue seem to have been in Pioneer Insurance those of intent and
participation in business activities.
The doctrinal pronouncement in Pioneer Insurance can be summarized as follows:
When parties come together intending to form a corporation but no corporation is
formed due to some legal cause, then:
a. Parties who had intended to participate or actually participate in the business
affairs of the proposed corporation would be considered as partners under a
de facto partnership, and would be liable as such in an action for settlement
of partnership obligations;

b. Parties who took no part except to subscribe to shares of stock in the

intended corporation, do not become partners with other subscribers who
engaged in business under the name of the pretended corporation, and are
not liable for action for settlement of the alleged partnership contribution.
The doctrinal pronouncements in Pioneer Insurance are inconsistent with the
distinctions between an investor in a partnership venture, where there is a clear
intent to participate in the management of the partnership business and for which
limited liability is not afforded by law; and an investor in a corporation, where under
the principal of centralized management, there is not intent to participate in the
corporate operations, and for which limited is afforded by law.
In the case of Lim Tong v Philippine Fishing Gear, the findings were contrasted as
the Supreme Court said that where the liabilities of the parties were adjudged
under the corporation by estoppel doctrine.
In a limited partnership setting, the prerogatives of management of the business
enterprise are divorced from a person who thereby is made to assume the passive
role of being a mere beneficiary of the profits flowing from the business enterprise,
he is thereby accorded limited liability status, and that a person so classified as
having limited liability, the moment he exercises the prerogatives of management,
he thereby becomes unlimitedly liable for all debts and obligation of the business
enterprise.