Mar Edward Earl S.

Dales 2-D

Partnership Atty. Marciano G. Delson Nov.19, 2011

Paper on whether or not a corporation can enter into partnership Article 1767 of the New Civil Code of the Philippines stated that 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. Two or more persons may also form a partnership for the exercise of a profession. Under the Uniform Partnership Act which is one of the sources of partnership of our Philippine Law, A partnership is an association of two or more persons to carry on as co-owners of a business for profit. The essential requisites of partnership are there must be a valid contract, the parties must have legal capacity to enter into the contract, there must be a mutual contribution of money, property, or industry to a common fund, the object or purpose must be lawful, the primary purpose must be to obtain profits to divide the same among the parties and there must be at least one general partner. The Characteristics of Partnership are Consensual, Bilateral, Nominate, Onerous, Commutative, Principal and Participatory.This was further explained in Mendiola vs. Court of Appeals G.R. No. 159333 July 31, 2006, in a partnership, the members become co-owners of what is contributed to the firm capital and of all property that may be acquired thereby and through the efforts of the members. The property or stock of the partnership forms a community of goods, a common fund, in which each party has a proprietary interest. In fact, the New Civil Code regards a partner as a co-owner of specific partnership property. Each partner possesses a joint interest in the whole of partnership property. If the relation does not have this feature, it is not one of partnership. Can a corporation enter into a partnership agreement? Is the prohibition absolute?

A corporation cannot enter into a partnership contract unless it is allowed by the law or by its charter. The Supreme Court Jurisprudence in Aurbach v. Sanitary Wares Manufacturing Corporation GR No. 75875 December 15, 1989 mentioned that although a corporation cannot enter into a partnership contract, it may however engage in a Joint Venture. The said Joint Venture should be in line with the business of the corporation stated in its Articles of Incorporation and its By-Laws. The limitation of the corporation to enter into a partnership is in furtherance of public policy that a corporation should be manage by its officers that has powers and responsibilities vested upon them by the Articles of Incorporation and its ByLaws of the said corporation. In Mendiola vs. Court of Appeals G.R. No. 159333 July 31, 2006, a corporation cannot become a member of a partnership in the absence of express authorization by statute or charter. This doctrine is based on the following considerations: (1) that the mutual agency between the partners, whereby the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders when they originally invested in the corporation. The said case provides for the reasons why a corporation cannot enter into a partnership. However, the corporation can enter into a Joint Venture. Joint Venture as provided in the Supreme Court jurisprudence of Kilosbayan Incorporated vs. Guingona GR No. 118910 November 16, 1995, an association of persons or companies jointly undertaking some commercial enterprises: generally all contribute assets and share risks. In the definition of International Trade Center, Joint Venture is the joining of forces between two or more enterprises, of the same or different countries, for the purpose of carrying out a specific operation

(industrial, commercial, investment, production or trade). This includes consortia, export consortia, export marketing groups, joint export marketing groups. It was stated also in the Supreme Court Jurisprudence of J.M. Tuason vs. Bolanos G.R. No. L-4935 May 28, 1954 it pointed out that a corporation can enter into a joint venture which is inclined with its business. Its requisites are a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith and the duty to share profits and losses. The said Joint Venture is usually temporary in nature and based only in a single transaction. There is specific business or for limited purposes only that a corporation and an individual/group of persons/partnership can enter and agreed upon. Also, it has a separate legal personality from the corporation and parties that enter into a Joint Venture. It is not a legal partnership but in has the main points of the partnership. The laws on contracts based in the New Civil Code of the Philippines apply to the Joint Venture contract. Usually, Joint Venture is entered into by corporations. In a Securities and Exchange Commission (SEC) Opinion April 29, 1985, it stated that two or more corporations can enter into a joint venture through an agreement if the nature of the venture is authorized by their charters, which contract need not be registered with the SEC; provided, however that the joint venture will not result in the formation of a new partnership or corporation. Parties who entered into Joint Venture have an obligation to do the responsibilities stated in the Joint Venture contract. Also, the trust and confidence of each party to each other must be adhered. The principle of delectus personae must be complied that a party cannot assign its interest with other party without the consent of the other party who is in a Joint Venture. The parties must share in the capital, management and profits of a joint venture.

Foreign Corporations can enter into a joint venture as provided by Republic Act No. 7042 or the Foreign Investments Act of 1991, Section 5. Registration of Investments of Non-Philippines Nationals. Provided, finally, That a non-Philippine national intending to engage in the same line of business as an existing joint venture, in which he or his majority shareholder is a substantial partner, must disclose the fact and the names and addresses of the partners in the existing joint venture in his application for registration with the SEC. There are different types of Joint Venture which a corporation can enter into based on International Trade Center of UNCTAD/GATT: Equity which are Formation of New Company and Equity participation in Existing Company, Contractual which are Technology oriented and Marketing-Oriented. It must be noted also that the agreement must have the objectives and terms and conditions of the Joint Venture to guide them on how the parties will be liable. If the joint venture is not followed by either parties, one of the parties may resort to an action for non-performance of a contract filed before the court. A corporation should look into its Articles of Incorporation and its by-Laws and also pertinent laws like the Foreign Investment Act if it can enter into a partnership. We must see that partnership and corporation are two different concepts of business relations. Partnership is governed by the New Civil Code of the Philippines while Corporation is governed by the Corporation Code of the Philippines(Batas Pambansa 68). The number of incorporators in a partnership must be at least two persons and its commencement of Juridical Personality is from the time the contract was executed. On the other point, the corporation is incorporated by at least five incorporators and it originates with the issuance of certificate of incorporation from the Securities and Exchange Commission. The powers and management of a partnership can be exercised by any partners while in

corporation it is limited to what the Articles of Incorporation and By-Laws vested upon the Board of Directors and Trustees. But there are also similarities between the two: has separate juridical entity, can only act through its agents, organized when the law authorizes them and distributes profits among the parties who gave capital for the existence of a corporation or a partnership. Therefore, based on the Supreme Court decisions mentioned, A corporation has no power to enter into a partnership unless as provided by law or its charter.