(LIMITED PARTNERSHIP)

Study Guide
I. Definition

1. Limited partnership – A limited partnership is one formed by two

or more persons under the provisions of the following article,
having as members one or more general partners and one or more
limited partners. The limited partners as such shall not be bound
by the obligations of the partnership.

2. Substituted limited partner - A substituted limited partner is a

person admitted to all the rights of a limited partner who has
died or has assigned his interest in a partnership.

3. Presumption of general partnership – a partnership transacting

business is, prima facie, a general partnership.
 Those who seek to avail themselves of the protection
accorded by law to limited partnerships must show due
compliance with statutory requirements. In other words, to
obtain the privilege of a limited partnership liability,
one must conform to the requirements of article 1844
regulating the formation of limited partnerships.
 The failure of limited partnership to extend its term when
it expired and to register it anew with the SEC , has the
effect of divesting the limited partners of the privilege
of limited liability.

4. Contributor – practically a stranger in the limited partnership

whose liability is limited to his interest in the firm without
any right and power to participate in the management and control
of the business.

5. Preferred limited partner- general and limited partners.

II. Discussions

1. What are the characteristics of a limited partnership?

 A limited partnership is formed by compliance with the
statutory requirements
 One or more general partners control the business and are
personally liable to creditors
 One or more limited partners contribute to the capital
and share in the profits but do not participate in the
management of the business and are not personally liable
for partnership obligations beyond their capital
contributions
 The limited partners may ask for the return of their
capital contributions under the conditions prescribes by
law
 The partnership debts are paid out the common fund and
the individual properties of the general partners

2. Give the cases when a limited partner is liable as the general

partner

 Art. 1845. The contributions of a limited partner may be

cash or other property, but not services.
 Art. 1846. The surname of a limited partner shall not
appear in the partnership name unless: 1.) It is also the
surname of a general partner; Or 2.) Prior to the time
when the limited partner became such, the business had
been carried on under a name in which his surname had
appeared. A limited partner whose surname appears in a
partnership name contrary to the provisions of the first
 paragraph is liable as a general partner to partnership
creditors who extend credit to the partnership without
actual knowledge that he is not a general partner.
 Art. 1852. Without prejudice to the provisions of article
1848, a person who has contributed to the capital of the
business conducted by a person or partnership erroneously
believing that he has become a limited partner in a
limited partnership, is not, by reason of his exercise of
the rights of a limited partner, a general partner with
the person or in the partnership carrying on the
business, or bound by the obligations of such person or
partnership; provided that on ascertaining the mistake he
promptly renounces his interest in the profits of the
business or other compensation by way of income.
 Art. 1853. A person may be a general partner and a
limited partner in the same partnership at the same time,
provided that this fact shall be stated in the
certificate provided for in Art. 1844. A person who is a
general, and also at the same time a limited partner,
shall have all the rights and powers and be subject to
all the restrictions of a general partner; except that,
in respect to his contribution, he shall have the rights
against the other members which he would have had if he
were not also a general partner.

3. Give at least four differences between a general partner and a

limited partner.
GENERAL
Personally liable for partnership
obligations
When manner of mgt. not agreed upon,
all gen partners have an equal right
in the mgt. of the business
Contribute cash, property or industry
Proper party to proceedings by/against
partnership
LIMITED
Liability extends only to his capital
contributions
No participation in management
Contribute cash or property only, not
industry
Not proper party to proceedings
by/against partnership

Interest not assignable w/o consent of Interest is freely assignable

other partners
Name may appear in firm name Name must appear in firm name

Prohibition against engaging in No prohibition against engaging in

business business
Retirement, death, insolvency, Does not have same effect; rights
insanity of transferred to legal representative
gen partner dissolves partnership
4. What conditions must exist before the contribution of a limited
partner may be returned to him?
 All liabilities of the partnership, except liabilities to
general partners and to limited partners on account of
their contributions, have been paid or there remains
property of the partnership sufficient to pay them
5. Give at least for specific rights of a limited partner
 To require that the partnership books be kept at the
principal place of business of the partnership;
 To inspect and copy at a reasonable hour partnership books
or any of them;
 To demand true and full information of all things affecting
the partnership;
 To demand a formal account of partnership affairs whenever
circumstances render it just and reasonable;

III. Problems
1. It depends, the certificate is cancelled or so amended as to
set forth the withdrawal or reduction.
2. It depends, Art. 1866. A contributor, unless he is a general
partner, is not a proper party to proceedings by or against a
partnership, except where the object is to enforce a limited
partner’s right against or liability to the partnership.
3. It depends,
Art. 1844. Two or more persons desiring to form a limited
partnership shall:
Sign and swear to a certificate, which shall state –

a.) The name of the partnership, adding thereto the word

“Limited”;
b.) The character of the business;
c.) The location of the principal place of business;
d.) The name and place of residence of each member, general
and limited partners being respectively designated;
e.) The term for which the partnership is to exist;
f.) The amount of cash and a description of and the
agreed value of the other property contributed by each
limited partner;
g.) The additional contributions, if any, to be made by each
limited partner and the times at which or events on the
happening of which they shall be made;
h.) The time, if agreed upon, when the contribution of each
limited partner is to be returned;
i.) The share of the profits or the other compensation by
way of income which each limited partner shall receive by
reason of his contribution;
j.)The right, if given, of a limited partner to
substitute an assignee as contributor in his place, and
the terms and conditions of the substitution;
k.) The right, if given, of partners to admit additional
limited partners;
l.)he right, if given, of one or more of the limited
partners to priority over other limited partners, as to
contributions or as to compensation by way of income, and
the nature of such priority;
m.) The right, if given, of the remaining general partner or
partners to continue the business on the death, retirement,
civil interdiction, insanity or insolvency of a general
partner; and
n.) The right, if given, of a limited partner to demand
and receive property other than cash in return for his
contribution.
2.) File for record the certificate in the Office of the
Securities and Exchange Commission.
A limited partnership is formed if there has been
substantial compliance in good faith with the foregoing
requirements.

4. (a) Art. 1860. The retirement, death, insolvency, insanity

or civil interdiction of a general partner dissolves the
partnership, unless the business is continued by the
remaining general partners:

1.) Under a right so to do stated in the certificate, or

2.) With the consent of all members.

(b) Art. 1861. On the death of a limited partner his executor

or administrator shall have all the rights of a limited
partner for the purpose of settling his estate, and such
power as the deceased had to constitute his assignee a
substituted limited partner.

The estate of a deceased limited partner shall liable

for all his liabilities as a limited partner.
(DISSOLUTION AND WINDING UP)
STUDY GUIDE
I. Definitions

1.) Dissolution is the change in the relation of the

partners caused by any partner ceasing to be associated in
the carrying on the business.

2.) Termination is that point in time when all partnership

affairs are completely wound up and finally settled. It
signifies the end of the partnership life.

3.) A person has "knowledge of a fact" within the meaning

of this act not only when he has actual knowledge thereof,
but also when he has knowledge of such other facts as in
the circumstances show bad faith.

4.) A person has "notice of a fact" within the meaning of

this act when the person who claims the benefit of the
notice:
a) States the fact of such person, or
b) Delivers through the mail or by the other means of
communication, a written
c) statement of the fact to such person or to a proper
person at his place of business or residence.

5.) Assets of the partnership. They are:

a) Partnership property ( including goodwill); and
b) Contributions of the partners necessary for the
payment of all liabilities in accordance wuth Art.
1797.

II. Discussions

1.) Give the effect if the specific property to be

contributed is lost:

a) Before delivery- if the specific thing to be

contributed by a partner is lost before delivery,
the partnership is dissolved because there is no
contribution inasmuch as the thing to be
contributed cannot be substituted with another.
There is, here, a failure of a partner to fulfil
his part of the obligation.

b) After delivery- if the loss occurred after delivery

of the thing promised, then the partnership is not
dissolved, but it assumes the loss of the thing
having acquired ownership thereof. The partners may
contribute additional capital to save the venture.

2.) Enumerate the right of a partner who has not caused the
dissolution of a partnership wrongfully when such
dissolution is in violation of partnership agreement.

(Rights of partner who has not caused the dissolution

wrongfully)
a) To have partnership property applied for the
payment of its liabilities and to receive in cash
his share of the surplus;
b) To be indemnified for damages caused by the
partner guilty of wrongful decision;
 c) To continue the business in the same name during
the agreed term of the partnership, by themselves
or jointly with others; and
d) To possess partnership property should they decide
to continue the business.

3.) Who are authorized to wind-up the affairs of a

dissolved partnership?

(Persons authorized to wind up)

a) The partners designated by the agreement;
b) In the absence of such agreement, all the
partners who have not wrongfully dissolved the
partnership; or
c) The legal representative of the last surviving
partner (when all the partners are already dead),
not insolvent.

4.) Give the rights of an injured partner when a

partnership is rescinded or annulled on the ground of fraud
or misinterpretation committed against him.

(Rights of injured partner where partnership contract

rescinded)
a) Right of a lien on, or retention of, the surplus
of partnership property after satisfying
partnership liabilities for any sum of money
paid or contributed by him;
b) Right to subrogation in place of partnership
creditors after payment of partnership
liabilities; and
c) Right of indemnification by the guilty partner
against all debts and liabilities of the
partnership.

5.) Give the rights of an injured partner when a

partnership is rescinded or annulled on the ground of fraud
or misinterpretion committed against him.

(Rights of injured partner where partnership contract

rescinded)
a) Right of a lien on, or retention of, the surplus
of partnership property after satisfying
partnership liabilities for any sum of money
paid or contributed by him
b) Right to subrogation in place of partnership
creditors after payment of partnership
liabilities; and
c) Right of indemnification by the guilty partner
against all debts and liabilities of the
partnership.
III. Problems

1. (a) YES, Y had notice, not knowledge

(b)IT DEPENDS
2. IT DEPENDS
3. (a) IT DEPENDS under article 1834

(b) Art. 1834. After dissolution, a partner can bind the

partnership, except as provided in the third paragraph of
this article:
 1. By any act appropriate for winding up partnership
affairs or completing transactions unfinished at
dissolution.
2. By any transaction which would bind the partnership if
dissolution had not taken place, provided the other
party to the transaction:

a. Had extended credit to the partnership prior to

dissolution and had no knowledge or notice of
the dissolution.

b. Though he had not so extended credit, had

nevertheless known of the partnership prior to
dissolution, and, having no knowledge or notice
of dissolution, the fact of dissolution had not
been advertised in a newspaper of general
circulation in the place (or in each place if
more than one) at which the partnership business
was regularly carried on. The liability of a
partner under the first paragraph, No. 2, shall
be satisfied out of partnership assets alone
when such partner had been prior to dissolution:

1. Unknown as a partner to the person with whom

the contract is made.
2. So far unknown and inactive in partnership
affairs that the business reputation of the
partnership could not be said to have been in
any degree due to his connection with it. The
partnership is in no case bound by any act of
a partner after dissolution:
1. Where the partnership is dissolved because
it is unlawful to carry on the business, unless
the act is appropriate for winding up partnership
affairs.
2. Where the partner has become insolvent.
3. Where the partner has no authority to wind
up partnership affairs; except by a transaction
with one who —
a. Had extended credit to the
partnership prior to dissolution and had no
knowledge or notice of his want of authority.
b. Had not extended credit to the
partnership prior to dissolution, and, having
no knowledge or notice of his want of
authority, the fact of his want of authority
has not been advertised in the manner
provided for advertising the fact of
dissolution in the first paragraph, No. 2
(b).

4. 320,000 – 150,000 = 170,000 -20,000 = 150,000-(30,000x3) =

P60,000 (profits)÷3=P20,000 share of each profits.

5. P335,000 - 320,000-15,000 (Liability of partnership to W)

÷ 3 =5,000 (personal liability of each partner to W) Y and
Z liable to X P10,000 each. But separate creditors, C and
D, have preference over separate property of Y and Z. So,
X gets only P5,000 from Y (20,000-15,000) X gets nothing
from Z who remains liable to X for 10,000
(INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATION)
Study Guide

I. DEFINITIONS

1. Articles of corporation–is the document prepared by the

persons establishing a corporation and filed with SEC
containing the matters required by the code.

2. De Facto Corporation – generally refer to organizations

exercising corporate power under colour of a more or less
legally constituted corporation.

3. De jure corporations – is one created in strict or

substantial conformity with the mandatory statutory
requirements for incorporation and whose right to exist as a
corporation cannot be successfully questioned by any party
even in a direct proceeding for that purpose by the state.

4. Collateral attack– is one whereby corporate existence is

questioned in some incidental proceeding not provided by law
for the express purpose of attacking the corporate
existence.

II. DISCUSSIONS

1. What are the requisites in the statement of the purpose or

purposes for which a corporation is formed?
The requisites are:
(1) Purpose or purposes must be lawful.
(2) Purpose or purposes must be stated with sufficient
clarity.
(3) Primary purpose must be stated.
(4) Purpose must be capable of being lawfully combined.

2. May individuals organize a corporation by mere agreement like

in the formation of a general partnership?
NO, because under title II section 10 stated that any
number of natural persons not less than five (5) but not
more than fifteen (15), all of legal age and a majority of
whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes. Each of the
incorporators of Stock Corporation must own or be a
subscriber to at least one (1) share of the capital stock of
the corporation.

3. How shall the 25% subscription requirement be computed where

the capital stock consist only of par value shares?
Where the capital stocks consist only of par value
shares, the minimum subscription should be 25% of the amount
of the authorized capital stock or 25% of the aggregate
value of all the shares of stock the corporation is
authorized to issue.

4. What are the essential for the existence of a de facto

corporation?
  It is essential to the existence of a de facto
corporation that there be:
 A valid law under which a corporation with powers
assumed might be incorporated;
 A bona fide attempt to organize a corporation under such
law and;
 Actual user or exercise in good faith of corporate
powers conferred upon it by law.

IV. PROBLEMS

1. It depends because under title II section 22 if a

corporation does not formally organize and commence the
transaction of its business or the construction of its works
within two (2) years from the date of its incorporation, its
corporate powers cease and the corporation shall be deemed
dissolved. However, if a corporation has commenced the
transaction of its business but subsequently becomes
continuously inoperative for a period of at least five (5)
years, the same shall be ground for the suspension or
revocation of its corporate franchise or certificate of
incorporation.

2. It depends under section 11 title II A corporation shall

exist for a period not exceeding fifty (50) years from the
date of incorporation unless sooner dissolved or unless said
period is extended. The corporate term as originally stated
in the articles of incorporation may be extended for periods
not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance
with this Code; Provided, That no extension can be made
earlier than five (5) years prior to the original or
subsequent expiry date(s) unless
there are justifiable reasons for an earlier extension as
may be determined by the Securities and Exchange Commission.

3. No, there is no violation of the mandatory requirement of

minimum number of incorporators.

4. YES, subscribe of 20,000; paid-up 25% of 20,000 or 5,000.

 LAW ON
PARTNERSHIP
AND
PRIVATE
CORPORARTION
(Study Guide)

Submitted to: Ryan Yamanaka, CPA

Submitted by: Lhorene Zamora, Noha
Guianodin, Jessabel Hista, and
Christine Bañas