Finance Consulting to

Partnering in a Business
Venture

Short business case analyses

presented to the
Accountancy Department

In partial fulfillment
of the course requirements
in ACTBAS3

February 23, 2017

 According to Article 1767 of the Civil Code of the Philippines, a partnership is a

contract whereby two or more persons bind themselves to contribute money, property or

industry into a common fund with the intention of dividing the profit among themselves.

Ignatius Xavier and Francis de Loyola works for John Sales Leasing, which lets

individuals lease high-tech medical equipment. Ignatius and Francis, both a member of

the finance department, wanted to start their own business which provides consulting

services to those individuals who leased their medical equipment. They now want to

know how a partnership works.

Some of the major disadvantages of starting a partnership are limited capital

when compared to a corporation and unlimited liability for the partners because

creditors may go after their personal assets depending on whether they are a general

partner or not. Partnerships can be easily dissolved, whenever there is an admission or

withdrawal of a partner, you need to dissolve the partnership first, making it less stable.

There is also difficulty in transferring ownership interest because you need the consent

of all the partners. Also, most likely, there will be disagreement or tension between the

partners because there is divided authority and not all will share the same views as the

other. They should also remember that what one partner does will affect the other

partners and they should inform and ask the opinion of one another when making a

significant decision for the partnership.

To register a partnership with the Securities and Exchange Commission (SEC),

partners need to pass the registration form and the Articles of Partnership which is a

written agreement which contains how the partners decide to operate the partnership. It

contains the name of the partnership; the names, addresses of the partners, classes of
partners (general or limited partner); the effective date of the contract; the purpose and

principal place of business of the business; the capital of the partnership and the

original contributions of the partners; the rights and duties of the partners; the manner of

dividing profit or loss among the partners or their profit and loss ratio; the conditions

under which the partners may withdraw money or other assets; the manner of keeping

the books of accounts; the causes for dissolution and the provision for arbitration in

settling disputes. After passing this, the SEC will issue a certificate.

Since Ignatius has higher contribution, it would be fair to want to compensate it.

They could either decide to make Ignatius, the managing partner so that he can receive

a bonus - although, there is no assurance that he will be able to receive it because it is

only applicable if there is a net income; or they can just decide to base it on the

partner’s original capital balances.

Following the full disclosure principle which requires that all information that

could affect the interpretation of the financial statements should be reported or

disclosed, meaning Ignatius needs to disclose his additional investment.