CHAPTER ONE: Basic Considerations and Formation  Limited Life – dissolved by admission,

death, insolvency, incapacity, withdrawal

BRIEF HISTORY or expiration specified.
 2200 B.C. – Hammurabi, King of Babylon, provided  Unlimited Liability – all partners except
for the regulation of partnerships. limited partners are liable for all debts
incurred by the partnership.
 Ancient Rome – partnership = societa
 Income taxes – per R.A. No. 9337,
 Middle Ages
partnership, except GPP, are subject to
o Italy – laws of partnership developed; Italian
30% rate of taxable income.
merchants operated in limited partners.
o U.S. – English setters brought partnership in  Partners’ Equity Accounts – each
U.S. partner has a capital account and a
 Partnership law evolved from withdrawal account
Partnership Act of 1890 III. ADVANTAGES AND DISADVANTAGES
 Uniform Partnership Act, 1914 A. Advantage VS Proprietorships
 Uniform Limited Partnership Act,  Greater financial capability
1916  Combines skills, expertise and
o Philippines experience
 Before the effectivity of the new  Relative freedom and flexibility in
Civil Code (Aug. 30, 1950), there decision-making
are 2 types of partnership: B. Advantage VS Corporations
commercial and civil.  Easier and less expensive
 Commercial or mercantile  More personal and informal
partnerships – Code of Commerce C. Disadvantages
 Civil or non-commercial  Easily dissolved; unstable
partnership – Old Civil Code  Mutual agency and unlimited
 New Civil Code – Rules from the 2 liability create personal obligations
American Uniform partnership Acts  less effective in raising large
were incorporated. amounts of capital
IV. PARTNERSHIP DISTINGUISED FROM
I. DEFINITION CORPORATION
1. Partnership – two or more persons bind Partnership Corporation
themselves to contribute money, property or Created by
industry/skills to a common fund, with the operation of
Manner of Mere
law (Articles
intention of dividing the profit. Creation agreement
of
 Civil Code of the Philippines, incorporation)
Article 1767: Partnership for the At least five
exercise of profession. not
 Uniform Partnership Act, Section exceeding
No. of persons Two or more fifteen
6: association to carry-on, as co- (New law-
owners, a business for profit. One person
 Civil Code of the Philippines, corporation)
Article 1768: Has a juridical Issuance
personality separate and distinct (Signing) of
Commencement Execution of the
certification
from that of each of the partners. of Juridical articles of
of
 Persons involved + partnership Personality partnerships
incorporation
2. Profession – occupation that involves a by SEC
higher education or its equivalent, and Every partner is
mental rather than manual labor. an agent (if Vested on
Management there is no the board of
 General professional managing directors
partnerships – partnership of partner)
profession Each partner,
II. CHARACTERISTICS OF PARTNERSHIP except limited Stockholders
partners, is are liable
 Mutual Contribution – without Extent of
liable to the ONLY to the
contribution, no partnership. Liability
extent of his extent of their
 Division of Profits and Losses – each personal investment
partner must share assets.
 Co-ownership of Contributed Assets Has the
Right of capacity of
– one partner contributes an asset; all Succession
No right
continued
partners own it in a special sense. existence
 Mutual Agency – any partner can bind Not to
the others to a contract if he is acting Any period exceed in 50
Terms of
stipulated by years
within his express or implied authority. Existence
partners (New law –
unlimited life)
V. CLASSIFICATIONS treatment of excess contribution and
A. According to object penalties for a partner’s failure to invest and
 All present property – all maintain the agreed capital.
contributions become part of the 5. Rights and duties of each partner
partnership fund. 6. Accounting period to be adopted, nature of
 Profits – all that the partners may accounting records, financial statements and
acquire by their work during the audits by independent public accountants
partnership and the use of whatever 7. Method of sharing profit or loss, frequency of
the partners contributed at the time income measurement and distribution,
of institution belong to the including any provisions for the recognition of
partnership. differences in contributions
 Particular Partnership – object is 8. Drawings or salaries to be allowed to each
determinate: exercise of profession partner
or vocation. 9. Provision for arbitration of disputes,
B. According to liability dissolution and liquidation
 General – all partners are liable.
 Limited – liable only to the extent of VIII. SEC REGISTRATION
their personal contribution; shall  Partnership having a capital of 3,000, in
have at least one general partner. money or property, is valid and must be
C. According to duration recorded with SEC.
 Fixed term or for a particular  Philippine Accountancy Act of 2004,
undertaking. Sec. 28 – SEC shall not register any
 Partnership at will – no term corporation organized for the practice of
specified public accountancy
D. According to purpose  Dean Capistrano, IV Civil Code of the
 Commercial or trading – business Philippines – Purpose of registration is
 Professional or non-trading – to “set a condition for the issuance of
profession the licenses to engage in business or
E. According to legality of existence trade…”
IX. ACCREDITATION TO PRACTICE PUBLIC
 De jure – complied all legal
ACCOUNTANCY
requirements
 De facto – failed to comply legal  CPAs, partners and staff engaged in
requirements public accountancy shall register with
VI. KINDS OF PARTNERS the Professional Regulation Commission
1. General – liable to the extent of his separate and the Professional Regulatory Board
property of Accountancy.
2. Limited – liable only to the extent of his o The Philippine Accountancy
capital contribution: not allowed to contribute Act of 2004, Sec. 31 -
industry or services
3. Capitalist – contributes money or property to
the common fund
4. Industrial – contributes knowledge or
personal services
5. Managing – appointed as manager
6. Liquidating – designated to wind up or
settle the affairs after dissolution
7. Dormant – do not take an active part; not
known as partner
8. Silent – do not take an active part; may be
known as a partner
9. Secret – takes an active part; not known to
be a partner by outside parties
10. Nominal or partner by estoppel – not a
partner but represents himself as one.
VII. ARTICLES OF PARTNERSHIP
 embodies the partnership agreement
1. Partnership name, nature, purpose and
location
2. Names, citizenship and residences of
partners
3. Date of formation and duration
4. Capital contribution of each partner,
procedure for valuing non-cash investments,