Partnership

INTENDED LEARNING
OUTCOMES

 Define partnership.
 Discuss the nature of partnership.
 Differentiate partnership from corporation.
 Explain the elements and kinds of partnership.
 Enumerate the formalities required in forming a partnership.
 Elaborate the rules of management in partnership.
 Discuss the distribution and sharing of profits and losses.
 Enumerate the modes of dissolution.
 Explain limited partnership.

SPECIFIC INSTRUCTIONS IN THE COMPLETION OF THIS CHAPTER:

1. Student must read and understand the Intended Learning Outcomes specified above and
make it as a checklist of acquired knowledge and skills after completing the entire chapter.
This shall be the basis of the teacher in the formulation of the Summative evaluation given at
the end of the chapter.
2. Students must carefully study the given lecture notes and take note of the topics that were
not clearly stated or understood by the student. These areas can be referred to the subject
teacher during consultation hours provided for the students to contact the teacher.
3. Study the discussions and insights given and follow instructions for activities if there are.
4. After completely reading all the materials, open the video links of the lessons given along
with this learning package and watch the given videos to supplement your reading. (please
check your Flash Drive content).
5. Upon completion of all the lessons and topics presented, answer the self-reflection questions
given to you. Check the instruction to answer and what to do to comply with required
answers.
6. Compile your outputs in your Learning Portfolio to be submitted at specific date to your
teacher.
7. Should the student have any queries or clarifications with the topics, the student should
contact the subject teacher in the given consultation hours which can be found in the
preliminaries of this material.

Key Terms:

 Partnership
 Profits
 Losses
 Limited Partners
 Industrial Partners
 General Partners

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 Dissolution

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 PARTNERSHIP

LESSON 1
Partnership; Concept

A Partnership is a contract of two or more persons who 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.

1. A contract (Art. 1768) and

2. A business organization.
It is juridical entity which has a personality separate and distinct from
the moment of the execution of the contract, unless it is otherwise
stipulated. (Art.1784)

Characteristics of a Contract of partnership

1. Consensual – It is perfected by mere consent.

2. Principal – it does not depend upon any other contract for its validity of
existence.
3. Bilateral or Multilateral – it is entered into by two or more persons whose rights
and obligations are reciprocal.
4. Nominate – it has a special name given to it by law. ( Art. 1767)
5. Preparatory – it is a means by which other contracts will be entered into as the
partnership pursues its business.

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6. Onerous – The partners contribute money, property or industry to a common
fund. (Art. 1767)

Essential requisites of partnership

1. There must be a valid contract

In order for a partnership to exist, there must be a voluntary agreement
among the parties to carry on the business as partners. Its formation
cannot be imposed upon a person because a partnership is a fiduciary
relationship. It operates under the doctrine of delectus personae (or
personarum, in its plural form), where a person is free to choose those
whom he wants to be associated with in partnership.
2. There must be mutual contribution of money, property or industry to a common
fund. (Art. 1767)
The property that may be contributed maybe real or personal, tangible r
intangible (such as goodwill or incorporeal rights such as credit rights).
Industry maybe physical manual efforts or intellectual industry, however,
a limited partner may contribute cash or other property, but not services
(Art. 1845)
3. It must have a lawful object or purpose. (Art. 1770)
Partnership, being a contract, must have a lawful object. If a partnership
has an unlawful object, it is void. If such illegality constitutes a crime, the
partners will be criminally persecuted/prosecuted and the profits and
effects and instruments of the crime will be confiscated in favor of the
government. (Art. 1770, Art. 45, Revised Penal Code)
4. The partnership must be established for the common benefit or interest of
the partners which is to obtain profits and to divide the profit among the
partners. (Art. 1768,1770)

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 The very purpose of a partnership business is to obtain a profit which is
evident in the definition of the contract itself. It is an element that distinguishes it
from the religious, civic and social organizations.

However, if a partnership is formed for the practice of a profession, its

primary purpose is not to obtain profits but to render service to the public.

Form of a partnership contract

A partnership contract may be constituted in any form, i.e., oral except as

follows:

1. Where immovable property or real rights are contributed to the

partnership (regardless of the amount thereof)
a. The partnership contract must be in public instrument; and
b. An inventory of the said property must be made, signed by the
parties and attached to the public instrument. (Art. 1773)

Effect if the above requirements are not complied with

a. The partnership contract is void. (Art. 1773)
b. The partnership will not have any juridical personality.
2. Where the capital of the partnership is P3,000.00 or more, in money or
property
a. The partnership contract must be in a public instrument, and
b. Registered with the securities and exchange Commission (SEC)
(Art.1771)

Effect if the above requirements are not complied with

a. The partnership contract is still valid. Accordingly, the partnership
still acquires juridical personality. ( Arts 1768, 1772)
b. The liability of the partnership and the members thereof to third
persons are not affected. (Art. 1772)

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 Reason for the registration with the SEC
Recording with the SEC is a condition for the issuance to the
partnership of a business license to engage in business. This will enable
both the local government and the Bureau of Internal Revenue district
where the partnership will operate to assess its tax liabilities. In addition,
registration will enable third person to determine both the composition of
the firm and its capital before dealing with it and its members.

3. If the partnership is a limited partnership, a certificate signed under

oath by the partners and recorded with the Securities and Exchange
Commission is required.
Effect if requirements are not complied with
The partnership will be considered as a general partnership.

Who may become partners

1. Any natural person who is capacitated may become a partner.

2. Artificial person like partnership and corporation may likewise form a partnership
with individuals or other partnership or corporation. A joint venture (which may
be entered into between two corporations) is a form of partnership and shall be
governed by the laws on partnership. (See Marsman Drysdale Land, Inc. vs.
Philippine Geoanalytics, Inc., G.R. No. 183374,

Rules to determine whether a partnership exists

1. Persons who are not partners as to each are not partners as to third persons
except when a person represents himself or consents to another representing
him to anyone, as a partner in an existing partnership or with one or more
persons not actual partners. (Arts. 1769,1825).

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 2. Co- ownership or co- possession does not of itself establish a partnership,
whether such co- owners or co- possessors do or do not share any profits made
by the use of the property.
3. The sharing of gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived
4. The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business.
Exceptions: No such inference shall be drawn if such profits were
received in payment:
a. As a debt by installments or otherwise.
b. As a wages of an employee or rent to a landlord.
c. As annuity to a widow or representative of a deceased partner.
d. As interest on loan, though the amount of payment vary with the
profits of the business.
e. As the consideration for the sale of goodwill of a business or other
property by installment or otherwise. (Art. 1769)

Kinds of partnership

1. As to object.
a. Universal partnership- A universal partnership may either be a universal
partnership of all present property or a universal partnership of all present
property or a universal partnership of profits ( Art. 1777)
1) Universal partnership of all present property.

This is a partnership in which all the partners contribute all

the property which actual belonged to them to the common
fund, with the intention of dividing the same among themselves, as well as the profits
which they acquire therewith. (Art.1778)

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Property which shall belong to the common fund
a. Property belonging to the partners at the time of the
constitution of the partnership (present property).
b. Profits that may be acquired from the present property.
c. Property acquired by each partner after the formation of the
partnership but only if stipulated. (Art. 1779) This property
shall include:
(1) The property itself except that the stipulation shall
not include property acquired by inheritance, legacy,
or donation.
(2) The profits and fruits therefrom including those from
property acquired by inheritance, legacy or donation.
( Art.1779)
Example:
A and B formed a universal partnership of all present
property. At the time of the establishment of the partnership, A
owned a fleet of taxis which he had purchased and an agricultural
lot which he had purchased and an agricultural lot which he had
inherited. B, on the other hand, owned an apartment which he had
earlier acquired by exchange and shares of stock which were
donated to him. The partners agreed that property acquired by
each partner after the formation of the partnership shall belong to
the partnership. During the first year of operations of the
partnership, the following transactions took place:
(a) Fare revenues of P200,000.00 were realized from the
operation of the fleet of taxis.
(b) Crops amounting to P100, 000.00 were gathered from
the agricultural lot.

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(c) Rentals of P150, 000.00 were collected from the
apartment.
(d) Dividends of P50, 000.00 were received from the shares
of stock.
(e) A coconut plantation was purchased by A from his own
funds.
(f) Coconuts worth P80, 000. 00 were gathered from the
coconut plantation.
(g) A fishpond was received by B by way of donation from
rich uncle.
(h) Fish valued at P70, 000. 00 were harvested from the
fishpond.
Based on the forgoing, the following belong to the
partnership;
A) Fleet of taxis
B) Agricultural lot
C) Apartment
D) Shares of stock
E) Fare revenues
F) Crops gathered from agricultural lot
G) Rentals from the apartment
H) Dividends from the shares of stock
I) Coconut plantation
J) Coconuts harvested
K) Fish harvested
The fishpond belongs to B because the stipulation on
future property does not include property acquired by
inheritance, legacy or donation. However, the fruit

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 therefrom, represented by the fish gathered, belong
to the partnership.

2. Universal partnership of profits

This comprises all that the partnership may acquire by their work or
industry during the existence of the partnership (Art. 1780)
Profits/property which shall belong to the partnership
a) Profits obtained by the partners by their work or industry during
the existence of the partnership.
Accordingly, profits acquired by the partners without the
exertion of physical or intellectual efforts, such as those
acquired by chance or lucrative title is excluded.
b) The usufruct (use & fruits) (the use) of the property belongs to
each partner at the time of the constitution of the partnership.
The ownership of the property (whether movable or
immovable) belonging to each partner at the time of the
constitution of the partnership shall continue to pertain
exclusively to each partner as only the usufruct is passé on
to the partnership.
c) The profits and fruits from the properties aforementioned (items
“a” and ‘b”).
d) Profits and fruits, if stipulated, of property acquired by each
partner after the constitution of the partnership.
Example:
A and B formed a universal partnership of profits. At the time of the
establishment of the partnership, A owned a fleet of taxis which he purchased an
agricultural lot which he had inherited. B, on the other hand, had an apartment
which he had earlier acquired by exchange and shares of stock which were
donated to him. The parties stipulated that fruits of the future property shall

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belong to the partnership. During the first year of operations of the partnership,
the following transactions took place;
a) Far revenues of P200,000.00 were realized from the operation
of the fleet of axis.
b) Crops amounting to P100,000.00 were gathered from the
agricultural lot.
c) Rentals of P150,000.00 were collected from the apartment.
d) Dividends of P50,000.00 were received from the share of stock
e) Salary of P200,000.00 was received by A as professor of a
certain college.
f) P1,000,000.00 was won by B in the lotto draw.
g) A coconut plantation was purchased by A from his own funds.
h) Coconut worth P80,000.00 were gathered from the coconut
plantation
i) A fishpond was received by B by the way of donation from a
rich uncle
j) Fish valued at P70,000.00 were harvested from the fishpond.

Based on the foregoing, the following belong to the partnership:

a) Fare revenues
b) Crops gathered from agricultural lot
c) Rentals from the apartment|
d) Dividends from the share f stock
e) Salary of A as professor in a certain college
f) Coconut gathered from the coconut plantation.
g) Fish harvested from the fishpond
The fleet of taxis and agricultural lot shall continue to pertain to
A, while the apartment and share stock shall continue t pertain
to B, since only the use and fruits of the said properties were

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 contributed to the partnership at the time of its establishment.
The coconut plantation belongs to A because it is not a fruit.
The lotto winning and fishpond belong to B since they were
acquired by chance and lucrative title, respectively. However,
the coconuts gathered and the fish harvested belong to the
partnership because of the stipulation that fruits of future
property shall belong to the partnership.

Rule in case universal partnership is without any specification

Articles of universal partnership entered into without specification of its nature,
only constitute a universal partnership of profits. (Art. 1781)
This is so because a universal partnership of profits transmits less rights and
interests. If the doubt refers to the incidents of a gratuitous contract, the least
transmission of rights shall prevail (See Art. 1378), a universal partnership being
considered a donation.

Kinds of partners
1. As to liability

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 a. General partner – one who is liable for partnership debts to the extent of his
separate property after all the assets of the partnership have been
exhausted. (Art. 1816
b. Limited partner – one who is liable for partnership debts to the extent of his
capital contributions only. (Art. 1843)
c. General-limited partner – one who has all the rights and powers and is
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
should have had if he were not also a general partner, (Art. 1853), i.e., he
shall be liable pro-rata to partnership creditors to the extent of his separate
assets after the partnership assets have been exhausted, but he can demand
reimbursement of the amount he paid from his co-partners.
Example:
Manuel, Alberto and Conrado are partners in MAC Company, Ltd, with
Manuel as limited partner, Alberto as general partner, and Conrado as genera-
limited partner. The partnership has assets of P60,000.00 and liabilities of
90,000.00. in the settlement of liabilities, the assets will be exhausted.
Thereafter, the creditors can collect the balance of 30,000.00 from the separate
assets of Alberto and Conrado who will be liable for 15,000.00 each. After
payment to the creditors, conrado may demand reimbursement of 15,000.00
from Alberto. This is so because as to third persons, Conrado is a general
partner, but among the partners, he is a limited partner. Manuel will not be liable
with his separate assets beings a limited partner.
2. As to contribution
a. Capitalist partner – one who contributes money or property to the common
fund. (Art. 1767)
b. Industrial partner – one who contributes his services or industry to the
partnership. (Art.1767, 1789). Such industry may be physical or intellectual
industry.

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 c. Capitalist - industrial partner – one who contributes not only money or
property but also his services to the partnership. (Art. 1797)
3. Other classifications
a. Managing partner – One who manages the business or the affairs of the
partnership. (See Art. 1800.)
b. Liquidating partner – one who takes charge of the winding up of the affairs of
the partnership after it is dissolved. (See Art. 1825.)
c. Nominal partner – One who is not actually a partner but who may become
liable as such to third persons, (such as a partner by estoppel). (See Art.
1825).
d. Ostensible partner- One who is active and known to the public as partner,
such as by allowing his name to be included in the firm name.
e. Secret partner- One whose connection with the partnership is kept from the
public.
f. Silent partner- One who has no voice in the management of the business
(though he shares in the profits and losses.)
g. Dormant partner- A partner who does not participate in the management of
the business and not known to the public as partner.

Rules on division of profit and loss (Art. 1797)

1. If all are capitalist partners (A- 1M; T- 2M; E-3M)=[Link]; 2M GAIN; A=1/6
*2M= 333,333.333; T= 2/6*2M=666,666.667; E- 3/6*2M= 1M
a. Profits and losses shall be divided according to their agreement.
b. If only the sharing of the partners in the profits has been agreed upon,
the share of each partner in the losses shall be in the same proportion
as the share of each in the profits.
c. In the absence of both, the share of each partner in the profits and
losses shall be in proportion to his capital contribution.

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 Examples:
a. Zone Enterprises is owned by partners Zorina, Odessa, Norma and
Elmawith capital contribution of P10,000.00, P20,000.00,P30,000.00,
and P40,00.00, respectively. During the year, the partnership realized a
net profit of P8,000.00.
1. Assuming that the partners agreed to divide profits in the ratio
of [Link], Zorina will have a share of P1,600.00, and Elma,
P4,000.00.
2. If the partners have no profit sharing agreement, the profit shall
be divided according to the ratio of their capital contribution.
Thus, Zorina’s share of the profit is P 800.00; Odessa,
P1,600.00; Norma, P2,400.00; and Elma, P3,200.00.
b. Assuming the partnership sustained a loss of P7,000.00, such loss shall
be divided among the partners as follows:
1. In case they agreed to a loss sharing of [Link] Zorina’s share
is P2,100.00; Odessa, P1,400.00, Norma, P1,700.0; and Elma,
P2,800.00.
2. If the partners do not have any loss sharing agreement, such
loss shall be divided according to their profit-sharing agreement
in the ratio of [Link]. Thus, Zorina’s share is P1,400.00,
Odessa, P700.00, Norma P1,400.00, and Elma, P3,500.00.
3. If the partners do not have any profit and loss sharing
agreement, the loss shall be divided according to the ratio of
their capital contribution as follows, Zorina, p700.00; Odessa,
p1,400.00; Norma, P2,100.00; and Elma, P2,800.00
Note: The sharing or capital ratios have been converted into fractions or percentages
by adding the figures and using as denominator the total. Thus, for [Link], the total is
10. The partners sharing will be 2/10; 1/10; 2/10; and 5/10. For the capital contribution

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ratio, the total capital contribution is P100, 000.00. Thus, the sharing will be 10,000.00
over P100, 000.00 or 10%; P20, 000.00 over P100, 000.00 or 20%; P30, 000.00 over
P100, 000.00 or 30%; and P40, 000 over P100, 000.00 or 40%. The fraction or
percentage developed will be multiplied by the profit or loss, as the case may be.

2. If aside from the capitalist partners, there is also an industrial partner (or there are
industrial partners)
a. Profits
1. The profits shall be divided according to their agreement.
2. In the absence of any agreement thereon, the industrial partner shall first
receive a just and equitable share of the profits, and thereafter, each
capitalist partner shall share in the profits in proportion to his capital
contribution.

Example:
Lucille, Abigail, Cherrie, and Elaine are partners in LACE Company.
Lucille, Abigail and Cherrie are capitalist partners with contributions of
P20, 000.00, P30, 000.00, and P50, 000.00, respectively. Elaine is an
industrial partner. They have no profit- sharing agreement. LACE
Company earned shall first be given an equitable share to be decided by
the partners, say, P3, 000.00. The remaining profit of p12, 000.00 shall be
divided among the three capitalist partners in the ratio of their capital
contribution of [Link]. Thus, Lucille share is P2, 400.00; Abigail, P3,
600.00; and Cherrie, P6, 000.00.
Note: There is an option that the old day law still applies to determine
the equitable share of the industrial partner. Under the old law, the
equitable share of the industrial partner is equivalent to that of the
capitalist partner with the least capital contribution: However, this may be
unfair to the industrial partner especially if the least capital contribution is

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 so small that it does not reflect a just and equitable compensation of him
services.

Examples:

a. ZONE Enterprises is owned by partners Zorina, Odessa, Norma, and Elma with
capital contributions of P10,000.00, P20,000.00, P30,000.00 and P40,000.00
respectively. During the year, the partnership realized a net profit of P8, 000.00.

1.) Assuming that the partners agreed to divide profits in the ratio o[Link],
Zorina will have a share of P1, 600.00; Odessa, P800.00; Norma, P1,
600.00; and Elma, P4,000.00.

2.) If the partners have no profit sharing agreement, the profit shall be
divided according to the ratio of their capital contribution. Thus, Zorina’s
share of the profit is P800.00; Odessa, P1, 600.00; Norma, P2, 400.00;
and Elma, P3, 200.00.

b. Assuming the partnership sustained a loss of P7, 000.00, such as loss shall be
divided among the partners as follows:

1.) In case they agreed to a loss sharing of [Link], Zornia’s share is P2,
100.00; Odessa, P1, 400.00; Norma, P700.00; and Elma, P2, 800.00.

2.) If the partners do not have any loss sharing agreement, such loss shall be
divided according to their profit sharing agreement, in the ratio of [Link].
Thus, Zorina’s share is P1, 400.00; Odessa, P700.00; Norma, P1, 400.00;
and Elma, P3, 500.00.

3.) If the partners do not have any profit and loss sharing agreement, the
loss shall be divided according to the ratio of their capital contribution as
follows: Zorina, P700.00; Odessa P1, 400.00; Norma, P2, 100; and Elma,
P2, 800.00.

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Note: The sharing or capital ratios have been converted into fractions or percentages
by adding the figures and using as denominator the total. Thus, for [Link], the total is
10. The partners’ sharing will be 2/10; 1/10; 2/10; and 5/10. For the capital
contribution ratio, the total contribution is P100, 000.00. Thus, the sharing will be
10,000.00 over P100, 000.00 or 10%; P20, 000.00 over P100, 000.00 or 20%; P30,
000.00 over P100, 000.00 or 30%; and P40, 000.00 over P100, 000.00 or 40%. The
fraction or percentage developed will be multiplied by the profit or loss, as the case
may be.

2. If aside from the capitalist partners, there is also an industrial partner (or there
are industrial partners)

a. Profits

1.) The profits shall be divided according to their agreement.

2.) In the absence of any agreement thereon, the industrial partner

shall first receive a just and equitable share of the profits, and
thereafter, each capitalist partner shall share in the profits
proportion to his capital contribution.

Example:

Lucille, Abigail, Cherrie, and Elaine are partners in LACE Company. Lucille,
Abigail and Cherrie are the capitalist partners with contributions of P20, 000.00,
P30, 000.00 and P50, 000.00, respectively. Elaine is an industrial partner. They
have no profit-sharing agreement. LACE Company earned P15, 000.00 during the
year. Elaine shall be first given an equitable share to be decided by the partners,
say P3, 000.00. The remaining profit of P12, 000.00 shall be divided among the
three capitalist partners in the ratio of their capital contributions of [Link]. Thus,
Lucille’s share is P2, 400.00; Abigail, P3, 600.00; and Cherrie, P6, 000, 00.

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 Note: There is an opinion that the old law still applies to determine the equitable
share of the industrial partner. Under the old law, the equitable share of the
industrial partner is equivalent to that of the capitalist partner with the least
capital contribution. However, this may be unfair to the industrial partner
especially if least capital contribution is so small that it does not reflect a just
equitable compensation of his services

b. Losses

1.) The industrial partner shall not share in the losses.

2.) The capitalist partners shall share in the losses as follows:

a) According to their agreement

b) In the absence of any agreement thereon, each capitalist partner
shall share in the losses in the same proportion as the share of
each in the profits.
c) In the absence of both, each capitalist partner shall share n the
losses in proportion to his capital contribution.
Example:
Carlos. Albert, Roland and Edwin are partners in CARE Company with Carlos
contributing P20,000.00; Albert, P30,000.00; and Roland, P50,000.00. Edwin
contributed his industry. During the year, Care suffered a loss of 12,000.00.

1) Assuming that the losses were agreed upon to be shared by Carlos, Albert
and Roland in the ratio of [Link], Carlos’ share in the loss is P2,000.00;
Albert, P4,000.00; and Roland P6,000.00. Edwin will not share in the loss.
2) If the partners do not have the loss sharing agreement but have one as to
profit in the ratio of [Link], the loss will be shared by Carlos, Albert and
Roland in the ratio of [Link] or P3,000.00, P4,000.00 and P5,000.00
respectively. Edwin will not share in the loss being an industrial partner.

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 3) If the partners do not also have a profit sharing agreement, Carlos, Albert
and Roland will divide the loss according to the ratio of their capital
contribution of [Link] or P2,400.00, P3,600.00 and P6,000.00, respectively.
Edwin will not share in the loss.
3. If aside from capitalist partners, there is also capitalist- industrial partner
(or there is capitalist- industrial partners)
a. Profits
1. The profits shall be divided according to their agreement.
2. In the absence of any agreement thereon, profits shall be divided as
follows:
a) The capitalist- industrial partner shall first receive a just equitable
share of the profits in his capacity as industrial partner.
b) Thereafter, each capitalist partner, including the capitalist-
industrial partner in his capacity as capitalist partner, shall share in
the profits in proportion to his capital contribution.
Example:
Mark, Orland, Robert, and Edgar are partners in MORE
Enterprises. Mark, Orland, and Robert are capitalist partners with
contribution of P10, 000.00; P20, 000.00; and P30, 000.00,
respectively. Edgar is capitalist- industrial partner with a capital
contribution of P40, 000.00. During the year, MORE realized a
profit of P20, 000.00.
Assuming that the partners have no profit sharing
agreement, Edgar will first receive an equitable share in the profit
in his capacity as industrial partner. Thus, if the partners decide
that such equitable share is P4,000.00, the balance of P16,000.00
will be shared by the partners including Edgar in his capacity as
capital contribution of [Link] or P1,600.00, P3,200.00, P4,800.00,
and P6,400.00, respectively.

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 b. Losses
1) Losses shall be divided among the partners, including the capitalist- industrial
partner in his capacity as capitalist partner, according to their agreement.
2) In the absence of any agreement thereon, losses shall be divided among the
partners including the capitalist- partner in his capacity as capitalist partner,
according to the ratio of their capital contribution.
3) In both of the above cases, the capitalist- industrial partner shall not share in
the losses in his capacity as industrial partner.
4)
Example:
Sonia, Ursula, Rowena, and Elsa are partners in SURE Enterprises with the
capital contribution of P10,000.00, P20,000.00, P30,000.00, and P40,000
respectively. Elsa is also an industrial partner being the manager of the
partnership. The partnership sustained a loss of P14, 000.00 during the year.
1. Assuming that the partners agreed to share in the losses in the ratio of
[Link] Sonia’s share is P2,000.00; Ursula P3,000.00; Rowena, P5,000.00;
and Elsa, P4,000.00.
2. If the partners have no loss sharing agreement the loss will be divided
according to the ratio of their capital contribution of [Link] or P1,400.00;
P2,800.00; P4,200.00; and P5,600.00.
In both cases, Elsa shall not share in the loss in her capacity as industrial
partner.
Note: Any stipulation which excludes one or more partners from any share on the
profits and losses is void (Art. 1799) except one which exempts an industrial partner
from losses because the law provides that he shall not be liable therefor. (See Art.
1797.)
Rules on sharing of partnership liabilities to third persons
1. Nature of liability

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 a. Pro rate- The liability of partnership shall be equality divided among the
partners.
The sharing should be equal because the liability is imposed on all
partners including an industrial partner whose proportionate share
cannot be determined in the absence of a profit and loss sharing
agreement since he has no capital contribution.
b. Subsidiary- Each partner shall liable with his separate property after all the
assets of the partnership have been exhausted. (Art. 1816).
2. Partners liable

All general partners whether:

a. Capitalist partner, or
b. Industrial partner.
3. Status of stipulation exempting a partner from pro rate and subsidiary liability
after the exhaustion of partnership assets
a. Void as to third person.
b. Valid among the partners. (Art. 1817)

The stipulation, however, will not totally exempt a partner because

his contribution will still be subject to the payment of partnership
liabilities. This is to reconcile Art. 1817 with Art.1799 which declares void
any stipulation excluding a partner from losses, except in the case of an
industrial partner.

According, if there is such stipulation, the liabilities shall be paid as

follows:

a. The assets of the partnership shall first be used to pay the liabilities.
b. If the partnership assets are not sufficient, the liability shall be paid equally
from the separate assets of the partners including any industrial partner.

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 c. Thereafter, the partners not exempted from pro rata and subsidiary liability
shall reimburse according to the partner’s profit and loss sharing agreement
in the ratio of their capital contribution, whichever, is applicable, to the
following partners the amount paid by them:
1. Industrial partner whom the law exempts from losses.
2. General partners exempted from pro rata and subsidiary
liability.

Example:

Calixto, Hebron, Austria, Roxas and Mendez are partners in the firm CHARM
Sales Company. Calixto is an industrial partner, while the rest are capitalist partners
with Hebron contributing P20,000.00; Austria, P30,000.00; Roxas, P10,000.00; and
Mendez, P40,000.00. the partners stipulated that Hebron shall not be liable for liabilities
of the partnership after its assets are exhausted.

After several years of operational losses, CHARM’s assets dwindled to

120,000.00, while its liabilities reached P160,000.00. how shall the liabilities be paid?

1. The assets of P120,000.00 shall first be exhausted. This application leaves a

balance of P40,000.00 of the liabilities.
2. The amount of P40,000.00 shall be shared equally by the five partners at
8,000.00 each to be paid out of their separate assets.
3. Based on the ratio of the capital contributions of partners Austria, Roxas and
Mendez of [Link], the actual share of each in the balance of P40,000.00 is
P15,000.00, P5,000.00, and P20,000.00, respectively, while none are due from
Calixtro and Hebron, as shown in the following table:

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 Actual Share in
Partner Payment to Liability Over (under)
Creditors payment

Calixto P8,000.00 None P8,000.00

Hebron P8,000.00 None P8,000.00
Austria P8,000.00 P15,000.00 (7,000.00)
Roxas P8,000.00 P5,000.00 3,000.00
Mendez P8,000.00 P20,000.00 (12,000.00)

As shown in the above table, Austria, and Mendez are to give an additional
amount of P7,000.00 and P12,000.00, to return Calixto’s payment of P8,000.00,
Hebron’s payment of P8,000.00, and Roxas’ overpayment of P3,000.00

Requirement to operate under firm name

A partnership shall operate under a firm name, which may or may not include
the name of one or more of the partners.

Those who, being members of the partnership, include their names in the firm
name, shall be subject to the liability of a partner. (Art 1815)

RELATE TO PRACTICE

How can you distinguish the relationship or partnership you have with your
parents vis-a-vis business partners? If you contributed a significant/not

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amount for a certain purpose, is there an implied partnership between you?
Relate this to the concept of partnership.

Direction: Place your answer in a short bond paper (either handwritten or encoded may
do). Those who are using LMS must submit the output while those who are using the
ILG (offline) must compile their output in the Learning Portfolio to be submitted before
giving the next module. The output must include your complete name in the higher left
side while the date must be placed higher on the right side.

PARTNERSHIP: Business
Perspective

Directions:
1. Make a narrative regarding a business you wish to start-up. Who are your
partners? What are each partners’ role and responsibilities? How can you
improve to be a best-selling business in world?
2. Font style: Tahoma Font size: 12
3. Use a short bond paper with a normal margin
4. Minimum of 500 words and maximum of 1,000 words.
5. Submit it on LMS or compile it to your learning portfolio

Direction: Place your answer in a short bond paper (either handwritten or encoded may
do). Those who are using LMS must submit the output while those who are using the
ILG (offline) must compile their output in the Learning Portfolio to be submitted before
giving the next module. The output must include your complete name in the higher left
side while the date must be placed higher on the right side.

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