Law on Business Organizations Reviewer

PARTNERSHIP failure to comply with the requirements of

Article 1772, first paragraph.
Art. 1767. By the contract of partnership
two or more persons bind themselves to Partnership, a juridical person
contribute money, property, or industry to a As an independent juridical person, a
common fund with the intention of dividing partnership may enter into contracts,
the profits among themselves. acquire and possess property of all kinds in
its name, as well as incur obligations and
Definition bring civil or criminal actions. Thus, a
Partnership is a contract whereby two or partnership may be declared insolvent even
more persons bind themselves to contribute if the partners are not. It may enter into
money, property or industry to a common contracts and may sue and be sued in its
fund with the intention of dividing profits firm name or by its duly authorized
among themselves. representative. It is sufficient that service of
summons be served on any partner.
Elements
1. Intention to form a contract of Partners cannot be held liable for the
partnership obligations of the partnership unless it is
2. Participation in both profits and losses shown that the legal fiction of a different
3. Community of interests juridical personality is being used for a
fraudulent, unfair or illegal purpose.
Basic Features
1. Voluntary agreement Effect of failure to comply with statutory
2. Association for profit requirements
3. Mutual contribution to a common fund Under Art 1772
4. Lawful purpose or object Partnership still acquires personality despite
5. Mutual agency of partners failure to comply with the requirements of
6. Articles must not be kept secret execution of public instrument and
7. Separate juridical personality registration of name in SEC.

Characteristics Under Arts 1773 and 1775

1. Consensual – perfected by mere Partnership with immovable property
consent. contributed, if without requisite inventory,
2. Bilateral – formed by two or more signed and attached to public instrument,
persons creating reciprocal rights and shall not acquire any juridical personality
obligations. because the contract itself is void. This is
3. Preparatory - entered into as a means also true for secret associations or societies.
to an end.
4. Nominate – has a special name or To organize a partnership not an absolute right
designation. It is but a privilege which may be enjoyed
5. Onerous – contributions in the form of only under such terms as the State may
either money, property and/or industry deem necessary to impose.
must be made.
6. Commutative – the undertaking of each Art. 1769. In determining whether a
partner is considered as the equivalent partnership exists, these rules shall apply:
of that of the others.
7. Principal – its existence or validity does 1. Except as provided by Article 1825,
not depend on some other contract. persons who are not partners as to
each other are not partners as to third
Principle of Delectus Personae (choice of persons.
persons) – a person has the right to select
persons with whom he wants to be 2. Co-ownership or co-possession does
associated with in partnership. not of itself establish a partnership,
whether such co-ownership or co-
Art. 1768. The partnership has a juridical possessors do or do not share any
personality separate and distinct from that profits made by the use of the property.
of each of the partners even in case of
1
3. The sharing of gross returns does not partnership, they become subject to
of itself establish a partnership, liabilities of partners (doctrine of
whether or not the persons sharing estoppel).Whether or not the parties call
them have a joint or common right or their relationship or believe it to be a
interest in any property from which the partnership is immaterial. Thus, with the
returns are derived. exception of partnership by estoppel, a
partnership cannot exist as to third persons
4. The receipt by a person of a share of the if no contract of partnership has been
profits of a business is prima facie entered into between the parties
evidence that he is a partner in the themselves.
business, but no such inference shall be
drawn if such profits were received in Co-ownership or co-possession
payment: There is co-ownership whenever the
ownership of an undivided thing or right
a. As a debt by installments or belongs to different persons.
otherwise.
Clear intent to derive profits from operation of
b. As wages of an employee or rent to business
a landlord. Co-ownership does not of itself establish
the existence of a partnership, although it is
c. As an annuity to a widow or one of its essential elements. This is true
representative of a deceased even if profits are derived from the joint
partner. ownership. The profits must be derived
from the operation of business by
d. As interest on a loan, though the the members of the association and
amount of payment vary with the not merely from property ownership. The
profits of the business. law does not imply a partnership between
co-owners because of the fact that they
e. As the consideration for the sale of develop or operate a common property,
a goodwill of a business or other since they may rightfully do this by virtue of
property by installments or their respective titles. There must be a clear
otherwise. intent to form a partnership.

In general, to establish the existence of a Existence of fiduciary relationship

partnership, all of its essential features or
characteristics must be shown as being Partners have a well-defined fiduciary
present. In case of doubt, art.1769 shall relationship between them. Co-owners do
apply. This article seeks to exclude from the not. Should there be dispute; the remedy of
category of partnership certain partners is an action for dissolution,
features enumerated herein which, by termination and accounting. For co-owners
themselves, are not indicative of the it would be one, for instance, for non-
existence of a partnership. performance of contract. People can
become co-owners without a contract but
Persons not partners as to each other they cannot become partners without one.
Persons who are partners as between
themselves are partners as to third persons. Persons living together without benefit of
Generally, the converse is true: if they are marriage
not partners between themselves, they Property acquired governed by rules on co-
cannot be partners as to third persons. ownership.
Partnership is a matter of intention, each
partner giving his consent to become a Sharing of gross returns not even presumptive
partner. However, whether a partnership evidence of partnership
exists between the parties is a factual The mere sharing of gross returns alone
matter. Where parties declare they are not does not even constitute prima facie
partners, this, as a rule, settles the question evidence of partnership, since in a
between them. But where a person
partnership, the partners share profits after
misleads third persons into believing that
they are partners in a non-existent satisfying all of the partnership’s liabilities.
 Reason for the rule asserting its termination. One who alleges
Partner interested in both failures and partnership cannot prove it merely by
successes; it is the chance of loss or gain evidence of an agreement using the term
that characterizes a business. Where “partner”. Non-use of the term, however,
the contract requires a given portion of is entitled to weight. The question of
gross returns to be paid over, the portion is whether a partnership exists is not always
paid over as commission, wages, rent, etc. dependent upon the personal arrangement
or understanding of the parties. Parties
Where there is evidence of mutual intending to do a thing which in law
management constitutes partnership are partners.
Where there is further evidence of mutual
management and control, partnership may Legal intention is the crux of partnership.
result. Parties may call themselves partners but
their contract may be adjudged something
Receipt of share in the profits strong quite different. Conversely, parties may
presumptive evidence of partnership expressly state that theirs in not a
An agreement to share both profits partnership yet the law may determine
and losses tends strongly to establish the otherwise on the basis of legal intent.
existence of a partnership. It is not However, courts will be influenced to some
conclusive, however, just prima facie and extent by what the parties call their
may be rebutted by other circumstances. contract.

When no such inference will be drawn Tests and incidents of partnership

Under par. 4 of art. 1769, sharing of profits In determining whether a partnership exists,
is not prima facie evidence of partnership in it is important to distinguish between tests
the cases enumerated under subsections (a) or indicia and incidents of partnership. Only
– (e). In these cases, the profits are not those terms of a contract upon which the
shared as partner but in some other parties have reached an actual
respects or purpose. The basic test understanding, either expressly or impliedly,
of partnership is whether the business is may afford a test by which to ascertain the
carried on in behalf of the person sought to legal nature of the contract. Some of the
be held liable. typical incidents of a partnership are:
1. The partners share in profits and losses.
Sharing of profits as owner 2. They have equal rights in the mgt and
It is not merely the sharing of profits, but conduct of the partnership business.
the sharing of them as co-owner of the 3. Every partner is an agent of the
business or undertaking that makes one partnership, and entitled to bind the
partner. Test: Does the recipient have an others by his acts. He may also be liable
equal voice as proprietor in the conduct and for the entire partnership obligations.
control of the business? Does he own a 4. All partners are personally liable for
share of the profits as proprietor of the the debts of the partnership with their
business producing them? One must have separate property except that limited
an interest with another in the profits of a partners are not bound beyond the
business as profits. amount of their investment.
5. A fiduciary relation exists between
Burden of proof and presumption the partners.
The burden of proving the existence of a 6. On dissolution, the partnership is not
partnership rests on the party having the terminated, but continues until the
affirmative of that issue. The existence of winding up of partnership is completed.
a partnership must be proved and will not Such incidents may be modified by
be presumed. The law presumes that those stipulation of the partners.
acting as partners have entered into a
contract of partnership. Where the law Similarities between a partnership and a
presumes the existence of partnership, the corporation
burden of proof is on the party denying its 1. Both have juridical personality separate
existence. When a partnership is shown to and distinct from that of the individuals
exist, the presumption is that it continues composing it;
and the burden of proof is on the person
 2. Both can only act through its agents; Right to return of contribution where
3. Both are organizations composed of an partnership is unlawful
aggregate of individuals; Partners must be reimbursed the amount of
4. Both distribute profits to those who their respective contributions. The partner
contribute capital to the business; who limits himself to demanding only the
5. Both can only be organized where there amount contributed by him need not resort
is a law authorizing is organization; to the partnership contract on which to
6. Partnerships are taxable base his claim or action. Since the purpose
as corporations. for which the contribution was made has
not come into existence, the manager or
Art. 1770. A partnership must have a lawful administrator must return it, and he who
object or purpose, and must be established has paid his share is entitled to recover it.
for the common benefit or interest of the
partners. When an unlawful partnership is Right to receive profits where partnership is
dissolved by a judicial decree, the profits unlawful
Law does not permit action for obtaining
shall be confiscated in favor of the State,
earnings from an unlawful partnership
without prejudice to the provisions of the because for that purpose, the partner will
Penal Code governing the confiscation of have to base his action upon the
the instruments and effects of a crime. partnership contract, which is null and
Object or purpose of partnership without legal existence by reason of its
unlawful object; and it is self-evident that
The provision of the 1st paragraph reiterates 2 what does not exist cannot be a cause
essential elements of a contract of partnership: of action. Profits earned do not constitute
1. Legality of the object; and or represent the partner’s contribution. He
2. Community of benefit or interest of the must base his claim on the contract which is
partners. The parties possess absolute void. It would be immoral and unjust for the
freedom to choose the transaction or law to permit a profit from an industry
transactions they must engage in. The prohibited by it. T he courts will refuse to
only limitation is that the object must recognize its existence, and will not lend
be lawful and for the common benefit their aid to assist either of the parties
of the members. The illegality of the thereto in an action against each other.
object will not be presumed; it must Therefore, there cannot be no accounting
appear to be of the essence of the demanded of a partner for the profits which
relationship. may be in his hands, nor can recovery be
had.
Effects of an unlawful partnership
1. The contract is void and the partnership Effect of partial illegality of partnership business
never existed in the eyes of the law; Where a part of the business is legal and
2. The profits shall be confiscated in favor part illegal, a n account of that which is
of the government; legal may be had. Where, w/o the
3. The instruments or tools and proceeds knowledge or participation of the partners,
of the crime shall also be forfeited in the firm’s profits in a lawful business has
favor of the government; been increased by wrongful acts, the
4. The contributions of the partners shall innocent partners are not precluded as
not be confiscated unless they fall against the guilty partners from recovering
under #3. their share of the profits.

A partnership is dissolved by operation of Effect of subsequent illegality of partnership

law upon the happening of an event which business
makes it unlawful. A judicial decree is Contract will not be nullified. Where the
not necessary to dissolve an unlawful business for which the partnership is
partnership. However, advisable that judicial formed is legal when the partnership is
decree be secured. 3rd persons who deal w/ entered into, but afterward becomes illegal,
partnership w/o knowledge of illegal an accounting may be had as to the
purpose are protected. business transacted prior to such time.
Community of interest between the partners is in writing or at least evidenced by some
for business purposes note or memorandum.
The salient features of an ordinary
partnership are a community of interest in Partnership implied from conduct
profits and losses, a community of interest Binding effect
in the capital employed, and a community Existence of partnership may be implied
of power in administration. This community from the acts or conduct of the parties, as
of interest is the basis of the partnership well as from other declarations, and such
relation. However, although every implied contract would be as binding as a
partnership is founded on a community of written and express contract.
interest, e very community of interest does
not necessarily constitute a partnership. Ascertainment of intention of parties
Property used in the business may belong to In determining whether a particular
one or more partners, so that there is no transaction constitutes a partnership, as
joint property, other than joint earnings. To between the parties, the intention as
state that partners are co-owners of a disclosed by the entire transaction, and
business is to state that they have the as gathered from the facts and from the
power if ultimate control. But partners may language employed by the parties as well
agree upon concentration of management, as their conduct, should be ascertained.
leaving some of their members entirely
inactive or dormant. Only one of these Conflict between intention and terms of
features, profit-sharing, seems to be contract
absolutely essential. But a mere sharing of If the parties intend a general partnership,
profits of itself does not of necessity they are general partners although their
constitute a partnership. The court must purpose is to avoid the creation of such a
consider all the essential elements in light relation.
of the facts of the particular case before
deciding whether a partnership exists. Art. 1772. Every contract of partnership
having a capital of three thousand pesos or
Art. 1771. A partnership may be constituted more, in money or property, shall appear in
in any form, except where immovable a public instrument, which must be
property or real rights are contributed recorded in the Office of the Securities and
thereto, in which case a public instrument Exchange Commission. Failure to comply
shall be necessary .Form of partnership with the requirements of the preceding
contract paragraph shall not affect the liability of the
partnership and the members thereof to
General rule third persons. Registration of partnership
No special form required for validity or
existence of the contract of partnership. Partnership with capital of P3, 000 or more
Contract maybe made orally or in writing Requirements:
regardless of the value of the contributions. 1. The contract must appear in a public
instrument;
Where immovable property or real rights are 2. It must be recorded or registered w/
contributed the SEC. However, failure to comply w/
Execution of public instrument necessary the above requirements does not
for validity of contract of partnership. To prevent the formation of the
affect 3rd persons, the transfer of real partnership or affect its liability and
property to the partnership must be duly that of the partners to 3rd persons. But
registered in the Registry of Property. any partner is granted the right bylaw to
compel each other to execute the
When partnership agreement covered by the contract in a public instrument.
Statute of Frauds
An agreement to enter in a partnership at a Purpose of registration
future time, which by its terms is not to be Registration is necessary as a condition for
performed w/in a year from the making the issuance of licenses to engage in
thereof is covered by the Statute of Frauds. business and trade. In this way, the tax
Such agreement is unenforceable unless it liabilities of big partnerships cannot be
evaded and the public can determine more
 accurately their membership and capital inventory of immovable property
before dealing with them. contributed because w/o its description and
designation, the instrument cannot be
When partnership considered registered subject to inscription in the Registry
The objective of the law is to make the of Property, and the contribution cannot
recorded instrument open to all and to give prejudice 3rd persons.
notice thereof to interested parties. This
objective is achieved from the date the Art. 1774. Any immovable property or an
partnership papers are presented to and left interest therein may be acquired in the
for record in the Commission. This is the
partnership name. Title so acquired can be
effective date of registration. If the
certificate of recording is issued on a conveyed only in the partnership name.
subsequent date, its effectively retroacts to Acquisition or conveyance of property by
date of presentation. partnership

Art. 1773. A contract of partnership is void, Since partnership has juridical personality of
whenever immovable property is its own, it may acquire immovable property
contributed thereto, if an inventory of said in its own name. Title so acquired can
property is not made, signed by the parties, be conveyed only in the partnership name.
and attached to the public instrument.
Partnership with contribution of immovable Art. 1775. Associations and societies, whose
property articles are kept secret among the
members, and wherein any one of the
Where immovable property contributed, failure members may contract in his own name
to comply w/ the following requisites will with third persons, shall have no juridical
render the partnership contract void: personality, and shall be governed by the
1. The contract must be in a public provisions relating to co-ownership. Secret
instrument; partnerships without juridical personality
2. An inventory of the property
contributed must be made, signed by Partnership relation is created only by the
the parties, and attached to the public voluntary agreement of the partners. It is
instrument. Art. 1773 is intended essential that the partners are fully
primarily to protect 3rd persons. W/ informed not only of the agreement but of
regard to 3rdpersons, a de facto all matters affecting the partnership. Secret
partnership or partnership by estoppel partnerships are not by nature
may exist. There is nothing to prevent partnerships. Secret partnerships shall be
the court from considering the governed by the provisions relating to co-
partnership agreement an ordinary ownership.
contract from which the parties’ rights
and obligations to each other may be Importance of giving publicity to articles of
inferred and enforced. partnership
It is essential that the arts of partnership be
When inventory is not required given publicity for the protection not only of
An inventory is required only whenever the members themselves but also 3rd
immovable property is contributed. If not persons from fraud and deceit. A member
contributed or if personal property, no who transacts business for the secret
inventory required. partnership in his own name becomes
personally bound to 3rd persons unaware of
Importance of making inventory of real the existence of such association.
property in a p a r t n e r s h i p Partnership liability may still
An inventory is very important in a result, however, in cases of estoppel.
partnership to how much is due from each
partner to complete his share in the Art. 1776. As to its object, a partnership is
common fund and how much is due to each either universal or particular. As regards the
of them in case of liquidation. The execution liability of the partners, a partnership may
of a public instrument of partnership would be general or limited. Classifications of
be useless if there is no partnership
As to extent of its subject matter not avowed or made known to the public by
1. Universal partnership. (Art. 1777) any of the partners.
a. Universal partnership of all present Open or notorious partnership: one whose
property. (Art. 1778) existence is avowed or made known to the
b. Universal partnership of profits. public by the members of the firm.
(Art. 1780)
2. Particular partnership. (Art. 1783) As to purpose
Commercial or trading partnership: one
As to liability of the partners formed or the transaction of business.
General partnership: one consisting of
general partners who are liable pro rata and Professional or non-trading partnership:
subsidiary and sometimes solidarily w/ their one formed for the exercise of a profession.
separate property for partnership debts.
Kinds of partners
Limited partnership: one formed by two or Under the Civil Code
more persons having as members one or 1. Capitalist partner: one who contributes
more general partners and one or more money or property to the common
limited partners, the latter not being fund.
personally liable for the obligations of the 2. Industrial partner: one who contributes
partnership. only his industry or personal service.
3. General partner: one whose liability to
As to duration 3rd persons extends to his separate
Partnership at will: one in w/c no time is property.
specified and is not formed for a particular 4. Limited partner: one whose liability to
undertaking or venture and w/c may be 3rd persons is limited to his capital
terminated at any time by mutual contribution.
agreement of the partners, or by the will of 5. Managing partner: one who manages
any one partner alone; or one for a fixed the entity.
term or particular undertaking w/c is 6. Liquidating partner: one who takes
continued after the end of the term or charge of the winding up of partnership
undertaking w/o express agreement. affairs upon dissolution.
Partnership with a fixed term: one w/c the 7. Partner by estoppel: one who is not
term for w/c the partnership is to exist is really a partner but is liable as a partner
fixed or agreed upon or one formed for a for the protection of innocent 3rd
particular undertaking. persons. He is one represented as being
a partner but who is not so between
As to the legality of its existence the partners themselves.
De jure partnership: one w/c has complied 8. Continuing partner: one who continues
w/ all the legal requirements for the business of a partnership after it
its establishment. has been dissolved by reason of the
De facto partnership: one w/c has failed to admission of a new partner, or the
comply w/ all the legal requirements for its retirement, death or expulsion of one
establishment. or more partners.
9. Surviving partner: one who remains
As to representation to others after a partnership has been dissolved
Ordinary or real partnership: one w/c by the death of any partner.
actually exists among the partners and also 10. Subpartner: one who, not being
as to 3rd persons. a member of the partnership, contracts
Ostensible partnership or partnership or w/ a partner w/reference to the latter’s
partnership by estoppel: one w/c in reality share in the partnership.
is not a partnership, but is considered a
partnership only in relation to those who, Other classifications
by their conduct or admission, are 1. Ostensible partner: one who takes
precluded to deny or disprove its existence. active part and known to the public as a
partner.
As to publicity 2. Secret partner: one who takes active
Secret partnership: one wherein the part in the business but is not known to
existence of certain persons as partners is be a partner by outside parties nor held
 out as a partner by the other partners. Property w/c belonged to each of them at
He is an actual partner. the time of the constitution of the
3. Silent partner: one who does not take partnership;
any active part in the business although Profits w/c they may acquire from the
he may be known to be a partner. property contributed.
4. Dormant partner: one who does not
take active part in the business and is Contribution of future property
not known or held out as a partner. He General rule: future properties cannot be
would be both a silent and a secret contributed. The very essence of the
partner. contract of partnership that the properties
5. Original partner: one who is a member contributed be included in the partnership
of the partnership from the time of its requires the contribution of things
organization. determinate. The position of a partner is like
6. Incoming partner: a person lately, or that of a donor, and donations cannot
about to be, taken into an existing comprehend future property. Thus,
partnership as a member. property subsequently acquired by
7. Retiring partner: one withdrawn from 1.inheritance; 2. Legacy; or 3. Donation
the partnership; a withdrawing partner. cannot be included by stipulation except
Art. 1777. A universal partnership may the fruits thereof. Hence, any stipulation
refer to all the present property or to including property so acquired is void.
all the profits. Profits from other sources (not from
properties contributed) will become
Art. 1778. A partnership of all present common property only is there’s a
property is that in which the partners stipulation.
contribute all the property which actually
belongs to them to a common fund, with Art. 1780. A universal partnership of profits
the intention of dividing the same among comprises all that the partners may acquire
themselves, as well as all the profits they by their industry or work during
may acquire therewith. the existence of the partnership. Movable
or immovable property which each of the
Art. 1779. In a universal partnership of all partners may possess at the time of the
present property, the property which celebration of the contract shall continue to
belongs to each of the partners at the time pertain exclusively to each, only the
of the constitution of the partnership usufruct passing to the partnership.
becomes the common property of all the
partners, as well as all the profits which Universal partnership of profits explained
they may acquire there with. A stipulation A universal partnership of profits is one w/c
for the common enjoyment of any other comprises all that the partners may acquire
profits may also be made; but the property by their industry or work during the
which the partners may acquire existence of the partnership and the
subsequently by inheritance, legacy or usufruct of movable or immovable property
donation cannot be included in such w/c each of the partners may possess at the
stipulation, except the fruits thereof. time of the celebration of the contract.

Universal partnership of all present property Ownership of present and future property
explained The partners retain their ownership over
A universal partnership of profits is one w/c their present and future property. What
comprises all that the partners may passes to the partnership are the profits or
acquire by their industry or work during the income and the use or usufruct of the same.
existence of the partnership and the Consequently, upon dissolution, such
usufruct of movable or immovable property property is returned to the partners who
w/c each of the partners may possess at the own it.
time of the celebration of the contract. In
this kind of partnership, the following Profits acquired through chance
become the common property of all the Since the law only speaks of profits w/c
partners: the partners may acquire by their industry
or work, profits acquired purely by chance
are not included.
 Art. 1783. A particular partnership has for
Fruits of property subsequently acquired its object determinate things, their use or
Fruits of property subsequently acquired by fruits, or a specific undertaking, or the
the partners do not belong to exercise of a profession or vocation.
the partnership. Such profits, however, may
be included by express stipulation. Particular partnership explained
A particular partnership is one w/c is
Art. 1781. Articles of universal partnership, neither a universal partnership of present
entered into without specification of its property nor a universal partnership of
nature, only constitute a universal profits. The fundamental difference
partnership of profits. between a universal partnership and a
particular partnership lies in the scope of
Presumption in favor of universal partnership of their subject matter or object. In the former,
profits the object is vague and indefinite,
Reason for presumption: universal contemplating a general business w/ some
partnership of profits imposes less degree of continuity, while in the latter, it is
obligations on the partners, since they limited and well-defined, being confined to
preserve the ownership of their separate an undertaking of a single, temporary,
property. or ad hoc nature.

Art. 1782. Persons who are prohibited from Business of partnership need not be continuing
giving each other any donation or in nature
advantage cannot enter into a universal The carrying on of a business of a continuing
partnership. Limitations upon the right to nature is not essential to constitute a
form a partnership partnership. An agreement to undertake a
particular piece of work or a single
Persons who are prohibited by law to give transaction or a limited number of
donations cannot enter into a universal transactions and immediately divide the
partnership for the reason that each of the resulting profits would seemt o fall w/in the
partners virtually makes a donation. To meaning of the term “partnership” as used
allow it would be permitting them to do in the law.
indirectly what the law expressly prohibits.
A partnership formed in violation of this Rule under American law
article is null and void. Consequently, no The above is not true under the Uniform
legal personality is acquired. A husband and Partnership Act w/c does not include joint
wife, however, may enter into a particular ventures w/c exists for a single transaction
partnership or be members thereof. or a limited number of transactions.
Relevant provisions:
Joint venture
Art. 87: Donations between spouses during While a joint venture is not a formal
marriage void, except moderate gifts on partnership in the legal or technical sense,
occasion of family rejoicing. Also applies both are governed, subject to certain
to those living together as husband and wife qualifications, practically by the same rules
w/o valid marriage. or principles of partnership. This is logical
Art. 739: The following donations are void: since in a joint venture, like in
Those made between persons who are a partnership, there is a community of
guilty of adultery or concubinage at the interest in the business and a mutual right
time of the donation (no need for of control and an agreement to share jointly
conviction; preponderance of evidence only in profits and losses.
required);
Those made between persons found guilty Corporation as a partner
of the same criminal offense, While under the Philippine Civil Code, a
inconsideration thereof; joint venture is a form of partnership w/ a
c.)Those made to a public officer or his wife, legal personality separate and distinct from
descendants and ascendants, by reason of the parties composing it, and should thus
his office. be governed by the law of partnership,
the Supreme Court has recognized the
distinction between these two business
forms, and has held that although a have contributed it up to actual delivery
corporation cannot enter into a partnership without necessity of any demand;
contract, it may, however, engage in a joint 4. Shall preserve said properties with the
venture if the nature of the venture is diligence of a good father of a family
authorized by its charter. pending their delivery to the
partnership;
Art. 1784. A partnership begins from the 5. And shall indemnify the partnership for
moment of the execution of the contract, any damage caused it by the retention
unless it is otherwise stipulated. (1679) of said properties or by the delay in
their contribution.
Art. 1785. When a contract for a fixed term
or particular undertaking is continued after Art. 1787. When the capital or part thereof
the termination of such term or particular which a partner is bound to contribute
undertaking without any express consists of goods, their appraisal must be
agreement, the rights and duties of the made in the manner prescribed in the
partners remains the same as they were at contract of partnership, and in the absence
such termination, so far as is consistent with of stipulation, it shall be made by experts
a partnership at will. chosen by the partners, and according to
current prices, the subsequent changes
A continuation of the business by the thereof being for the account of the
partners or such of them as habitually acted partnership.
therein during the term, without any
settlement or liquidation of the partnership Art. 1788. A partner who has undertaken to
affairs, is prima facie evidence of a contribute a sum of money and fails to do
continuation of the partnership. so becomes a debtor for the interest and
damages from the time he should have
Partnership at will is one in which no term complied with his obligation.
of existence has been fixed and which may
be terminated at the will of any partners. The same rule applies to any amount he
may have taken from the partnership
Art. 1786. Every partner is a debtor of the coffers, and his liability shall begin from the
partnership for whatever he may have time he converted the amount to is own
promised to contribute thereto. use.

He shall also be bound for warranty in case Liability of partner for estafa
of eviction with regard to specific and Failure to return the money taken, there is
determinate things which he may have the element of fraudulent appropriation of
contributed to the partnership, in the same the money delivered to a partner with
cases and in the same manner as the specific instructions for the use of the
vendor is bound with respect to the vendee. partnership, then estafa is committed under
He shall also be liable for the fruits thereof the Revised Penal Code.
from the time they should have been
delivered, without the need of any demand. Art. 1789. An industrial partner cannot
engage in any business for himself, UNLESS
Obligations of partners to contribute: the partnership expressly permits him to do
1. Shall deliver at the beginning of the so; and if he should do so, the capitalist
partnership or, if a different date has partners may either exclude him from the
been agreed upon, at the stipulated firm or avail themselves of the benefits
time the properties he agreed to which he may have obtained in violation of
contribute; this provision, with a right to damages in
2. Shall answer for eviction, in case the either case.
partnership is deprived of the
ownership of any specific property he Industrial partner is one who contributes
contributed; his industry or labor in the partnership.
3. Shall answer to the partnership for the
fruits of the properties whose delivery Industrial partner barred from engaging in
he delayed from the date he should business
the share of each one in the profits and partner’s capital contribution.
losses, such designation may be impugned
only when it is manifestly inequitable. In no Appointed as manager after the constitution of
case may a partner who has begun to the partnership
execute the decision of the third person, or Partner appointed in arts of partnership
who has not impugned the same within a may execute all acts of administration
period of three months from the time he notwithstanding the opposition of the other
had knowledge thereof, complain of such partners, unless he should act in bad faith.
decision. His power is revocable only upon just and
lawful cause and upon the vote of the
The designation of profits and losses cannot partners representing the controlling
be entrusted to one of the partners. interest.
Reason: revocation represents change in
Reason for the provision terms of contract.
Admittedly, the designation of profits and In case of mismanagement: Usual remedies
losses cannot be entrusted to one of the allowed by law including dissolution.
partners as the fulfillment of a contract
cannot be left to one of the contracting Appointment as manager after the
parties. It may, however, be entrusted to a constitution of the partnership
third person by common interest. Appointment may be revoked at any time for
any cause what so ever.
Art. 1799. A stipulation which excludes one
or more partners from any share in the Reason: revocation not founded on a
profits or losses is void. change of will on the part of the partners.
Appointment not condition of contract. It is
Stipulation to exclude a partner from profits merely a simple contract of agency, which
and losses is void may be revoking at any time. It is believe
The law does not allow a provision in the that the vote for revocation must also
contract of partnership excluding one or represent the controlling interest.
more partners from sharing in the profits
and losses. The reason is that a partnership Scope of the power of the managing partner
is organized for the common benefit or General rule: partner appointed as manager
interest of the partners. has all the powers of a general agent as well
as all the incidental powers necessary to
Reason for exclusion of industrial partner carry out the object of the partnership in
An industrial partner is not liable for losses the transaction of its business.
because if the partnership fails to realize Exception: When powers of manager is
any profits, the industrial partner would specifically restricted. A managing partner
have contributed his labor in vain. may not bind the partnership by contract
Furthermore, the industrial partner cannot foreign to its business.
withdraw the work already done by him for
the partnership. Compensation for service rendered
Partner Generally not entitle to
Art. 1800. The partner who has been compensation, In the absence of an
appointed manager in the articles of the agreement to the contrary, each member of
partnership may execute all acts of the the partnership assumes the duty to give his
administration despite the opposition of his time, attention, and skill to the
partners, unless he should act in Bad faith., management of its affairs, as may be
and his powers is irrevocable without the reasonably necessary to the success of the
just or lawful cause. The vote of the common enterprise; and for this service a
partners representing the controlling share of the profits is his only
interest shall be necessary for such compensation. In managing partnership
revocation of power. A power granted after affairs, a partner is practically taking care of
the partnership has constituted may his own interest or managing his own
revoked at any time. Each partner has a business. In the absence of any prohibition
right to an equal voice in the conduct of the in the arts. Of partnership for the payment
partnership business. This right is not of salaries to general partners, there is
dependent on the amount or size of the
 nothing to prevent the partners to enter respective duties;
into a collateral verbal agreement to that 3. There is no stipulation that one of them
effect. shall not act without the consent of all
EXCEPTIONS: In proper cases, the law may the others.
imply a contract for compensation;
1. A partner engaged by his co-partners to
perform services not required of him in ART. 1802 In case it should have been
fulfilment of the duties and in capacity stipulated that none of the managing
other than that of a partner. partner shall act without the consent of the
2. When there is extraordinary neglect on others, the concurrence of all shall be
the part of one partner to perform his necessary for validity of the acts, and the
duties, imposing entire burden on absence or disability of any one of them
remaining partner. cannot alleged, unless there is imminent
3. One partner may employ the other danger of grave or irreparable injury to the
to do work for him outside of and partnership.
independent of the co-partnership.
4. Partners exempted by terms of When unanimity of action stipulated
partnership from rendering services concurrence necessary for validity of acts
may demand pay for services rendered. The partners may stipulate that none of the
5. Where one partner is entrusted with managing partners shall act without the
management and devotes his whole consent of the others. In such a case, the
time and devotion at the instance of the unanimous consent of all the managing
other partners who are attending to partners shall be necessary for the validity
their individual business and giving no of their acts. This consent is
time or attention to the partnership so indispensable that neither absence nor
business. disability of any one of them may allege as
excuse to dispense with requirement.
Exception: When there is imminent danger
Art. 1801. If two or more partners have of grave or irreparable injury to the
been intrusted with the management of the partnership then a partner may act alone
partnership without the specification of without consent of partner who is absent or
their respective duties or without the under disability.
stipulation that one of them shall not act
without the consent of all others, each one Consent of managing partners not necessary in
separately execute all acts of administration, routine transactions
but if anyone of them should oppose the act The requirement of written authority refers
of each other, the decision of the majority evidently to formal and unusual written
shall prevail. In the case of tie the partners contracts.
owning the controlling interest shall decide
the matter. Where respective duties of two Art. 1803. When the manner of
or more managing partners not specifies. management has not agreed upon, the
following rules shall observed:
Each one may separately perform acts of
administration 1. All partners shall be considered agents
1. If one or more of the managing partners and whatever any one of them may do
shall oppose the acts of the others, then alone shall bind the partnership without
the decision of the majority of the prejudice to the provision of article
managing partners shall prevail. Right to 1801
oppose can be exercise only by those
entrusted with mgt. 2. None of the partners may, without the
2. In case of tie, matter shall be decided by consent of others, make any important
the vote of the partners owning the alteration in the immovable property of
controlling interest. the partnership, even if it may be useful
to the partnership, but if there ids
REQUISITES FOR APPLICATION OF RULE refusal of the consent by the other
1. Two or more partners have been partners is manifestly prejudicial to the
appointed as managers; interest of the partnership, the court’s
2. There is no specification of their intervention may be sought.

Rules when manner of the management that not become a member of the partnership,
has not agreed upon all partners considered as even if the other partners know about the
managers and agents agreement. Not being a member of
All partners shall have equal rights in the the partnership, he does not acquire the
mgmt. and conduct of partnership affairs. All rights of a partner nor is he liable for its
of them shall considered mgrs. and agents debts.
and whatever any one of them may do
alone shall bind the partnership. If there is Reason for the rule
timely opposition, however, the matter shall Partnership is based on mutual trust and
decided by majority vote. In case of tie, confidence among the partners. Inclusion of
vote of partners representing controlling new partner would be a modification of the
interest. original contract of partnership requiring
unanimous consent of all the partners.
Unanimous consent required for alteration of Prohibition applies even if person
immovable property associated is already a partner.
The consent need not be express. It may
presume from the fact of knowledge of the Art. 1805. The partnership books shall be
alteration without interposing any kept, subject to any agreement between the
objection. Prohibition only applies partners, at the principal place of the
to immovable property because of the business of the partnership, and every
greater importance of this kind of property, partner shall at any reasonable hour have
and the alteration thereof must be access to and may inspect and copy any of
important. This would be an act of strict them.
dominion. If refusal to give consent is
manifestly prejudicial to the interest of the Keeping of partnership books
partnership, court intervention maybe Partner with duty to keep partnership
sought. Consent may presume from silence books
(lack of opposition despite knowledge).If The duty to keep true and correct books
alteration is necessary for preservation of showing the firm’s accounts, such books
the property, consent of the other partners being at all times open to inspection of all
not required. members of the firm, primarily rests on the
managing or active partner. It is presume
Art. 1804. Every partner may associate that the partners have knowledge of the
another person with him in his share, but contents of the partnership books and that
the associates shall not admitted into the said books state accurately the state
partnership without the consent of all other of accounts, but errors can corrected.
partners, even of the partner having an
associate should be a manager of Rights with the respect to partnership books
subpartnership nature Books should kept at the principal place of
business as each partner has the right to
The partnership formed between a free access to them and to inspect or copy
member of a partnership and a third any of them at any reasonable time, even
Person for a division of the profits coming to after dissolution. Inspection rights not
him from the partnership enterprise is absolute can restrained from using info
termed subpartnership. for other than partnership purpose.
It is a partnership within a partnership and
is distinct and separate from the main or Access to partnership books
principal partnership. Rights can exercise at any reasonable hour.
This means reasonable hours on business
Right of the person associated with the days throughout the year and not merely
partnership’s share during some arbitrary period of a few days
Subpartnership agreements do not chosen by the managing partners.
affect the composition, existence, or
operations of the firm. The subpartners are Art. 1806. Partners shall render on demand
partners interest, true and full information of all things
affecting the partnership to any partner or
However, in the absence of the mutual the legal representative of any deceased
assent of all the parties, a subpartner does
partner or of any partner under legal i.e. the winding up of partnership affairs
disability. Duty to render information, there is completed.
must be no concealment between partners
in all matters affecting the partnership. Duty to account for secret and similar profits
Information must use only for partnership The duty of a partner to account as a
purpose. Not just on demand but partner fiduciary operates to prevent from making a
also has duty of voluntary disclosure. secret profit out of the operation of the
However, duty to render info does notarise partnership and from carrying on the
with respect to matters appearing in business for his private advantage or a
partnership books since each partner has business in competition w/ the firm w/o
the right to inspect those. Good faith not consent of other partners. Violation may be
only requires that a partner should not ground for dissolution.
make a false statement but also that he
should abstain from any false concealment. Duty to account for earnings accruing even after
termination of partnership
Art. 1807. Every partner must account the If a partner uses info obtained by him from
partnership for any benefit, and hold as the partnership for his own account w/o the
trustee for it any profits derived from him consent of the other partners, he is liable to
 without the consent of the partners from account for any benefit he might obtain.
any transaction connected with the
formation, conduct, or liquidation of the Duty to make full disclosure of information
partnership or from any use by him of his belonging to partnership
property. A partner is also subject to the fiduciary
duty of undivided loyalty and complete
The relation between the partners disclosure of info of all things affecting the
is essentially fiduciary involving trust and partnership. By Information is meant
confidence, each partner considered in law, information, which can be used for the
as he is, in fact, the confidential agent of the purposes of the partnership. Info cannot
others. The duties of a partner are use for a partner’s private gain – even if
analogous to those of a trustee. after termination.

Duty to act for common benefit Duty not to acquire interest or right adverse to
Cannot use and apply exclusively to own partnership
individual benefit partnership assets or If partner does, he holds it in trust for the
results of knowledge and info gained in benefit of the partnership and must account
character of partner. Managing partners to the firm for the profits of the transaction,
particularly owe a fiduciary duty to inactive unless it appears that the others consented
partners.
Art. 1808. The Capitalist partners cannot
Duty begins during the formation of engage for their own account in any
partnership operation, which is of the kind of business
Principle of good faith applies not only in which the partnership is engaged, unless
during partnership but during the there is a stipulation to the contrary. Any
negotiations leading to the formation of the capitalist partner violating this prohibition
partnership. Also, a person who agreed w/ shall bring to the common funds any profit
another to form a partnership has the accruing to him from his transactions, and
obligation to account for commissions and shall personally bear all the losses.
discounts received in acquiring property for
the future partnership. Prohibition against partner engaging the
business
Duty continues even after the dissolution of the Prohibition relative – Prohibition against
partnership capitalist partner to engage in business is
Duty of partner to act w/ utmost good faith relative, unlike the industrial partner who is
towards his co-partners continues absolutely prohibited from engaging in any
throughout the entire life of the partnership business for himself. Capitalist partner is
even after dissolution for whatever reason only prohibited from engaging for his own
or whatever means, until the relationship is account in any operation which is the same
terminated,
as or similar to the business in which the Art. 1810. The property rights of a partner
partnership is engaged and which is are:
competitive w/ said business 1. His rights in specific partnership
VIOLATION – Obligation to bring to property;
common fund any profits derived and in
case of losses, he shall bear them alone. 2. His interest in the partnership;
Partners, however, by stipulation may
permit it. The law permits him to carry on a 3. His right to participate in the
business not connected or competing with management, extent of property rights
that of the partnership. Law is silent on of a partner.
whether he can engage in same line of
business for the account of another. Principal Rights
Prohibition still applies because of fiduciary 1. Rights in specific partner property;
position imposing duties of utmost good 2. Interest in partnership;
faith. He may not carry on any other 3. Right to participate in management.
business in rivalry w/ the partnership.
RELATED RIGHTS
Reason for prohibition 1. Right to reimbursement for amounts
Fiduciary nature of relationship imposes advanced to partnership and to
obligation of utmost good faith. Rule indemnification for risks inconsequence
prevents use of info obtained in course of management (art. 1796).
of transaction of partnership business or 2. Right of access and inspection of
because of connection w/ firm regarding partnership books (art. 1805).
business secrets and clientele of firm to its 3. Right to true and full information of all
prejudice. things affecting partnership (art. 1806).
4. Right to formal account of partnership
Art. 1809. Any partner shall have the right affairs under certain circumstances (art.
to a formal account as partnership affairs: 1809).
5. Right to have partnership dissolved also
1. If he is wrongfully excluded from the under certain conditions (arts. 1830-
partnership business or possession of 1831).
its property by his co-partner;
Partnership property and partnership
2. If the right exists under the terms of any capital distinguished
agreement;
3. Provided by article 1807;

4. Whenever other circumstances render

it just and reasonable, Right of the
partner to a formal account.

General rule: During existence of

partnership, a partner is not entitled to a
formal account of partnership affairs.
Reason: rights of partner amply protected in
arts1805 and 1806. In addition, it would
cause much inconvenience and unnecessary
waste of time.

Exception: In the special and unusual

situations enumerated under art. 1809.
Right of partner to demand an accounting
w/o bringing about dissolution is
a necessary corollary to right to share in
profits. A formal account is a necessary
incident to the dissolution of the
partnership.
 Partnership Partnership
property capital
Changes Variable: itsConstant: it
value value may vary remains
from day today unchanged as
w/ the
changes in amount is fix
market value by agreement
of the
partners, and
is not
affected by
fluctuations in
the value of
the
partnership
property,
although it
may be
increased and
decreased by
 partners;
unanimous
consent of
the partners. 2. A partner’s right in specific partnership
Assets Includes not The property is not assignable except in
Included only the aggregate connection with the assignment of rights of
original of the all the partners in the same property;
capital individual
contributions, contributions 3. A partner’s right in specific partnership
but also all made by the property is not subject to attachment or
property partners in execution, except on a claim against the
subsequently establishing partnership;
 acquired or continuing
because of the 4. A partner’s right in specific partnership
the partnership. property is not subject to legal support
partnership under art. 291 nature of a partner’s right in
or w/ specific partnership property
partnership
funds, Art. 1811 contemplates tangible property
including but not intangible things. A partner is a co-
partnership owner w/ his partners of specific
name and partnership property, but the rules on co-
goodwill. ownership do not necessarily apply. The
legal incidents of this tenancy in partnership
Ownership of certain property are distinctively characteristic of the
Property use by the partnership – Where partnership relation. They are as follows:
there is no express agreement that property
used by a partnership constitutes Equal rights of possession - Ordinarily, a
partnership property, such use does not partner has an equal right to possess
make it partnership property, and whether specific partnership property for partnership
it is so depends on the intention of the purposes. None of the partner scan
parties, w/c may be shown by proving an possesses and uses the specific
express agreement or acts of particular partnership property other than for
conduct. The intent of the parties is the partnership purposes w/o the consent
controlling factor. of the other partners. Should any of them
Property acquired by a partner with use the property for his own benefit, he
partnership funds – Unless a contrary must account, like a stranger, to the others
intention appears, property acquired by a for the profits derived there from or the
partner in his own name w/ partnership value of his wrongful possession or
funds is partnership property. However, occupation. A partner wrongfully excluded
if the property was acquired after from possession of partnership property
dissolution but before the winding up of the by a co-partner has a right to formal
partnership affairs, it would be his separate account and may even apply for a
property but he would be liable to account judicial decree of dissolution. On the death
to the partnership for the funds used in its of a partner, his right in specific partnership
acquisition. property vests in the surviving partners. By
agreement, the right to possess specific
Art. 1811. A partner is co-owner with his partnership property may surrender. In the
partners of specific partnership property. absence of special agreement, however,
The incidents of this co-ownership are such neither partner separately owns, or has the
that; exclusive right of possession of any
partnership property or any proportional
1. A partner, subject to the provision of this part thereof. Each has dominion over
title and any agreement between the the entire partnership property. The
partner, has an equal right with his partners possession of partnership property by one
to possess specific partnership property for partner is the possession of all until his
partnership purposes; but he has no right to possession becomes adverse. A partner
possess such property for any other cannot initiate title by adverse possession
purpose without the consent of his until and unless he makes an adverse claim.
 partnership and not to the partners.
Right not assignable - A partner cannot However, their interest in the partnership is.
separately assign his right to specific The method of reaching a judgment
partnership property but all of them can debtor’s interest in partnership property is
assign their rights in the same property. specifically set forth in art.1814.

Reasons for non-assignability: Art. 1812. A partner’s interest in the

1. It prevents interference by outsiders in partnership is his share of the profits and
partnership affairs; surplus.
2. It protects the right of other partners
and partnership creditors to have Share of profits and surplus – The partner’s
partnership assets applied to firm interest in the partnership consists of his
debts; share in the undistributed profits during the
3. It is often impossible to determine the life of the partnership as a going concern
extent of a partner’s beneficial interest and his share in the undistributed surplus
in a particular partnership asset. Reason after its dissolution.
for impossibility: Each partner, having a
beneficial interest in the partnership Profits: the excess of returns over
property considered as a whole, has a expenditure in a transaction or series of
beneficial interest in each part. Where, transactions; or the net income of the
however, none of the above reasons partnership for a given period.
apply, an authorized assignment by a
partner of his right in specific Surplus: the assets of the partnership after
partnership property is void, but it may partnership debts and liabilities are paid
be regarded as a valid assignment of the and settled and the rights of the partners
partner’s interest in the partnership. among themselves are adjusted. It is the
The law allows a retiring partner to excess of assets over liabilities. If the
assign his rights in partnership property liabilities are more than the assets, the
 to the partner(s) continuing the difference represents the extent of the loss.
business.
Art.1813. A conveyance by a partner by his
Right limited to share of what remains whole interest in the partnership does not
after partnership debts has been paid of itself dissolve the partnership, or, against
Strictly speaking, no particular partnership the other partners in the absence of
property or any specific or an aliquot part agreement, entitle the assignee, during the
thereof can be considered the separate or continuance of the partnership, to interfere
individual property of any partner. The in the management or administration of the
whole of partnership property belongs to partnership business or affairs, or to require
the partnership considered as a juridical any information or account of the
person, and a partner has no interest in it partnership transactions, or to inspect the
but his share of what remains after all partnership books; however it merely
partnership debts are paid. Consequently, entitles the assignee to receive the
specific partnership property is not subject accordance with his contract, the profits to
to attachment, execution, garnishment, or which the assigning partner would
injunction, w/o the consent of all the otherwise be entitled.
partners except on a claim against the
partnership. For the same reason that the In case of fraud in the management of the
property belongs to the partnership, the partnership, the assignee may avail himself
partners cannot claim any right under the of the usual remedies. In case of dissolution
homestead or exemption laws when it is of the partnership, the assignee is entitle to
attached for partnership debts. However, a receive his assignor’s interest and may
judgment creditor may levy upon a require an account from the date only of
partner’s interest in the partnership itself the last account agreed to by all partners.
because it is actually his property, by means Effect of assignment of partner’s whole
of a “charging order.” The right of interest in partnership.
the partners to specificpartnership
property is not subject to legal support A partner’s right in specific partnership
since the property belongs to the property is not assignable but he may assign
his interest in the partnership to any of his preferred rights of the partnership creditors
co-partners or to a third Person irrespective on due application to a competent court by
of the consent of the other partners, in the any judgement creditor of the partner, the
absence of agreement to the contrary. court which entered the interest of the
debtor partner with payment of the
Rights withheld from assignee unsatisfied amount of such judgement debt
1. To interfere in the management. with the interest thereon; and may then or
2. To require any information or account. later appoint a receiver of his share of the
3. To inspect any of the partnership books. profits, and of any other money due or to
fall due to him in respect of the partnership,
No one can be compelled to be partners w/ and make all other orders, directions and
someone else. The assignment does not accounts and inquiries which the debtor
divest the assignor of his status and rights partner might have made, or which
as a partner nor operate as dissolution. circumstances of the case may require. The
The law, however, provides the non- interest charged may redeem at any time
assigning collaborates w/ a ground before foreclosure, or in any case of a sale
for dissolving the partnership if they being directed by the court, may be
so desire. purchase without thereby causing
dissolution:
Remedy of other partners
Dissolution of partnership not intended – 1. With separate property, by any one or
Many partnership agreements are made more of the partners;
merely as security for loans, the assigning
partner never intending to destroy the 2. With partnership property, by any one
partnership relation. If the assigning partner or more of the partners with the
neglects his duties after assignment, consent of all the partners a whose
the other partners may dissolve the interest are not so charged or sold,
partnership under art. 1830. nothing in this title shall be held to
Dissolution of partnership intended – A deprive a partner of his right, if any,
partner’s conveyance of his interest in the under the exemption laws, as regards
partnership operates as dissolution of the his interest in the partnership.
partnership only when it is clear that the
parties contemplated and intended the Application for a charging order after securing
entire withdrawal from the partnership of judgement on his credit
such partner and the termination of the While a separate creditor of a partner
partnership as between the partners. cannot attach or levy upon specific
partnership property for the satisfaction of
Rights of assignee of partner’s interest his credit because partnership assets are
1. To receive in accordance w/ his contract reserved for partnership creditors, he can
the profits accruing to the assigning secure a judgment on his credit and then
partner; apply to the proper court for a “charging
2. To avail himself of the usual remedies order”, subjecting the interest of the debtor
provided by law in the event of fraud in partner in the partnership w/ the payment
the management; of the unsatisfied amount of such judgment
3. To receive the assignor’s interest in case w/ interest thereon w/ the least
of dissolution;
 interference w/ the partnership business
4. To require an account of partnership and the rights of the other partners.
affairs, but only in case the partnership By virtue of the charging order, any amount
is dissolved, and such account shall or portion thereof w/c the partnership
cover the period from the date only of would otherwise pay to the debtor-partner
the last account agreed to by all should instead be given to the judgment
partners. The purchaser of a partner’s creditor. This remedy, however, is w/o
interest may apply to the court for prejudice to the preferred rights of
dissolution after the termination of the partnership creditors whose claims should
specified term or undertaking or at any be satisfied first.
time if the partnership is one at will.
Availability of other remedies
Art. 1814. Without prejudice to the Art. 1814 have made this an exclusive

remedy so that a writ of execution will not synonymous with “company,” “house,” and
be proper. However, if the judgment debt “concern.”
remains unsatisfied, the court may resort to
other courses of action notwithstanding the Importance of having a firm name
 issuance of the charging order. A partnership must have a firm name under
which it will operate. A firm name is
Redemption or purchase of interest charged necessary to distinguish the partnership,
Redemptioner – The interest of the debtor- which has a distinct and separate juridical
partner so charged may be redeemed or personality from the individuals composing
purchased w/ the separate property of any the partnership and from other partnerships
one or more of the partners, or w/ and entities.
partnership property but w/ the consent of
all the partners whose interests are not so Right of the partners to choose firm name
charged or sold. The partners enjoy the utmost freedom in
the selection of the partnership name.
Redemption Price – The value of As a general rule, they may adopt any firm
the partner’s interest in the partnership has name desired.
no bearing on the redemption price w/c is
likely to be lower since it will be dependent Use of misleading name – The partners
on the amount of the unsatisfied judgment cannot use a name that is identical or
debt. deceptively confusingly similar to that
of any existing partnership or corporation or
Right of redeeming non-debtor partner – to any other name already protected by law
There deeming non-debtor partner does or is patently deceptive, confusing or
not acquire absolute ownership over the contrary to existing laws, as to mislead the
debtor-partner’s interest but holds it in public by passing itself off as another
trust for him consistent w/ principles of partnership or corporation, or its goods or
fiduciary relationship. services as those of such other company.

Rights of partner under exemption laws Liability inclusion of name in the firm name
A partner cannot claim any right under the – Persons who, not being partners, include
homestead laws or exemption laws when their names in the firm name do not acquire
specific partnership property is attached for the rights of a partner but shall be subject
partnership debt. W/ respect, however, to to the liability of a partner insofar as 3rd
the partner’s interest in the partnership as Persons without notice are concerned. Such
distinguished from his interest in specific persons become partners by estoppel. Art.
partnership property, the partner may avail 1815 does not cover the case of a limited
himself of the exemption laws after partner who allows his name to be included
partnership debts have been paid. A in the firm name, orof a person continuing
partner’s interest or share in the the business of a partnership after
partnership property is really his property. dissolution, who uses the name of the
dissolved partnership or the name of
Art. 1815. Every partnership shall operate a deceased partner as part thereof.
under a firm name, which may or may not
include the name of one or more of the Art. 1816. All partners, including industrial
partners, those who, not being members of ones, shall be liable pro rata with all their
the partnership, include their names in the property and after all the partnership assets
firm name, shall be subject to liability of a have been exhausted, for the contracts
partner which may be entered into in the name and
for the account of the partnership, under its
Requirement of the firm name signature and by a person authorized to act
Meaning of word “firm” – The name, title, for the partnership. However, any partner
or style under which a company transacts may enter into a separate obligation to
business; a partnership of two or more perform a partnership contract.
persons; a commercial house. In its
common acceptation, the term implies a Article 1816 distinguished from article 1787
partnership. The term is also used as
Article 1816 applies in cases where third Art. 1818. Every partner is an agent of the
party creditors are concerned as it falls partnership for the purpose of its business,
under the heading of section 3. “Obligations and the act of every partner, including the
of the Partners with Regard to Third execution in the partnership name of any
Persons.” Article 1797 applies only where instrument, for apparently carrying on in
the issue is among the partners as it falls the usual way the business of the
under the heading of Section 1, Chapter 2, partnership of which he is a member binds
which states: “Obligations of the Partners the partnership, unless the partner so
Among Themselves.” The pro rata liability of acting has in fact no authority to act for the
partners to third persons under Article 1816 partnership in the particular matter, and
being a clear mandate of the law, any the person with whom he is dealing has
stipulation changing or modifying such knowledge of the fact that he has no
liability is void except as among the such liability.
partners.
An act of a partner which is not apparently
Refers to partnership obligations for the carrying on of business of the
Article 1816 which refers to the payment of partnership in the usual way does not bind
partnership obligations arising from the partnership unless authorized by the
contracts clearly imposes subsidiary and other partners.
joint (pro rata) liability for contractual debts
owing to third persons upon all the Except when authorized by the other
 partners, including industrial partners who partners or unless they have abandoned the
ordinarily are not liable for losses. The business, one or more but less than all the
liability is subsidiary because the partners partners have no authority to:
cannot be made answerable with their
separate property unless the partnership 1. Assign the partnership property in trust
property has first been exhausted. for creditors or on the assignee’s
promise to pay the debts of the
Pro rata liability – Literally, pro rata liability partnership.
means proportionate distribution of liability.
In the law of obligations, the concurrence of 2. Dispose of the goodwill of the business.
two or more debtors in one and the same
obligation makes it prima facie a joint (pro 3. Do any other act which would make it
rata) obligation, and the debts is presumed impossible to carry on the ordinary
divided into as many equal shares as there business of a partnership.
are debtors and each one of them is bound
to pay only his share. 4. Confess a judgment.

Art. 1817. Any stipulation against the

5. Enter into a compromise concerning a
liability laid down in the preceding article
partnership claim or liability.
shall be void, except as among the partners.

Industrial partner cannot exempt himself from 6. Submit a partnership claim or liability to
liability to third persons arbitration.
Each one of the industrial partners is liable
to third persons for the debts of the firm 7. Renounce a claim of the partnership.
and if he has paid such debts out of his
private property during the life of the No act of a partner in contravention of a
partnership, when its affairs are settled he is restriction on authority shall bind the
entitled to credit for the amount so paid, partnership to persons having knowledge of
and if its results that there is not enough the restriction.
property in the partnership to pay him, then
the capitalist partners must pay him. Our Art. 1819. Where title to real property is in
conclusion is that neither on principle nor the partnership name, any partner may
on authority can the industrial partner be convey title to such property by a
relieved from liability to third persons for conveyance executed in the partnership
the debts of the partnership. name; but the partnership may recover such
property unless the partner's act binds the
partnership under the provisions of the
 first paragraph of article 1818, or unless partnership, except in the case of fraud on
such property has been conveyed by the the partnership, committed by or with the
grantee or a person claiming through such consent of that partner.
grantee to a holder for value without
knowledge that the partner, in making the Notice to partner is notice to partnership
conveyance, has exceeded his authority. Clearly a third person desiring to give notice
to a partnership of some matter pertaining
Where title to real property is in the name to the partnership business need not
of the partnership, a conveyance executed communicate with all of the partners. If
by a partner, in his own name, passes the notice is delivered to a partner, that is an
equitable interest of the partnership, effective communication to the partnership.
provided the act is one within the authority
of the partner under the provisions of the Knowledge before becoming partner
first paragraph of Article 1818. Where the knowledge or notice had been
received by the partner before he became a
Where title to real property is in the name partner, and his partners are ignorant of
of one or more but not all the partners, and this, and he is not the partner acting in the
the record does not disclose the right of the particular matter, there is no doubt that
partnership, the partners in whose name there has been neither knowledge of nor
the title stands may convey title to such notice to the partnership.
property, but the partnership may recover
such property if the partners’ act does not Art. 1822. Where, by any wrongful act
bind the partnership under the provisions or omission of any partner acting in the
of the first paragraph of Article 1818, unless ordinary course of the business of the
the purchaser or his assignee, is a holder for partnership or with the authority of co-
value, without knowledge. partners, loss or injury is caused to any
person, not being a partner in the
Where the title to real property is in the partnership, or any penalty is incurred, the
name of one or more or all the partners, or partnership is liable therefor to the same
in a third person in trust for the partnership, extent as the partner so acting or omitting
a conveyance executed by a partner in the to act.
partnership name, or in his own name,
passes the equitable interest of the Partner liable for wrongful act of a partner
partnership, provided the act is one within The partners are liable for the negligent
the authority of the partner under the operation of a vehicle by a partner, acting in
provisions of the first paragraph of Article the course of business, which results in a
1818. traffic accident.

Where the title to real property is in the If he is driving a partnership-owned vehicle

 If he is driving a partnership owned vehicle
name of all the partners a conveyance for purposes of his own, the acting partner
executed by all the partners passes all their alone is liable it is not a partnership tort.
rights in such property.
Partnership may proceed against negligent
Art. 1820. An admission or representation partner
made by any partner concerning Where a partnership is liable to a third
partnership affairs within the scope of his person, there is a right of indemnity against
authority in accordance with this Title is the partner whose negligence caused the
evidence against the partnership. injuries.

Art. 1821. Notice to any partner of any Art. 1823. The partnership is bound to
matter relating to partnership affairs, and make good the loss:
the knowledge of the partner acting in the
particular matter, acquired while a partner 1. Where one partner acting within the
or then present to his mind, and the scope of his apparent authority receives
knowledge of any other partner who money or property of a third person and
reasonably could and should have misapplies it.
communicated it to the acting partner,
operate as notice to or knowledge of the
2. Where the partnership in the course of and if he has made such representation or
its business receives money or property consented to its being made in a public
of a third person and the money or manner he is liable to such person, whether
property so received is misapplied by the representation has or has not been
any partner while it is in the custody of made or communicated to such person so
the partnership. giving credit by or with the knowledge of
the apparent partner making the
Partnership bound by partner’s breach of representation or consenting to its being
trust

The partnership is liable for the conversion

(misappropriation) of money or property 1. When a partnership liability results, he
entrusted to the partnership by a third is liable as though he were an actual
person. The effect under Article 1824 is the member of the partnership.
same whether by the partnership and
subsequently misappropriated by a partner. 2. When no partnership liability results, he
is liable pro rata with the other persons,
Art. 1824. All partners are liable solidarily if any, so consenting to the contract or
with the partnership for everything representation as to incur liability,
chargeable to the partnership under otherwise separately.
Articles 1822 and 1823.
When a person has been thus represented
Law imposes solidary liability to be a partner in an existing partnership, or
The law imposes solidary liability upon the with one or more persons not actual
partners and the partnership in cases of partners, he is an agent of the persons
torts and acts of conversion by a partner as consenting to such representation to bind
provided in Art. 1824. It may be stated that them to the same extent and in the same
the liability of a partner for a debt of the manner as though he were a partner in fact,
partnership depends upon whether the with respect to persons who rely upon the
debts is contractual or it arises from tort or representation. When all the members of
conversion. If it arises from contract, the the existing partnership consent to the
liability is subsidiary and pro rata; if it arises representation, a partnership act or
from tort or conversion, the liability is obligation results; but in all other cases it is
solidary. the joint act or obligation of the person
acting and the persons consenting to the
Business partners solidarily liable representation.
Arts. 1711 and 1712 of the New Civil Code
and Sec. 2 of the Workmen’s Compensation Estoppel – A preclusion, in law, which
Act reasonably indicate that in prevents a man from alleging or denying a
compensation cases, the liability of business fact, in consequence of his own previous
partners should be merely joint and not act, allegation, or denial of a contrary tenor.
solidary, and one of them happens to be
insolvent, the amount awarded to the Person bound by his representation
dependents of the deceased employee A person who hold himself out as a partner
would only be partially satisfied, which is in a business, or consents to his being so
evidently contrary to the intent and purpose held out, is liable on contracts made with
of the law to give full protection to third persons who deal with the persons
the employee. carrying on the business on the faith of the
representation. He is stopped to deny the
Art. 1825. When a person, by words spoken apparent agency.
or written or by conduct, represents himself,
or consents to another representing him to Art. 1826. A person admitted as a partner
anyone, as a partner in an existing into an existing partnership is liable for all
partnership or with one or more persons the obligations of the partnership arising
not actual partners, he is liable to any such before his admission as though he had been
persons to whom such representation has a partner when such obligations were
 been made, who has, on the faith of such incurred, except that this liability shall be
representation, given credit to the actual or satisfied only out of partnership property,
apparent partnership, unless there is a stipulation to the contrary.

Incoming partner liable for existing obligations b. By the express will of any partner,
A newly admitted partner is liable for who must act in good faith, when
obligations of the partnership at the time of no definite term or particular is
his admission. The obligation of the specified.
incoming partner shall be satisfied only out
of partnership property. This is not a harsh c. By the express will of all the
rule because the incoming partner “partakes partners who have not assigned
of the benefit of the partnership property, their interests or suffered them to
and an established business. He has every be charged for their separate debts,
means of obtaining full knowledge of either before or after the
protecting himself, because he may insist on termination of any specified term or
the liquidation or settlement of existing particular undertaking.
partnership debts. On the other hand, the
creditors have no means of protecting
d. By the expulsion of any partner
themselves.
from the business bona fide in
accordance with such a power
Art. 1827. The creditors of the partnership
conferred by the agreement
shall be preferred to those of each partner
between the partners
as regards the partnership property.
Without prejudice to this right, the private
2. In contravention of the agreement
creditors of each partner may ask the
between the partners, where the
attachment and public sale of the share of
circumstances do not permit a
the latter in the partnership assets.
dissolution under any other provision of
this article, by the express will of any
Art. 1828. The dissolution of a partnership
is the change in the relation of the partners 3. By any event which makes it unlawful
caused by any partner ceasing to be for the business of the partnership to
associated in the carrying on as be carried on or for the members to
distinguished from the winding up of the carry it on in partnership.
business.
4. When a specific thing which a partner
Art. 1829. On dissolution the partnership is
had promised to contribute to the
not terminated, but continues until the
partnership, perishes before the
winding up of partnership affairs is
delivery; in any case by the loss of the
completed.
thing, when the partner who
contributed it having reserved the
“Dissolution,” “Winding up,” and
ownership thereof, has only transferred
“Termination” explained
to the partnership the use or enjoyment
Dissolution, winding up, and termination
of the same; but the partnership shall
should not be confused because they are
not be dissolved by the loss of the thing
distinct terms in law. Dissolution “designates
when it occurs after the partnership has
the point in time when the partners cease
acquired the ownership thereof.
to carry on the business together:
termination is the point in time when all
partnership affairs are wound up; winding 5. By the death of any partner.
up is the process of settling
partnership affairs after dissolution.” 6. By the insolvency of any partner or of
the partnership.
Art. 1830. Dissolution is caused:
7. By the civil interdiction of any partner.
1. Without violation of the agreement
between the partners: 8. By decree of court under the following
article.
a. By the termination of the definite
term or particular undertaking Causes of dissolution in general
specified in the agreement. Generally, a partnership may be dissolved
by causes: (1) without violation of the
 agreement between the partners; or (2) in agreement, or otherwise so conducts
contravention of the agreement. Other himself in matters relating to the
specific causes are; (3) an event which partnership business that it is not
makes the business of the partnership reasonably practicable to carry on the
unlawful; (4) loss of a specific thing which a business in partnership with him.
partner had promised to contribute to the
partnership; (5) the death of a partner; (6) 5. The business of the partnership can
the insolvency of any partner or of the only be carried on at a loss.
partnership itself; (7) civil interdiction of any
partner; and lastly (8) by judicial decree. 6. Other circumstances render a
dissolution equitable.

Partnership ceased upon expiration of On the application of the purchaser of a

term; no more juridical personality partner's interest under Article 1813 or
A partnership having ceased to exist since 1814:
1959, the partnership has no more juridical
personality nor capacity to sue and be sued. 1. After the termination of the specified
(Reynolds Philippine Corporation vs. Court term or particular undertaking.
of appeals, G.R. No. 36187, Jan. 17, 1989)
2. At any time if the partnership was a
Effect of Withdrawal before expiration of partnership at will when the interest
the term was assigned or when the charging
Under Article 1830, even if there is a order was issued.
specified term, one partners cause its
dissolution by expressly withdrawing eve n Who may petition for dissolution
before the expiration of the period, with or Dissolution of a partnership may be decreed
without justifiable cause. Of course, if the by the court on application either (1) by a
cause is not justified or no cause was given, partner or, in case he has assigned his
the withdrawing partner is liable for interest, (2) by his assignee.
damages but in no case can he be
compelled to remain in the firm. With his Art. 1832. Except so far as may be necessary
withdrawal, the number of members is to wind up partnership affairs or to
decreased, hence, the dissolution. And in complete transactions begun but not then
whatever way we view the situation, the finished, dissolution terminates all authority
conclusion is inevitable that the partners of any partner to act for the partnership:
were to be guided in the liquidation of the
partnership by the provisions of its duly 1. With respect to the partners
registered articles of partnership. (Roxas vs.
Maglana, G.R. L-30616, Dec. 10, 1990) a. When the dissolution is not by the
act, insolvency or death of a
Art. 1831. On application by or for a partner partner.
the court shall decree a dissolution
whenever: b. When the dissolution is by such act,
insolvency or death of a partner, in
1. A partner has been declared insane in cases where article 1833 so
any judicial proceeding or is shown to requires.
be of unsound mind.
2. With respect to persons not partners,
2. A partner becomes in any other way as declared in article 1834.
incapable of performing his part of the
partnership contract. General Rule
If the cause of dissolution is not by act,
3. A partner has been guilty of such death, or insolvency of a partner, the
conduct as tends to affect prejudicially authority ceases immediately.
the carrying on of the business. Exception
For the purposes of winding-up partnership
4. Apartnerwillfullyorpersistently affairs.
commits a breach of the partnership
 place if more than one) at which
Art. 1833. Where the dissolution is caused the partnership business was
by the act, death or insolvency of a partner, regularly carried on.
each partner is liable to his co-partners for
his share of any liability created by any The liability of a partner under the first
partner acting for the partnership as if the paragraph, No. 2, shall be satisfied out of
partnership had not been dissolved unless: partnership assets alone when such partner
had been prior to dissolution:
1. The dissolution being by act of any
partner, the partner acting for the 1. Unknown as a partner to the person
partnership had knowledge of the with whom the contract is made.
dissolution.
2. So far unknown and inactive in
2. The dissolution being by the death or partnership affairs that the business
insolvency of a partner, the partner reputation of the partnership could not
acting for the partnership had be said to have been in any degree due
knowledge or notice of the death or to his connection with it.
insolvency.
The partnership is in no case bound by any
General Rule act of a partner after dissolution:
If the cause of dissolution is the death, act,
or insolvency of a partner, authority of a 1. Where the partnership is dissolved
partner to bind ceases upon the knowledge because it is unlawful to carry on the
of the dissolution. business, unless the act is appropriate
for winding up partnership affairs.
If dissolution is caused by act of one of
parties, co-partners are also liable to 2. Where the partner has become
contribute towards a liability as if no insolvent.
dissolution has happened, provided that
there is no notice or the partner does not 3. Where the partner has no authority to
have knowledge of the dissolution. wind up partnership affairs; except by a
transaction with one who —
Art. 1834. After dissolution, a partner can
bind the partnership, except as provided in a. Had extended credit to the
the third paragraph of this article: partnership prior to dissolution and
had no knowledge or notice of his
1. By any act appropriate for winding up want of authority.
partnership affairs or completing
transactions unfinished at dissolution. b. Had not extended credit to the
partnership prior to dissolution,
2. By any transaction which would bind and, having no knowledge or notice
the partnership if dissolution had not of his want of authority, the fact of
taken place, provided the other party to his want of authority has not been
the transaction: advertised in the manner provided
for advertising the fact of
a. Had extended credit to the dissolution in the first paragraph,
partnership prior to dissolution and No. 2 (b).
had no knowledge or notice of the
dissolution. Nothing in this article shall affect the
 liability under article 1825 of any person
b. Though he had not so extended who after dissolution represents himself or
credit, had nevertheless known of consents to another representing him as a
the partnership prior to dissolution, partner in a partnership engaged in carrying
and, having no knowledge or notice on business.
of dissolution, the fact of
dissolution had not been advertised General Rule
in a newspaper of general Dissolution terminates the authority of the
circulation in the place (or in each partners to bind partnership.

Exceptions assignee, upon cause shown, may obtain

Any act appropriate for winding-up winding up by the court.
partnership affairs or completing
transactions unfinished at dissolution Who may wind up Partnership Affairs?
Partner designated in the agreement.
If third persons that transacted had no In absence of agreement, the part that did
actual knowledge of the dissolution. no wrongfully dissolved the partnership.
 Persons extending credit prior to
dissolution are entitled to notice of If all partners died, the legal representative
dissolution. If they had no notice or of the last surviving partner provided that
knowledge of dissolution, they may hold the partner is not insolvent.
the retired partner for obligations made by
continuing partners after dissolution. Winding up of a dissolved partnership may be
done
Art. 1835. The dissolution of the Extrajudicially by the partners themselves.
partnership does not of itself discharge the Judicially under the control of a competent
existing liability of any partner. court.
*Managing partner or winding-up partner
A partner is discharged from any existing has the right to sell firm property even after
liability upon dissolution of the partnership the life of the partnership has expired.
by an agreement to that effect between
himself, the partnership creditor and the Art. 1837. When dissolution is caused in any
person or partnership continuing the way, except in contravention of the
business; and such agreement may be partnership agreement, each partner, as
inferred from the course of dealing between against his co-partners and all persons
the creditor having knowledge of the claiming through them in respect of their
dissolution and the person or partnership interests in the partnership, unless
continuing the business. otherwise agreed, may have the
partnership property applied to discharge
The individual property of a deceased its liabilities, and the surplus applied to pay
partner shall be liable for all obligations of in cash the net amount owing to the
the partnership incurred while he was a respective partners. But if dissolution is
partner, but subject to the prior payment of caused by expulsion of a partner, bona fide
his separate debts. under the partnership agreement and if the
expelled partner is discharged from all
General Rule partnership liabilities, either by payment or
Dissolution of a partnership does not itself agreement under the second paragraph of
discharge the existing liability of any article 1835, he shall receive in cash only
partner. the net amount due him from the
Exception partnership.
A partner can be discharged from any
existing liability upon dissolution of the When dissolution is caused in contravention
partnership provided that there is an of the partnership agreement the rights of
agreement between the partnership the partners shall be as follows:
creditor and the person or partners
continuing the business. 1. Each partner who has not caused
*Individual properties of the deceased dissolution wrongfully shall have:
partner shall be liable to all obligations of
the partnership made while he was a a. All the rights specified in the first
partner. paragraph of this article.

Art. 1836. Unless otherwise agreed, the b. The right, as against each partner
partners who have not wrongfully dissolved who has caused the dissolution
the partnership or the legal representative wrongfully, to damages breach of
of the last surviving partner, not insolvent, the agreement.
has the right to wind up the partnership
affairs, provided, however, that any partner, 2. The partners who have not caused the
his legal representative or his dissolution wrongfully, if they all desire
 to continue the business in the same If the partnership was dissolved in
name either by themselves or jointly contravention of the agreement
with others, may do so, during the 1. The remaining partners have the right
agreed term for the partnership and for to sell partnership property to pay the
that purpose may possess the partnership’s liabilities and the surplus
partnership property, provided they is distributed to the remaining partners
secure the payment by bond approved as well.
by the court, or pay any partner who 2. As against the guilty partner for the
has caused the dissolution wrongfully, dissolution of the partnership, the
the value of his interest in the remaining partners have the right to
partnership at the dissolution, less any recover damages for breach.
damages recoverable under the second 3. The remaining partners may also
paragraph, No. 1 (b) of this article, and continue the business up to end of the
in like manner indemnify him against all stipulated term of the partnership.
present or future partnership liabilities.
Art. 1838. Where a partnership contract is
3. A partner who has caused the rescinded on the ground of the fraud or
dissolution wrongfully shall have: misrepresentation of one of the parties
thereto, the party entitled to rescind is,
a. If the business is not continued without prejudice to any other right,
under the provisions of the second entitled:
paragraph, No. 2, all the rights of a
partner under the first paragraph, 1. To a lien on, or right of retention of, the
subject to liability for damages in surplus of the partnership property
the second paragraph, No. 1 (b), of after satisfying the partnership
 the second paragraph, No. 1 (b), of after satisfying the partnership
this article. liabilities to third persons for any sum
of money paid by him for the purchase
b. If the business is continued under of an interest in the partnership and for
the second paragraph, No. 2, of this any capital or advances contributed by
article, the right as against his co- him.
partners and all claiming through
them in respect of their interests in 2. To stand, after all liabilities to third
the partnership, to have the value persons have been satisfied, in the place
of his interest in the partnership, of the creditors of the partnership for
less any damage caused to his co- any payments made by him in respect
partners by the dissolution, of the partnership liabilities.
ascertained and paid to him in cash,
or the payment secured by a bond 3. To be indemnified by the person guilty
approved by the court, and to be of the fraud or making the
released from all existing liabilities representation against all debts and
of the partnership; but in liabilities of the partnership.
ascertaining the value of the
partner's interest the value of the Right of partner to rescind contract of
good-will of the business shall not partnership
be considered. If one is induced by fraud or
misrepresentation to become a partner, the
Rights of partners upon dissolution contract is voidable. If the contract is
1. Dissolution is caused without violation annulled, the injured party is entitled to
of the agreement. restitution. Here, the fraud or
2. In contravention of the agreement. misrepresentation vitiates consent.
However, until the partnership contract is
If partnership is dissolved without violation of annulled by a proper action in court, the
the agreement partnership relations exist and
1. All partners may have the property sold the defrauded partner is liable for all
for payment of partnership liabilities. obligations to third persons.
2. If there is surplus, after paying the 1. Right of injured partner where
liabilities of the firm, it shall be given in partnership contract rescinded
cash to the partners.
2. Right of retention of partnership 7. The individual property of a deceased
property partner shall be liable for the
3. Right to be subrogated in place of contributions specified in No. 4.
creditors of partnership
4. Right to be indemnified by the guilty 8. When partnership property and the
partner against all liabilities of the individual properties of the partners are
partnership. in possession of a court for distribution,
partnership creditors shall have priority
Art. 1839. In settling accounts between the on partnership property and separate
partners after dissolution, the following creditors on individual property, saving
rules shall be observed, subject to any the rights of lien or secured creditors.
agreement to the contrary:
9. Where a partner has become insolvent
1. The assets of the partnership are: or his estate is insolvent, the claims
against his separate property shall rank
a. The partnership property. in the following order:

b. The contributions of the partners a. Those owing to separate creditors.

necessary for the payment of all the
liabilities specified in No. 2. b. Those owing to partnership
creditors.
2. The liabilities of the partnership shall
rank in order of payment, as follows: c. Those owing to partners by way of
contribution.
a. Those owing to creditors other than
partners. Rules for settling accounts between the
partners
b. Those owing to partners other than 1. The assets of the partnership
for capital and profits. 2. Liabilities of the partnership
3. Application of assets
c. Those owing to partners in respect 4. Contribution by the partners
of capital.
Assets of the partnership
d. Those owing to partners in respect 1. Partnership property
of profits. 2. The contributions of the partners
necessary for the payment of all
3. The assets shall be applied in the order liabilities
of their declaration in No. 1 of this
article to the satisfaction of the Order of application of the assets
liabilities. 1. Those owing to partnership creditors
2. Those owing to partners other than for
4. The partners shall contribute, as capital and profits such as loans given
 capital and profits such as loans given
provided by article 1797, the amount by the partners or advances for business
necessary to satisfy the liabilities. expenses
3. Those owing for the return of the
5. An assignee for the benefit of creditors capital contributed by the partners
or any person appointed by the court 4. The share of the profits, if any, due to
shall have the right to enforce the each partner
contributions specified in the preceding
number. Order of application of partner who become
insolvent or his estate his insolvent, the claims
6. Any partner or his legal representative against his separate property
shall have the right to enforce the 1. Those owing to separate creditors
contributions specified in No. 4, to the 2. Those owing to partnership creditors
extent of the amount which he has paid 3. Those owing to partners by way of
in excess of his share of the liability. contribution
Liability of deceased partner s individual 6. When a partner is expelled and the
property remaining partners continue the
The individual property of a deceased business either alone or with others
partner shall be liable for his share of the without liquidation of the partnership
contributions necessary to satisfy the affairs.
liabilities of the partnership incurred while
he was a partner. The liability of a third person becoming a
partner in the partnership continuing the
Art. 1840. In the following cases creditors of business, under this article, to the creditors
the dissolved partnership are also creditors of the dissolved partnership shall be
of the person or partnership continuing the satisfied out of the partnership property
business: only, unless there is a stipulation to the
contrary.
1. When any new partner is admitted into
an existing partnership, or when any When the business of a partnership after
partner retires and assigns (or the dissolution is continued under any
representative of the deceased partner conditions set forth in this article the
assigns) his rights in partnership creditors of the dissolved partnership, as
property to two or more of the against the separate creditors of the retiring
partners, or to one or more of the or deceased partner or the representative
partners and one or more third of the deceased partner, have a prior right
persons, if the business is continued to any claim of the retired partner or the
without liquidation of the partnership representative of the deceased partner
affairs. against the person or partnership
continuing the business, on account of the
2. When all but one partner retire and retired or deceased partner's interest in the
assign (or the representative of a dissolved partnership or on account of any
deceased partner assigns) their rights consideration promised for such interest or
in partnership property to the for his right in partnership property.
remaining partner, who continues the
business without liquidation of Nothing in this article shall be held to
partnership affairs, either alone or with modify any right of creditors to set aside
others. any assignment on the ground of fraud.

3. When any partner retires or dies and The use by the person or partnership
the business of the dissolved continuing the business of the partnership
partnership is continued as set forth in name, or the name of a deceased partner as
Nos. 1 and 2 of this article, with the part thereof, shall not of itself make the
consent of the retired partners or the individual property of the deceased partner
representative of the deceased partner, liable for any debts contracted by such
but without any assignment of his right person or partnership.
in partnership property.
Dissolution of a partnership by change of
4. When all the partners or their members
representatives assign their rights in Causes
partnership property to one or more 1. New partner is admitted
third persons who promise to pay the 2. Partner retires
debts and who continue the business 3. Partner dies
of the dissolved partnership. 4. Partner withdraws
5. Partner is expelled from partnership
5. When any partner wrongfully causes a 6. Other partners assign their rights
dissolution and the remaining partners to sole remaining partner
continue the business under the 7. All the partners assign their rights in
provisions of article 1837, second partnership property to third persons.
paragraph, No. 2, either alone or with *Any change in membership dissolves a
others, and without liquidation of the partnership and creates a new one
partnership affairs. *When a business of a dissolved
partnership is continued by former or
without new partners, the old creditors are person or partnership continuing the
creditors of the person or partnership that is business, at the date of dissolution, in the
continuing the business. absence of any agreement to the contrary.

Art. 1841. When any partner retires or dies, Right to demand an accounting of partnership
and the business is continued under any of affairs must be directed against
the conditions set forth in the preceding 1. Winding-up partners
article, or in article 1837, second paragraph, 2. Surviving partners
No. 2, without any settlement of accounts 3. The person the partnership continuing
as between him or his estate and the the business
person or partnership continuing the
business, unless otherwise agreed, he or his Art. 1843. A limited partnership is one
legal representative as against such person formed by two or more persons under the
or partnership may have the value of his provisions of the following article, having as
interest at the date of dissolution members one or more general partners and
ascertained, and shall receive as an ordinary one or more limited partners. The limited
creditor an amount equal to the value of his partners as such shall not be bound by the
interest in the dissolved partnership with
 interest in the dissolved partnership with obligations of the partnership.
interest, or, at his option or at the option of
his legal representative, in lieu of interest, General partner Limited partner
the profits attributable to the use of his Personally liable for Liability extends
right in the property of the dissolved partnership only to his capital
partnership; Provided, That the creditors of obligations contribution.
the dissolved partnership as against the Have equal right in No share in
separate creditors, or the representative of management of management of
the retired or deceased partner, shall have partnership partnership.
priority on any claim arising under this May contribute May contribute
article, as provided article 1840, third money, property or money and property
paragraph. industry
Proper party to Not proper party to
Rights of retiring of properties of deceased, proceedings proceedings
partner when business continued Interest cannot be Interest is assignable
To have the value of the interest of the assigned to make new with assignee
retiring partner or deceased partner in the partner acquiring all rights of
partnership determined as of the date of the limited partner
dissolution. His name may Name not included
appear in the firm in firm name
To receive thereafter, as an ordinary name
creditor, an amount equal to the value of his Prohibited from No prohibition
share in the dissolved partnership with engaging in a
interest, or, at his option, in place of business like
interest, the profits attributable to the use partnership’s
of his right. His retirement, His retirement,
insolvencyand death insolvency and
General Rule dissolves the death does not
When partner retires from the partnership, partnership dissolve the
he is entitled to the payment of what may partnership
be due to him after liquidation.
Exception Characteristics of limited partnership
No liquidation needed when there is 1. Must be formed in accordance with the
settlement as to what retiring partner shall requirements of the law.
receive. 2. There must be one or more general
partners who control the management
Art. 1842. The right to an account of his of the business.
interest shall accrue to any partner, or his 3. There must be one or more limited
legal representative as against the winding partners contributing to the capital and
up partners or the surviving partners or the
 sharing in the profits but have nothing l. The right, if given, of one or more of
to do with the management. the limited partners to priority over
4. Obligations of the partnership must be other limited partners, as to
paid out of common fund and in the contributions or as to
separate properties of the general compensation by way of income,
partners. and the nature of such priority.

Art. 1844. Two or more persons desiring to m. The right, if given, of the remaining
form a limited partnership shall: general partner or partners to
continue the business on the death,
1. Sign and swear to a certificate, which retirement, civil interdiction,
shall state — insanity or insolvency of a general
partner.
a. The name of the partnership,
adding thereto the word "Limited". n. The right, if given, of a limited
partner to demand and receive
b. The character of the business. property other than cash in return
for his contribution.
c. The location of the principal place
of business. 2. File for record the certificate in the
Office of the Securities and Exchange
d. The name and place of residence of Commission.
each member, general and limited
partners being respectively A limited partnership is formed if there has
designated. been substantial compliance in good faith
with the foregoing requirements.
e. The term for which the partnership
is to exist. Qualifications of limited partnership
f. The amount of cash and a 1. The partners must sign and swear to a
description of and the agreed value certificate of limited partnership
of the other property contributed 2. Must file for record the certificate in
by each limited partner. the office of the Securities and
Exchange Commission
g. The additional contributions, if any,
to be made by each limited partner Art. 1845. The contributions of a limited
 Art. 1845. The contributions of a limited
and the times at which or events on partner may be cash or property, but not
the happening of which they shall services.
be made.
Limited partners can only contribute money
h. The time, if agreed upon, when the and property and cannot contribute
contribution of each limited partner services to the partnership to protect
is to be returned. persons dealing with the firms with frauds.

i. The share of the profits or the other Art. 1846. The surname of a limited partner
compensation by way of income shall not appear in the partnership name
which each limited partner shall unless:
receive by reason of his
contribution. 1. It is also the surname of a general
partner.
j. The right, if given, of a limited
partner to substitute an assignee as 2. Prior to the time when the limited
contributor in his place, and the partner became such, the business has
terms and conditions of the been carried on under a name in which
substitution. his surname appeared.

k. The right, if given, of the partners to A limited partner whose surname appears
admit additional limited partners. in a partnership name contrary to the
provisions of the first paragraph is liable as
 a general partner to partnership creditors A limited partner is excluded from any
who extend credit to the partnership active voice in the control of the affairs of
without actual knowledge that he is not a the firm.
general partner. Limited partner cannot perform acts of
administration
Limited partner’s surname is not included in the Limited partners may not perform any act of
firm name provided these circumstances administration with respect to the interests
1. If the surname of general partner is the of the partnership, not even in the capacity
same with limited partner’s of agents of the managing partners.
2. If the limited partner’s surname was ART. 1849. After the formation of a limited
included and was carried on the new partnership, additional limited partners may
partnership be admitted upon filling an amendment to
*If the limited partner’s surname was the original certificate in accordance with
included in the firm name, he is liable as a the requirements of Article 1865.
general partner.
The writing to amend a certificate
Art. 1847. If the certificate contains a false 1. Shall conform to the requirements of
statement, one who suffers loss by reliance Article 1844 as far as necessary to set
on such statement may hold liable any forth clearly the change in the
party to the certificate who knew the certificate which it is desired to make.
statement to be false: 2. Be signed and sworn to by all members,
and an amendment substituting a
1. At the time he signed the certificate. limited partner.
ART. 1850. A general partner shall all have
2. Subsequently, but within a sufficient the rights and powers and be subject to all
time before the statement was relied the restrictions and liabilities of a partner in
upon to enable him to cancel or amend a partnership without limited partners.
the certificate, or to file a petition for its However, without the written consent or
cancellation or amendment as provided ratification of the specific act by all the
in article 1865. limited partners, a general partner or all of
the general partners have no authority to:
Liability for false statement in certificate
Under this provision, any partner to 1. Do any act in contravention of the
the certificate containing a false statement certificate.
is liable provided the following requisites 2. Do any act which would make it
are present: impossible to carry on the ordinary
1. He knew the statement to be false at business of the partnership.
the time he signed the certificate, or
subsequently, but having sufficient time 3. Confess a judgement against the
to cancel or amend it or file a petition partnership.
for its cancellation or amendment, he
failed to do so. 4. Possess partnership property, or assign
2. The person seeking to enforce liability their rights in specific partnership
has relied upon the false statement in property, for other than a partnership
transacting business with the purpose.
partnership.
3. The person suffered loss as a result of 5. Admit a person as a general partner.
reliance upon such false statement.
6. Admit a person as a limited partner,
ART. 1848. A limited partner shall become unless the right so to do is given in the
liable as a general partner unless, in certificate.
addition to the exercise of his rights and
 powers as a limited partner, he takes part in 7. Continue the business with partnership
the control of the business. property on the death, retirement,
Limited partner has no control in business insanity, civil interdiction or insolvency
of a general partner, unless the right so
to do is given in the certificate.

3. Non-participation in the management

Powers of general partner in limited partnership of the business.
The general partner shall have all the right
and powers and be subject to all the ART. 1853. A person may be a general
restrictions and liabilities of a partner in a partner and a limited partner in the same
partnership without limited partners. partnership at the same time, provided that
this fact shall be stated in the certificate
ART. 1851. A limited partner shall have the
same rights as a general partner to: provided for in Article 1844.

A person who is a general, and also at the

2. Right of retention of partnership 7. The individual property of a deceased
property partner shall be liable for the
3. Right to be subrogated in place of contributions specified in No. 4.
creditors of partnership
4. Right to be indemnified by the guilty 8. When partnership property and the
partner against all liabilities of the individual properties of the partners are
partnership. in possession of a court for distribution,
partnership creditors shall have priority
Art. 1839. In settling accounts between the on partnership property and separate
partners after dissolution, the following creditors on individual property, saving
rules shall be observed, subject to any the rights of lien or secured creditors.
agreement to the contrary:
9. Where a partner has become insolvent
1. The assets of the partnership are: or his estate is insolvent, the claims
against his separate property shall rank
a. The partnership property. in the following order:

b. The contributions of the partners a. Those owing to separate creditors.

necessary for the payment of all the
liabilities specified in No. 2. b. Those owing to partnership
creditors.
2. The liabilities of the partnership shall
rank in order of payment, as follows: c. Those owing to partners by way of
contribution.
a. Those owing to creditors other than
partners. Rules for settling accounts between the
partners
b. Those owing to partners other than 1. The assets of the partnership
for capital and profits. 2. Liabilities of the partnership
3. Application of assets
c. Those owing to partners in respect 4. Contribution by the partners
of capital.
Assets of the partnership
d. Those owing to partners in respect 1. Partnership property
of profits. 2. The contributions of the partners
necessary for the payment of all
3. The assets shall be applied in the order liabilities
of their declaration in No. 1 of this
article to the satisfaction of the Order of application of the assets
liabilities. 1. Those owing to partnership creditors
2. Those owing to partners other than for
4. The partners shall contribute, as capital and profits such as loans given
provided by article 1797, the amount by the partners or advances for business
necessary to satisfy the liabilities. expenses
3. Those owing for the return of the
5. An assignee for the benefit of creditors capital contributed by the partners
or any person appointed by the court 4. The share of the profits, if any, due to
shall have the right to enforce the each partner
contributions specified in the preceding
number. Order of application of partner who become
insolvent or his estate his insolvent, the claims
6. Any partner or his legal representative against his separate property
shall have the right to enforce the 1. Those owing to separate creditors
contributions specified in No. 4, to the 2. Those owing to partnership creditors
extent of the amount which he has paid 3. Those owing to partners by way of
in excess of his share of the liability. contribution
Liability of deceased partner’s individual 6. When a partner is expelled and the
property remaining partners continue the
The individual property of a deceased business either alone or with others
partner shall be liable for his share of the without liquidation of the partnership
contributions necessary to satisfy the affairs.
liabilities of the partnership incurred while
he was a partner. The liability of a third person becoming a
partner in the partnership continuing the
Art. 1840. In the following cases creditors of business, under this article, to the creditors
the dissolved partnership are also creditors of the dissolved partnership shall be
of the person or partnership continuing the satisfied out of the partnership property
business: only, unless there is a stipulation to the
contrary.
1. When any new partner is admitted into
an existing partnership, or when any When the business of a partnership after
partner retires and assigns (or the dissolution is continued under any
representative of the deceased partner conditions set forth in this article the
assigns) his rights in partnership creditors of the dissolved partnership, as
property to two or more of the against the separate creditors of the retiring
partners, or to one or more of the or deceased partner or the representative
partners and one or more third of the deceased partner, have a prior right
persons, if the business is continued to any claim of the retired partner or the
without liquidation of the partnership representative of the deceased partner
affairs. against the person or partnership
continuing the business, on account of the
2. When all but one partner retire and retired or deceased partner's interest in the
assign (or the representative of a dissolved partnership or on account of any
deceased partner assigns) their rights consideration promised for such interest or
in partnership property to the for his right in partnership property.
remaining partner, who continues the
business without liquidation of Nothing in this article shall be held to
partnership affairs, either alone or with modify any right of creditors to set aside
others. any assignment on the ground of fraud.

3. When any partner retires or dies and The use by the person or partnership
the business of the dissolved continuing the business of the partnership
partnership is continued as set forth in name, or the name of a deceased partner as
Nos. 1 and 2 of this article, with the part thereof, shall not of itself make the
consent of the retired partners or the individual property of the deceased partner
representative of the deceased partner, liable for any debts contracted by such
but without any assignment of his right person or partnership.
in partnership property.
Dissolution of a partnership by change of
4. When all the partners or their members
representatives assign their rights in Causes
partnership property to one or more 1. New partner is admitted
third persons who promise to pay the 2. Partner retires
debts and who continue the business 3. Partner dies
of the dissolved partnership. 4. Partner withdraws
5. Partner is expelled from partnership
5. When any partner wrongfully causes a 6. Other partners assign their rights
dissolution and the remaining partners to sole remaining partner
continue the business under the 7. All the partners assign their rights in
provisions of article 1837, second partnership property to third persons.
paragraph, No. 2, either alone or with *Any change in membership dissolves a
others, and without liquidation of the partnership and creates a new one
partnership affairs. *When a business of a dissolved
partnership is continued by former or
 without new partners, the old creditors are person or partnership continuing the
creditors of the person or partnership that is business, at the date of dissolution, in the
continuing the business. absence of any agreement to the contrary.

Art. 1841. When any partner retires or dies, Right to demand an accounting of partnership
and the business is continued under any of affairs must be directed against
the conditions set forth in the preceding 1. Winding-up partners
article, or in article 1837, second paragraph, 2. Surviving partners
No. 2, without any settlement of accounts 3. The person the partnership continuing
as between him or his estate and the the business
person or partnership continuing the
business, unless otherwise agreed, he or his Art. 1843. A limited partnership is one
legal representative as against such person formed by two or more persons under the
or partnership may have the value of his provisions of the following article, having as
interest at the date of dissolution members one or more general partners and
ascertained, and shall receive as an ordinary one or more limited partners. The limited
creditor an amount equal to the value of his partners as such shall not be bound by the
interest in the dissolved partnership with obligations of the partnership.
interest, or, at his option or at the option of
his legal representative, in lieu of interest, General partner Limited partner
the profits attributable to the use of his Personally liable for Liability extends
right in the property of the dissolved partnership only to his capital
partnership; Provided, That the creditors of obligations contribution.
the dissolved partnership as against the Have equal right in No share in
separate creditors, or the representative of management of management of
the retired or deceased partner, shall have partnership partnership.
priority on any claim arising under this May contribute May contribute
article, as provided article 1840, third money, property or money and property
paragraph. industry
Proper party to Not proper party to
Rights of retiring of properties of deceased, proceedings proceedings
partner when business continued Interest cannot be Interest is assignable
To have the value of the interest of the assigned to make new with assignee
retiring partner or deceased partner in the partner acquiring all rights of
partnership determined as of the date of the limited partner
dissolution. His name may Name not included
appear in the firm in firm name
To receive thereafter, as an ordinary name
creditor, an amount equal to the value of his Prohibited from No prohibition
share in the dissolved partnership with engaging in a
interest, or, at his option, in place of business like
interest, the profits attributable to the use partnership’s
of his right. His retirement, His retirement,
insolvencyand death insolvency and
General Rule dissolves the death does not
When partner retires from the partnership, partnership dissolve the
he is entitled to the payment of what may partnership
be due to him after liquidation.
Exception Characteristics of limited partnership
No liquidation needed when there is 1. Must be formed in accordance with the
settlement as to what retiring partner shall requirements of the law.
receive. 2. There must be one or more general
partners who control the management
Art. 1842. The right to an account of his of the business.
interest shall accrue to any partner, or his 3. There must be one or more limited
legal representative as against the winding partners contributing to the capital and
up partners or the surviving partners or the
 sharing in the profits but have nothing l. The right, if given, of one or more of
to do with the management. the limited partners to priority over
4. Obligations of the partnership must be other limited partners, as to
paid out of common fund and in the contributions or as to
separate properties of the general compensation by way of income,
partners. and the nature of such priority.

Art. 1844. Two or more persons desiring to m. The right, if given, of the remaining
form a limited partnership shall: general partner or partners to
continue the business on the death,
1. Sign and swear to a certificate, which retirement, civil interdiction,
shall state — insanity or insolvency of a general
partner.
a. The name of the partnership,
adding thereto the word "Limited". n. The right, if given, of a limited
partner to demand and receive
b. The character of the business. property other than cash in return
for his contribution.
c. The location of the principal place
of business. 2. File for record the certificate in the
Office of the Securities and Exchange
d. The name and place of residence of Commission.
each member, general and limited
partners being respectively A limited partnership is formed if there has
designated. been substantial compliance in good faith
with the foregoing requirements.
e. The term for which the partnership
is to exist. Qualifications of limited partnership
f. The amount of cash and a 1. The partners must sign and swear to a
description of and the agreed value certificate of limited partnership
of the other property contributed 2. Must file for record the certificate in
by each limited partner. the office of the Securities and
Exchange Commission
g. The additional contributions, if any,
to be made by each limited partner Art. 1845. The contributions of a limited
and the times at which or events on partner may be cash or property, but not
the happening of which they shall services.
be made.
Limited partners can only contribute money
h. The time, if agreed upon, when the and property and cannot contribute
contribution of each limited partner services to the partnership to protect
is to be returned. persons dealing with the firms with frauds.

i. The share of the profits or the other Art. 1846. The surname of a limited partner
compensation by way of income shall not appear in the partnership name
which each limited partner shall unless:
receive by reason of his
contribution. 1. It is also the surname of a general
partner.
j. The right, if given, of a limited
partner to substitute an assignee as 2. Prior to the time when the limited
contributor in his place, and the partner became such, the business has
terms and conditions of the been carried on under a name in which
substitution. his surname appeared.

k. The right, if given, of the partners to A limited partner whose surname appears
admit additional limited partners. in a partnership name contrary to the
provisions of the first paragraph is liable as
 a general partner to partnership creditors A limited partner is excluded from any
who extend credit to the partnership active voice in the control of the affairs of
without actual knowledge that he is not a the firm.
general partner. Limited partner cannot perform acts of
administration
Limited partner’s surname is not included in the Limited partners may not perform any act of
firm name provided these circumstances administration with respect to the interests
1. If the surname of general partner is the of the partnership, not even in the capacity
same with limited partner’s of agents of the managing partners.
2. If the limited partner’s surname was ART. 1849. After the formation of a limited
included and was carried on the new partnership, additional limited partners may
partnership be admitted upon filling an amendment to
*If the limited partner’s surname was the original certificate in accordance with
included in the firm name, he is liable as a the requirements of Article 1865.
general partner.
The writing to amend a certificate
Art. 1847. If the certificate contains a false 1. Shall conform to the requirements of
statement, one who suffers loss by reliance Article 1844 as far as necessary to set
on such statement may hold liable any forth clearly the change in the
party to the certificate who knew the certificate which it is desired to make.
statement to be false: 2. Be signed and sworn to by all members,
and an amendment substituting a
1. At the time he signed the certificate. limited partner.
ART. 1850. A general partner shall all have
2. Subsequently, but within a sufficient the rights and powers and be subject to all
time before the statement was relied the restrictions and liabilities of a partner in
upon to enable him to cancel or amend a partnership without limited partners.
the certificate, or to file a petition for its However, without the written consent or
cancellation or amendment as provided ratification of the specific act by all the
in article 1865. limited partners, a general partner or all of
the general partners have no authority to:
Liability for false statement in certificate
Under this provision, any partner to 1. Do any act in contravention of the
the certificate containing a false statement certificate.
is liable provided the following requisites 2. Do any act which would make it
are present: impossible to carry on the ordinary
1. He knew the statement to be false at business of the partnership.
the time he signed the certificate, or
subsequently, but having sufficient time 3. Confess a judgement against the
to cancel or amend it or file a petition partnership.
for its cancellation or amendment, he
failed to do so. 4. Possess partnership property, or assign
2. The person seeking to enforce liability their rights in specific partnership
has relied upon the false statement in property, for other than a partnership
transacting business with the purpose.
partnership.
3. The person suffered loss as a result of 5. Admit a person as a general partner.
reliance upon such false statement.
6. Admit a person as a limited partner,
ART. 1848. A limited partner shall become unless the right so to do is given in the
liable as a general partner unless, in certificate.
addition to the exercise of his rights and
powers as a limited partner, he takes part in 7. Continue the business with partnership
the control of the business. property on the death, retirement,
Limited partner has no control in business insanity, civil interdiction or insolvency
of a general partner, unless the right so
to do is given in the certificate.
 3. Non-participation in the management
Powers of general partner in limited partnership of the business.
The general partner shall have all the right
and powers and be subject to all the ART. 1853. A person may be a general
restrictions and liabilities of a partner in a partner and a limited partner in the same
partnership without limited partners. partnership at the same time, provided that
this fact shall be stated in the certificate
ART. 1851. A limited partner shall have the
same rights as a general partner to: provided for in Article 1844.

1. Have the partnership books kept at the A person who is a general, and also at the
principal place of business of the same time a limited partner, shall have all
partnership, and at a reasonable hour the rights and powers and be subject to all
to inspect and copy any of them. restrictions of a general partner; except
that, in respect to his contribution, shall
2. Have on demand true and full
information of all things affecting the have the rights against the other members
partnership, and a formal account of which he would have had if he were not also
partnership affairs whenever a general partner.
circumstances render it just and
reasonable. ART. 1854. A limited partner also may loan
money to and transact other business with
3. Have dissolution and winding up by the partnership and unless he is also a
decree of court. general partner, receive on account of
resulting claims against the partnership,
A limited partner shall have the right to with general creditors, a pro rata share of
receive a share of the profit or other the assets. No limited partner shall in
compensation by way of income and to the respect to any such claim:
return of his contribution as provided in
Articles 1856 and 1857. 1. Receive or hold as collateral security any
partnership property.
Rights of limited partner
It has lesser rights than a general partner. It 2. Receive from a general partner or the
may exercise rights similar to a general partnership any payment, conveyance,
partner. or release from liability, if at the time
the assets of the partnership are not
ART. 1852. Without prejudice to the sufficient to discharge partnership
provisions of Article 1848, a person who has liabilities to persons not claiming as
contributed to the capital of a business general or limited partners.
conducted by a person or partnership
erroneously believing that he has become a The receiving of collateral security, or a
limited partner in a limited partnership, is payment, conveyance, or release in
not, by reason of his exercise of the rights of violation of the foregoing provisions is a
a limited partner, a general partner with the fraud on the creditors of the partnership.
person or in the partnership carrying on the
business, or bound by the obligations of Loans and business transactions with limited
such person or partnership; provided that partners
on ascertaining the mistake he promptly A limited partner is allowed to loan money
renounces his interest in the profits of the to the firm; transact other business with the
business, or other compensation by way of partnership, and receive a pro rata share in
income. the assets with general creditors.

Conditions for exemption from liability Limited partner not allowed to hold collateral
1. Prompt renunciation of interest and/ or security
income upon ascertaining the mistake. A limited partner may not receive
2. Non-inclusion of limited partner’s name partnership property as collateral security.
in the firm name.
ART. 1855. Where there are several limited the return of the contribution or for the
partners the members may agree that one dissolution of the partnership.
or more of the limited partners shall have a
priority over other limited partners as to the In the absence of any statement in the
return of their contributions, as to their certificate to the contrary or the consent of
compensation by way of income, or as to all members, a limited partner, irrespective
any other matter. If such an agreement is of the nature of his contribution, has only
made it shall be states in the certificate, and the right to demand and receive cash in
in the absence of such a statement all the return for his contribution.
limited partners shall stand upon equal
footing. A limited partner may have the partnership
dissolved and its affairs wound up when:
ART. 1856. A limited partner may receive
from the partnership the share of the 1. He rightfully but unsuccessfully
profits or the compensation by way of demands the return of his contribution.
income stipulated for in the certificate;
provided, that after such payment is made, 2. The other liabilities of the partnership
whether from the property of the have not been paid, or the partnership
partnership or that of a general partner, the property is insufficient for their
partnership assets are in excess of all payment as required by the first
liabilities of the partnership except liabilities paragraph, No. 1, and the limited
to limited partners on account of their partner would otherwise be entitled to
contributions and to general partners. the return of his contribution.

ART. 1857. A limited partner shall not Conditions of a limited partner entitled to
receive from a general partner or out of return of his contribution
partnership property any part of his 1. All liabilities of the partnership have
contributions until: been paid or there are assets sufficient
to pay partnership liabilities.
1. All liabilities of the partnership, except 2. The consent of all the partners is
liabilities to general partners and to obtained.
limited partners on account of their 3. The certificate is cancelled or so
contributions, have been paid or there amended as to set forth the withdrawal
remains property of the partnership or reduction of the contribution.
sufficient to pay them.
When limited partner may demand return
2. The consent of all members is had, 1. The partnership is dissolved
unless the return of the contribution 2. The date specified for its return has
may be rightfully demanded under the arrived
provisions of the second paragraph. 3. If no term is specified, after six months’
notice in writing to all other partners.
3. The certificate is cancelled or so
amended as to set forth the withdrawal Limited partner to receive cash
or reduction. It will be noted that the limited partner has
a right to demand and receive cash only in
Subject to the provisions of the first return for his contribution even when he
paragraph, a limited partner may rightfully contributed property.
demand the return of his contribution:
ART. 1858. A limited partner is liable to the
1. On the dissolution of a partnership. partnership:

2. When the date specified in the 1. For the difference between his
certificate for its return has arrived. contribution as actually made and that
stated in the certificate as having been
3. After he has given six months’ notice in made.
writing to all other members, if no time
is specified in the certificate, either for 2. For any unpaid contribution which he
agreed in the certificate to make in the
 future at the time and on the return of his contribution, to which his
conditions stated in the certificate. assignor would otherwise be entitled.

A limited partner holds a trustee for the An assignee shall have the right to become a
partnership: substituted partner if all the members
1. Specific property stated in the consent thereto or if the assignor, being
certificate as contributed by him, but thereunto empowered by the certificate,
which was not contributed or which has gives the assignee that right.
been wrongfully returned.
An assignee becomes a substituted limited
2. Money or other property wrongfully partner when the certificate is
paid or conveyed to him on account of appropriately amended in accordance with
his contribution. Article 1865.

The liabilities of a limited partners as set The substituted limited partner has all the
forth in this article can be waived or rights and powers, and is subject to all the
compromised only by the consent of all restrictions and liabilities of his assignor,
members; but a waiver or compromise shall except those liabilities of which he was
not affect the right of a creditor of a ignorant at the time he became a limited
partnership who extended credit or whose partner and which could not be ascertained
claim arose after the filling and before a for the certificate.
cancellation or amendment of the
certificate, to enforce such liabilities. The substitution of the assignee as a limited
partner does not release the assignor from
When a contributor has rightfully received liability to the partnership, under article
the return in whole or in part of the capital 1847 and 1858.
of his contribution, he is nevertheless liable
to the partnership for any sum, not in Limited partner’s interest assignable
excess of such return with interest, A limited partner’s interest in the
necessary to discharge its liabilities to all
partnership is assignable. The assignee,
creditors who extended credit or whose
claims arose before such return. however, of a limited partner’s interest does
not necessarily become a substituted
Limited partner liable to partnership for sum limited partner.
returned
A limited partner whose contribution has ART. 1860. The retirement, death,
been rightfully returned is still liable to the insolvency, insanity or civil interdiction of a
partnership for an amount not in excess of general partner dissolves the partnership,
the sum returned plus interest as may be unless the business is continued by the
necessary to pay the claims of persons who remaining general partners:
extended credit or whose claims arose
before the return. 1. Under a right so to do stated in the
certificate.
ART. 1859. A limited partner’s interest is
assignable. 2. With the consent of all members.

A substitute limited partner is a person It must be observed that the death, etc., of
admitted to all the rights of a limited a general partner dissolves the partnership
partner who has died or has assigned his while the death of a limited partner does
interest in a partnership. not cause the dissolution of the firm, unless
there is only one limited partner.
An assignee, who does not become a
substituted limited partner, has no right to ART. 1861. On the death of a limited
require any information or account of the partner his executor or administrator shall
partnership transactions or to inspect the have all the rights of a limited partner for
partnership books; he is only entitled to the purpose of settling his estate, and such
receive the share of the profits or other power as the deceased had to constitute his
compensation by way of income, or the assignee a substituted limited partner.
 contribution respectively, in proportion to
The estate of a deceased limited partner the respective amounts of such claims.
shall be liable for all his liabilities as a
limited partner. Art. 1864. The certificate shall be cancelled
when the partnership is dissolved or all
ART. 1862. On due application to a court of limited partners cease to be such.
competent jurisdiction by any creditor of a A certificate shall be amended when:
limited partner, the court may charge the
interest of the indebted limited partner with 1. There is a change in the name of the
payment of the unsatisfied amount of such partnership or in the amount or
claim, and may appoint a receiver, and character of the contribution of any
make all other orders, directions, and limited partner.
inquiries which the circumstances of the
case may require. 2. A person is substituted as a limited
partner.
The interest may be redeemed with the
separate property of any general partner, 3. An additional limited partner is
but may not be redeemed with partnership admitted.
property.
4. A person is admitted as a general
The remedies conferred by the first partner.
paragraph shall not be deemed exclusive of
others which may exist. 5. A general partner retires, dies, becomes
insolvent or insane, or is sentenced to
ART. 1863. In settling accounts after civil interdiction and the business is
dissolution the liabilities of the partnership continued under article 1860.
shall be entitled to payment in the following
order: 6. There is a change in the character of the
1. Those to creditors, in the order of business of the partnership.
priority as provided by law, except those
to limited partners on account of their 7. There is a false or erroneous statement
contributions, and to general partners. in the certificate.

2. Those to limited partners in respect to 8. There is a change in the time as stated

their share of the profits and other in the certificate for the dissolution of
compensation by way of income on the partnership or for the return of a
their contributions. contribution.

3. Those to limited partners in respect to 9. A time is fixed for the dissolution of the
the capital of their contributions. partnership, or the return of a
contribution, no time having been
4. Those to general partners other than for specified in the certificate.
capital and profits.
10. The members desire to make a change
5. Those to general partners in respect to in any other statement in the certificate
profits. in order that it shall accurately represent
the agreement among them.
6. Those to general partners in respect to
capital. Art. 1865. The writing to amend a certificate
shall:
Subject to any statement in the certificate
or to subsequent agreement, limited 1. Conform to the requirements of article
partners share in the partnership assets in 1844 as far as necessary to set forth
respect to their claims for capital, and in clearly the change in the certificate
respect to their claims for profit or for which it is desired to make.
compensation by way of income on their
2. Be signed and sworn to by all members,
and an amendment substituting a
 limited partner or adding a limited or Art. 1866. A contributor, unless he is a
general partner shall be signed also by general partner, is not a proper party to
the member to be substituted or proceedings by or against a partnership,
added, and when a limited partner is to except where the object is to enforce a
be substituted, the amendment shall limited partner's right against or liability to
also be signed by the assigning limited the partnership.
partner.
Art. 1867. A limited partnership formed
The writing to cancel a certificate shall be under the law prior to the effectivity of this
signed by all members. Code, may become a limited partnership
under this Chapter by complying with the
A person desiring the cancellation or provisions of article 1844, provided the
amendment of a certificate, if any person certificate sets forth:
designated in the first and second
paragraphs as a person who must execute 1. The amount of the original contribution
the writing refuses to do so, may petition of each limited partner, and the time
the court to order a cancellation or when the contribution was made.
amendment thereof.
2. That the property of the partnership
If the court finds that the petitioner has a exceeds the amount sufficient to
right to have the writing executed by a discharge its liabilities to persons not
person who refuses to do so, it shall order claiming as general or limited partners
the Office of the Securities and Exchange by an amount greater than the sum of
Commission where the certificate is the contributions of its limited partners.
recorded, to record the cancellation or A limited partnership formed under the law
amendment of the certificate; and when the prior to the effectivity of this Code, until or
certificate is to be amended, the court shall unless it becomes a limited partnership
also cause to be filed for record in said under this Chapter, shall continue to be
office a certified copy of its decree setting governed by the provisions of the old law.
forth the amendment.
CORPORATIONS
A certificate is amended or cancelled when TITLE I - GENERAL PROVISIONS
there is filed for record in the Office of the DEFINITIONS AND CLASSIFICATIONS
Securities and Exchange Commission, where
the certificate is recorded: Sec. 1. Title of the Code. – This Code shall
be known as “The Corporation Coder of the
1. A writing in accordance with the Philippines”.
provisions of the first or second
paragraph. Sec. 2. Corporation defined. - A corporation
is an artificial being created by operation of
2. A certified copy of the order of the law having the right of succession and the
court in accordance with the provisions powers, attributes and properties expressly
of the fourth paragraph. authorized by law or incident to its
existence.
3. After the certificate is duly amended in
accordance with this article, the Definition
amended certified shall thereafter be A corporation is an artificial being created by
for all purposes the certificate provided operation of law having the right of
for in this Chapter. succession and the powers, attributes and
properties expressly authorized by law or
A certificate is considered cancelled or incident to its existence.
amended when there is filed for record
1. A writing to amend the certificate; or Attributes
2. A certified copy of the order of the 1. It is an artificial being.
court in the event of an unjustified 2. It is created by operation of law.
refusal of a partner to sign the writing. 3. It has the right of succession.
 4. It has only the powers, attributes and partnership.
properties expressly authorized by law Right of No right of Possesses
or incident to its existence. Succession succession right of
succession
Extent of Partners Stockholders
Similarities between a partnership and a
Liability to (except are liable only
corporation
Third Persons limited to the extent
1. Juridical personality separate and partners) of their
distinct from the individuals composing are liable investments
it. personally as
2. Act only through its agents. and represented
3. Composed of an aggregate of subsidiarily by the shares
individuals. for subscribed by
4. Distribute profits to those who partnership them.
contribute to capital. debts to
5. May be organized only when there is a third
persons.
law authorizing it. Transferability A partner A stockholder
6. Subject to income tax. of interest cannot has the right
transfer to transfer his
Distinctions between a partnership and a interest so shares
corporation as to make a without the
partner prior consent
Point of without the of the other
Partnership Corporation consent of stockholders.
Comparison
Manner of By mere By law or all other
Creation agreement operation of existing
of the law partners.
parties Term of May be May not be
Number of By a Requires at existence established formed for a
Parties minimum of least five (5) for any term in excess
two (2) incorporators period of of 50 years
persons time extendible to
Commence- Generally From the date stipulated by not more than
ment of from the of the the 50 years.
Juridical moment of issuance of partners.
Personality execution of the certificate Firm name A limited A corporation
the contract of partnership may adopt a
incorporation is required firm name
of the to add the provided it is
Securities and word ‘Ltd.’ not identical
Exchange to its name. or deceptively
Commission similar to any
(SEC) registered firm
Powers May exercise Can exercise name or
powers only the contrary to
authorized powers existing laws.
by partners expressly Dissolution May be May only be
provided the granted by dissolved at dissolved with
same are law or any time by the consent of
not contrary incident to its the will of the state.
to law, existence. any or all
morals, partners.
good Governing Civil Code Corporation
customs, Laws Code
public policy
or public Advantages of a corporate form of business
order. organizations
1. The capacity to hold property, to
Management When it is It is vested in contract, to sue and be sued as a legal
not agreed the board of unit or distinct entity.
upon, each directors or 2. Exemption of shareholders from
partner is an trustees.
agent of the individual liability.
 3. Continuity of existence in spite of death 2. Quasi-public – are entities engaged in
or changes of members. rendering basic services of such public
4. Transferability of shares. importance as to entitle them to certain
5. Centralized management under a board privileges like eminent domain or use of
of directors. public property. Eg. Electric, gas, water
6. Standardized methods of organization, and telephone companies.
management and finance for the 3. Government-owned or controlled – are
protection of shareholders and creditors entities organized by the government
under statutory regulations. or corporations of which the
government is a majority stockholder.
Disadvantages of a corporate form of business Eg. Philippine Air Lines
organizations 4. Domestic – one incorporated under
1. The limited liability of the stockholders Philippine laws.
serves to limit the credit available to 5. Foreign – one formed, organized, or
the corporation. existing under any laws other than those
2. The transferability of shares permits the of the Philippines.
uniting of incompatible and conflicting 6. Corporation aggregate – one composed
interests in one enterprise. of more than one member or
3. The minority stockholders are usually corporator.
subservient to the wishes of the 7. Corporation sole – consists of one
majority. member or corporator and his
4. In big corporations, the stockholders’ successors.
voting rights have become largely 8. Religious corporations, sole or
theoretical because of widespread aggregate – organized, either as sole or
ownership, lukewarmness and aggregate, to administer properties of
disinterest in management, inertia, and the church.
inaccessible meeting places. 9. Ecclesiastical – organized for religious
5. In large corporations, management and purposes.
control has been separated from 10. Lay – organized for a purpose other
ownership. than religious
6. By and large corporations are subject to 11. Eleemosynary – organized for charitable
governmental restrictions, controls, and purposes.
report requirements not imposed on 12. Civil – are those than ecclesiastical and
other forms of business organizations. eleemosynary, whether public or
7. Corporate sphere of activity is limited in private.
the transaction of its business to the 13. Close – one wherein all the outstanding
state of the organization. stock is owned by the persons who are
8. The corporate form involves “double active in management and conduct of
taxation” on corporation income. the business.
14. Open – one in which all the members or
Sec. 3. Classes of corporations. – corporations have a vote in the election
Corporations formed or organized under of the directors and other officers.
this Code may be stock or non-stock 15. Multi-national – one having been
corporations. Corporations which have created or organized in one state
capital stock divided into shares and are conducts business or activities across
authorized to distribute to the holders of national boundaries and but subject to
such shares dividends or allotments of the the legal sanctions of the countries in
surplus profits on the basis of shares held which they operate.
are stock corporations. All other 16. Non-profit – organized without
corporations are non-stock corporations. contemplation of gains, profits or
dividends to their members on invested
Other kinds of corporations capital.
1. Quasi-corporations – from the word 17. De Jure – one created in strict or
“quasi”, meaning “as if”, are entities substantial conformity with the
that are not absolutely corporations but statutory requirements for
are considered as if they were. Eg. incorporation and whose right to exist
Public boards created by law as a corporation cannot be successfully
 attacked even in a direct proceeding for 2. The formulation of business and
that purpose by the State. financial plans.
3. Assembling the enterprise by
Sec. 4. Corporations created by special negotiations and obtaining some
laws or charters. – Corporations created by control over the subject matter by
special laws or charters shall be governed option or contracts made on behalf of
primarily by the provisions of the special the proposed corporation or on his own
law or charter creating them or applicable credit.
to them, supplemented by the provisions of 4. The making of arrangements for
this Code, insofar as they are applicable. financing the enterprise and the
floatation of securities.
Sec. 5. Corporators and incorporators, 5. Arrange tactful and painless methods
stockholders, and members. – Corporators for getting his own reward for the task
are those who compose a corporation, of promotion out of the prospective
whether as stockholders or members. investors and for reimbursement for his
Incorporators are those stockholders or expenses, contracts, and services
members mentioned in the articles of without frightening away those who are
incorporation as originally forming and expected to provide the funds.
composing the corporation and who are
signatories thereof. General rule: A corporation is not bound by
any agreement made by a promoter.
Corporators in a stock corporation are called Exception to the rule: Unless and until the
stock-holders or shareholders. Corporators corporation approves the agreement.
in a non-stock corporation are called
members. Sec. 6. Classification of shares. – The
shares of stock of stock corporations may be
Components of a Corporation divided into classes or series of shares, or
1. Corporators – are those who composed both, any of which classes or series of
a corporation, whether as stockholders shares may have such rights, privileges or
of members. The term includes restrictions as may be stated in the articles
incorporators, stockholders or of incorporation: Provided, That no share
members. may be deprived of voting rights except
2. Incorporators – are those stockholders those classified and issued as “preferred” or
or members mentioned in the articles “redeemable” shares, unless otherwise
of incorporation as originally forming provided in this Code: Provided, further,
and composing the corporation and That there shall always be a class or series
who are signatories thereof. of shares which have complete voting rights.
3. Stockholders or shareholders – are Any or all of the shares or series of shares
those corporators in a stock may have a par value or have no par value
corporation. as may be provided for in the articles of
4. Members – are those corporators in a incorporation: Provided, however, That
non-stock corporation. banks, trust companies, insurance
5. Promoters – is a self-constituted companies, public utilities, and building and
organizer who finds an enterprise or loan associations shall not be permitted to
venture and helps to attract investors, issue no-par value shares of stock.
form a corporation and launch it in
business, all with a view to promotion Preferred shares of stock issued by any
profits. corporation may be given preference in the
distribution of the assets of the corporation
Promotion – is the act of procuring the in case of liquidation and in the distribution
initial finances and the making of all of dividends, or such other preferences as
preparations necessary to launch a may be stated in the articles of
corporation. incorporation which are not violative of the
provisions of this Code: Provided, That
Activities of a promoter preferred shares of stock may be issued only
1. The discovery and investigation of a with a stated par value. The board of
promising business opportunity. directors, where authorized in the articles of
incorporation, may fix the terms and
conditions of preferred shares of stock or 8. Dissolution of the corporation.
any series thereof: Provided, That such
terms and conditions shall be effective Except as provided in the immediately
upon the filing of a certificate thereof with preceding paragraph, the vote necessary to
the Securities and Exchange Commission. approve a particular corporate act as
provided in this Code shall be deemed to
Shares of capital stock issued without par refer only to stocks with voting rights.
value shall be deemed fully paid and non-
assessable and the holder of such shares Definition
shall not be liable to the corporation or to A “stock” or share of stock is one of the
its creditors in respect thereto: Provided; units into which the capital stock has been
That shares without par value may not be divided. It represents the interest or right
issued for a consideration less than the that the holder of the stock or stockholder
value of five (P5.00) pesos per share: has in the corporation.
Provided, further, That the entire
consideration received by the corporation A stock certificate certifies that one is a
for its no-par value shares shall be treated holder or owner of a certain number of
as capital and shall not be available for shares of stock in the corporation. It is a
distribution as dividends. mere documentary evidence of the holder’s
ownership of shares and a convenient
A corporation may, furthermore, classify its instrument for the transfer of title.
shares for the purpose of insuring
compliance with constitutional or legal Classes or series of shares of stock subject to
requirements. restrictions
1. Shares shall not be deprived of voting
Except as otherwise provided in the articles rights except preferred or redeemable
of incorporation and stated in the certificate shares but non-voting shares must still
of stock, each share shall be equal in all be entitles to vote on matters specified
respects to every other share. in the last paragraph of Section 6 like
Where the articles of incorporation provide matters relating to amendment of the
for non-voting shares in the cases allowed articles of incorporation and dissolution
by this Code, the holders of such shares of the corporation.
shall nevertheless be entitled to vote on the 2. Where non-voting shares are provided
following matters: for there must always be a class or
series of shares with complete voting
1. Amendment of the articles of rights.
incorporation. 3. Banks, trust companies, insurance
companies, public utilities, and building
2. Adoption and amendment of by-laws. and loan associations shall not be
permitted to issue no-par value shares
3. Sale, lease, exchange, mortgage, pledge of stock.
or other disposition of all or 4. Preferred shares of stock which may be
substantially all of the corporate given preference in the distribution of
property. assets in case of liquidation and
distribution of dividends or other
4. Incurring, creating or increasing bonded preferences may be issued only with
indebtedness. stated par value.
5. The terms and conditions of preferred
5. Increase or decrease of capital stock. shares or series thereof may be fixed by
the board of directors only when
6. Merger or consolidation of the authorized by the articles of
corporation with another corporation or incorporation the effectivity thereof
other corporations. shall be reckoned from the filing of
certificate with the SEC.
7. Investment of corporate funds in 6. Shares without par value may not be
another corporation or business in issued for a consideration less than the
accordance with this Code. value of five (P5.00) pesos per share.
 7. Unless otherwise provided by law the 4. Incurring, creating or increasing bonded
rights, privileges or restrictions on indebtedness;
classes or series of shares must be 5. Increase or decrease of capital stock;
stated in the articles of incorporation 6. Merger or consolidation of the
and in the stock certificates. corporation with another corporation
or other corporations;
Classes or series of shares 7. Investment of corporate funds in
1. Voting and Non-Voting Shares; another corporation of business in
General rule: Every member of a non- accordance with the Corporation Code;
stock corporation and every legal owner and
of shares in a stock corporation, has a 8. Dissolution of the corporation.
right to be present and vote at all
corporate meetings. Sec. 7. Founders’ shares. – Founders' shares
Exception to the rule: Unless there is a classified as such in the articles of
stipulation in contrary. incorporation may be given certain rights
2. Par Value and No-Par Value Shares and privileges not enjoyed by the owners of
Par value is the given fixed or definite other stocks, provided that where the
value of a share in the articles of exclusive right to vote and be voted for in
incorporation. the election of directors is granted, it must
3. Common and Preferred Shares. be for a limited period not to exceed five (5)
Preferred shares of stock may be: (a) years subject to the approval of the
preferred as to assets; (b) preferred as Securities and Exchange Commission. The
to dividends. Preferred as to dividends five-year period shall commence from the
may either be cumulative or non- date of the aforesaid approval by the
cumulative, or participating or non- Securities and Exchange Commission.
participating
4. Promotion Shares – are such stocks Definition
issued to those who may originally own Founders’ shares, generally common stock,
the mining ground or valuable rights are given to the founders or promoters of a
connected therewith, in consideration corporation in payment of money expended
of their deeding the same to the mining or services rendered in the promotion of it.
company when the company is
incorporated, or it may mean such stock Sec. 8. Redeemable shares. – Redeemable
as is issued to promoters. shares may be issued by the corporation
5. Shares of Escrow – are shares subject to when expressly so provided in the articles
an escrow agreement, that is, an of incorporation. They may be purchased or
agreement under which the shares are taken up by the corporation upon the
deposited by the grantor or his agent expiration of a fixed period, regardless of
with a third person, to be delivered by the existence of unrestricted retained
the depositary to the vendee or earnings in the books of the corporation,
subscriber only upon the happening of and upon such other terms and conditions
certain conditions. as may be stated in the articles of
6. Founder’s Shares; incorporation, which terms and conditions
7. Redeemable “Callable” Shares; must also be stated in the certificate of
8. Treasury Shares; stock representing said shares.
9. Other shares classified to comply with
constitutional or legal requirements. Definition
Redeemable (“Callable”) shares of stock
Instances when non-voting shares may vote which are usually preferred are frequently
1. Amendment of the articles of issued subject to redemption at the option
incorporation; of either the corporation, the stockholder,
2. Adoption and amendment of by-laws; or both, at a definite price representing
3. Sale, lease, exchange, mortgage, pledge premium above the amount originally paid.
or other disposition of all or
substantially all of the corporate Sinking fund refers to a fund set-up by the
property; corporation where cash is gradually set
aside in order to accumulate the amount
necessary to meet the redemption price of
 redeemable shares of specified dates in the extension as may be determined by the
future. Securities and Exchange Commission.

Sec. 9. Treasury shares. - Treasury shares Sec. 12. Minimum capital stock required of
are shares of stock which have been issued stock corporations. – Stock corporations
and fully paid for, but subsequently incorporated under this Code shall not be
reacquired by the issuing corporation by required to have any minimum authorized
purchase, redemption, donation or through capital stock except as otherwise
some other lawful means. Such shares may specifically provided for by special law, and
again be disposed of for a reasonable price subject to the provisions of the following
fixed by the board of directors. (n) section.

Definition Sec.13. Amount of capital stock to be

Treasury shares are owned by the subscribed and paid for purpose of
corporation having been reacquired by the incorporation. – At least twenty-five
issuing corporation by “purchase, percent (25%) of the authorized capital
redemption, donation or through some stock as stated in the articles of
other lawful means.” It has no voting rights incorporation must be subscribed at the
or rights as to dividends or distributions. time of incorporation, and at least twenty-
five percent (25%) of the total subscription
TITLE II - INCORPORATION AND ORGANIZATION must be paid upon subscription, the
OF PRIVATE balance to be payable on a date or dates
CORPORATIONS fixed in the contract of subscription without
Definition need of call, or in the absence of fixed date
Incorporation is the act of creating a or dates, upon call for payment by the
corporation. board of directors: Provided, however, that
in no case shall the paid-up capital be less
Sec. 10. Number and qualifications of than five thousand (P5,0000) pesos.
incorporators. – Any number of natural
persons not less than five (5) but not more Amount to be subscribed and paid
than fifteen (15), all of legal age and a Illustration:
majority of whom are residents of the If X, Inc. has authorized capital
Philippines, may form a private corporation stock of P100, 000 divided into 1,000 shares
for any lawful purpose or purposes. Each of with par value of P100.00 per share, it must
the incorporators of s stock corporation be shown that at least P25, 000 or 250
must own or be a subscriber to at least one shares of the authorized capital stock must
(1) share of the capital stock of the be subscribed. Of the total subscription of
corporation. P25, 000, at least P6, 250.00 or 25% of total
subscription must be paid. It is not
Qualifications of incorporators necessary that each subscriber pay Twenty-
1. Must be a natural person. five percent (25%) on his subscription. On
2. Must be of legal age. the other hand, where the authorized
capital stock is stated at 2,000 no par value
Sec. 11. Corporate term. – A corporation shares , it must be shown that at least 500-
shall exist for a period not exceeding fifty no par value share have been subscribed.
(50) years from the date of incorporation The basis of computation is on the number
unless sooner dissolved or unless said of shares.
period is extended. The corporate term as
originally stated in the articles of Securities and Exchange
incorporation may be extended for periods Commission (SEC) may conduct compliance
not exceeding fifty (50) years in any single with paid-up capital requirements because
instance by an amendment of the articles of it has come to the knowledge of the
incorporation, in accordance with this Code; Commission that some corporation have
Provided, That no extension can be made been organized merely as fronts for some
earlier than five (5) years prior to the hidden objectives with no real intention of
original or subsequent expiry date(s) unless carrying out the purported purposes in their
there are justifiable reasons for an earlier articles of incorporation. If a bigger capital
 stock is required, the abuse of the privileges the Philippines, and no association,
of a corporation would be minimized. partnership, or corporation the capital
of which is not wholly owned by citizens
Capital stock requirements under the special of the Philippines, shall engage directly
laws or indirectly in the retail trade business.
1. In case of mining and agricultural
incorporation, or corporation organized 7. Only vessels of domestic ownership are
for the purpose of the disposition , authorized to engage in coastwise
exploitation, development or utilization shipping in the Philippines. Vessels are
of natural resources of the Philippines, considered of domestic ownership
as well as corporation organized for the when such ownership is vested in some
operations of public utilities, the one or more of the following: (1)
Constitution provides that at least 60 % Citizens of the Philippines; (2) any
of the capital stock of such corporation corporation or any company composed
must be owned by citizens of the wholly of the citizens of the Philippines;
Philippines. (3) any corporation or company created
under the laws of the Philippines,
2. The Insurance Code provide that “no provided at least 75% of the capital
domestic insurance company shall, if a stock thereof or of any interested in said
stock corporation, engage in business in capital is wholly owned by the citizens
the Philippines unless posses of a paid of the Philippines.
up capital stock equal to at least two
million pesos”. Where the insurance Sec.14. Contents of articles of the
company is to engage in insurance incorporations. – All corporation organized
business it must have a “paid-up capital under this Code shall file with the Securities
stock of at least five million pesos” to be and Exchange Commission articles of
invested in securities specified by law, incorporation in any of the official
which securities are to be deposited languages, duly signed and acknowledged
with the Insurance Commissioner. by all of the incorporators containing
substantially the following matters, except
3. The Financing Company Act requires as otherwise prescribed by this Code or by
that “at least sixty per centum of the special laws:
capital of financing companies must be
owned by citizens of the Philippines and 1. The name of the corporation.
shall have a paid-up capital of not less
than five hundred thousand pesos”. 2. The specific purpose or purposes for
which the corporation is being
4. Commercial banks are required to have incorporated. Where the corporation
a paid-up capital of 100 million pesos. have more than one stated purpose,
When a commercial bank having licence the article of incorporation shall state
to operate an expanded foreign which the primary is and which is/are
currency deposit system it must have a the secondary purpose or purposes:
paid-up capital of at least 150 million Provided, That a non-stock corporation
pesos and when a commercial bank is may not include a purpose which would
authorized to engage in universal change or contradict its nature as such.
banking it must have a paid up capital of
at least 500 million pesos. 3. The place where the principal office of
the corporation is to be located, which
5. The New Constitution provides that: must be within the Philippines.
“The ownership and management of
mass media shall be limited to citizens 4. The term for which the corporation is to
of the Philippines or to corporations or exist.
association wholly-owned and manage
by such citizen”. 5. The names, nationalities and residences
of the incorporators.
6. Under the Retail Trade Nationalization
law “no person who is not a citizen of
6. The number of directors or trustees Incorporators may choose any name they
which shall not be less than five (5) nor see fit , however strange, uneuphonious, or
more than fifteen (15). unrhetorical it may be , provided it is one
not identical with or prejudicially similar to
7. The names, nationalities and residences a name which has previously been adopted
of the person who shall act as directors by and is being use by another corporation
or trustees until the first regular as its corporate name
directors or trustees are duly elected
and qualified accordance with this Change of Corporate name
Code. The change of the corporate name
doesn’t mean a new corporation, nor the
8. If it be a stock corporation, the amount successor of the original corporation. It is
of its authorized capital stock in lawful the same corporation with a different name
money of the Philippines, the number having its character with no respect change.
of shares which it is divided, and in case The corporation continues, as before,
the shares are par value shares, the par responsible in its new name for all debts or
value of each, the names, nationalities other liabilities it had previously contracted
and residences of the original or incurred.
subscriber, and the amount subscribed
and paid by each on his subscription, 2. Specific purpose or purposes.
and if some or all of the shares are The statement of the purpose has its
without par value, such fact must be principal function the affirmative
stated. authorization of the management to enter
into those contracts and business
9. If it be a non-stock corporation, the transactions which may be considered as
amount of its capital, the names, incidental to its attainment of the purposes.
nationalities and residences of the It also imposes implied limitations of their
contributors and the amount, authority by the exclusion of lines of activity
contributed by each. which are not covered.

10. Such other matters are not inconsistent 3. Principal office of the Corporation.
with law and which the incorporators The principal office of the corporation must
may deem necessary and convenient. be within the Philippines. It is where the
books of the corporation are kept and its
The Securities and Exchange Commission officers usually and ordinarily meet for the
shall not accept the articles of incorporation purpose of managing the affairs and
of any stock corporation unless transactions of the business of the
accompanied by a sworn statement of the corporation.
Treasurer elected by the subscriber
showing that at least 25% of the authorized 4. Terms of Existence of the Corporation.
capital stock of the corporation has been The corporation shall exist for a period not
subscribed, and at least 25% of the total exceeding fifty (50) years from the date of
subscription has been fully paid to him in incorporation unless sooner dissolved or
actual cash and/or in property the fair unless said period is extended.
valuation of which are equal to at least 25%
of the said subscription , such paid up 5. Names, Nationalities and residences of
capital being not less than five-thousand incorporators.
pesos (P5,000). The names, nationalities and residences of
the incorporators must be stated in the
Sec.15. Forms of Articles of Incorporation. articles of the corporation for the purpose
– Unless otherwise prescribed by special of complying with legal requirement that
law, articles of incorporation of all domestic majority of the incorporators must be
corporations shall supply substantially the residents of the Philippines and complying
following requirements in the form as with the statutory requirement on share
provided for by the SEC: ownership and in other instances where
Filipino Citizens are required.
1. The name of the corporation.
6. Number of directors and trustees.
The number of the director and trustees Property as subscription payment –
must not be less than five (5) nor more than Generally, all forms of tangible properties
fifteen (15). are acceptable for purposes of payment to
subscription provided that the three test of
7. Names, nationalities and residences of paid-up capital determination are complied
directors. with, i.e., ownership, existence and
A majority of the directors or trustees of all valuable, subject to certain restrictions as
corporation organized under this Code must may be imposed by law.
be a residents citizens of the Philippines.
SEC adopted the policy that
8. Amount of authorized capital stock. discourages the inclusion of intangible
A stock corporation must state the “amount assets as goodwill, lease-hold rights, or
of its authorized capital stock in lawful timber concession rights, payment of such
money of the Philippines, the number of properties Motor vehicle, real estate
shares into which it is divided, and in case properties and navigable vessels in payment
the shares are par value shares, the par of pre-incorporation subscription, increases
value of each, the names, nationalities, and of capital stock or in exchange for additional
residences of the original subscribers, and issuance of shares are allowed only by the
the amount subscribed and paid by each on SEC provided that:
his subscription, and if some or all the 1. There has been a proof of valid
shares are without par value, such fact must transfer;
be stated”. 2. All taxes due from the properties
has been paid; and
9. Non-stock Corporation. 3. Such properties have been
The Corporation Code requires the articles reasonably valued.
of the non-stock corporation to states: the
amount of its capital, the names, Papers to accompany articles with SEC
nationalities and residences of its The SEC requires the following papers to be
contributors and the amount contributed submitted to it with the articles of
by each. A non-stock corporation may have incorporation:
capital but it has no authorized capital 1. A verification slip executed by the
stock. Chief of the Record Section states
that the proposed name of the
10. Inclusion of other matters. corporation has been verified and
The articles of incorporation “may include found to be distinct/ not similar to
other matters that is not inconsistent with the names of already existing
law and which the incorporators may deem corporation or those pending
necessary and convenient”. registration.
2. Written undertaking to change
Sworn Statement of the Treasurer corporate name in case there is a
The Securities and Exchange Commission person, firm or entity with a prior
shall not accept the articles of incorporation right to the use of said name or one
of any stock corporation unless similar to it.
accompanied by a sworn statement of the 3. Sworn statement of assets and
Treasurer elected by the subscribers liabilities, duly executed under oath
showing that at least: by the corporate treasurer together
with the amount P50.00 to defray
1. 25% of the authorized capital stock has publication expenses.
been subscribed. 4. Bank certificate of deposit, issued
under oath by the bank manager or
2. 25% of the subscription has been fully any authorized bank officer, that
paid in actual cash or property. there is a deposit of the stated
amount representing the paid-up
3. The paid-up capital being not less than capital of the corporation either in
P5,000.00. the name of the treasurer in trust
for the corporation or in the name
SEC Policy of the corporation itself.
 5. Written authority to verify bank Law reserves the rights to modify the charter
deposit signed by the corporate The constitution and the Corporation Code
treasurer empowering the SEC and reserved the right to amend the charter of a
/or the Central bank to check and private corporation. The constitution
inspect the existence of the bank provides that “no franchise or right be
deposit of the corporate paid-up granted except under the condition that it
capital. shall be subject to amendment, alteration,
6. Taxpayer account number of the or repeal by the National Assembly when
incorporators pursuant to Executive public interest so requires.
order No. 213.
7. Registration Data Sheet, a Amendment of Articles of Incorporation
statement in statistical data form, The articles of incorporation may be
signed by an authorized amended for legitimate purposes that refer
representative of the corporation to any matter stated in the articles of
regarding important information incorporation. It may refer to:
about the corporate seal, 1. Change of corporate name;
corporate name, principal office, 2. Extension of term of corporation;
capital structure, their subscription 3. Change in classes or series of shares;
and TAN (SEC Bulletin, Oct. 1982). 4. Change in rights, privileges or
restrictions in share ownership;
Sec. 16. Amendment of Articles of 5. Increase or decrease in the number of
Incorporation. – Unless otherwise directors; and
prescribed by this Code or by special law, 6. Change in purpose or purposes and
and for legitimate purposes, any provision other necessary changes.
or matter stated in the articles of
incorporation may be amended by a Vote or recent assent required in amendment of
majority vote of the board of directors or the articles of incorporation shall be as follows:
trustees and the vote or written assent of Stock Corporation – A majority vote of the
the stockholders representing at least two- directors or trustees and the vote or written
thirds (2/3) of the outstanding capital stock, assent of the stockholders representing at
without prejudice to the appraisal rights of least two- thirds (2/3) of the outstanding
dissenting stockholders in accordance with capital stock. Under section 81 of the Code,
the provision of this Code, or the vote or a dissenting stockholder may exercise his
written assent of two-thirds (2/3) of the appraisal right if he is against the
members if it be a non-stock corporation. amendment to be made and demand
payment of the fair value of his shares.
The original and amended articles
altogether shall contain all provision Non-stock Corporation – A majority vote of
required by law to be set out in the articles board of directors and the vote or written
of incorporation. Such articles, as amended assent of 2/3 of the members.
shall be indicated by underscoring the
change or changes made, and the copy The amendments to the articles of
thereof duly certified under oath by the incorporation shall take effect upon its
corporate secretary and the majority of the approval by the Securities and Exchange
directors or trustees stating the fact that Commission or from the filing with the said
said amendments have been duly approved Commission if not acted upon within six
by the required vote of the stockholders or months from the date of filing for a cause
members, shall be submitted to the not attributable to the corporation.
Securities and Exchange Commission.
Sec. 17. Grounds when articles of
The amendment shall take effect upon its incorporation or amendment may be
approval by the Securities and Exchange rejected or disapproved. – The Securities
Commission or from the date of filing with and Exchange Commission may reject the
the said Commission if not acted upon articles of incorporation or disapproved any
within six (6) months from the date of filing amendment thereto if the same is not in
for a cause not attributable to the compliance with the requirements of this
corporation.
Code: Provided, That the Commission shall by which the corporation can be identified
give the incorporators a reasonable time and distinguished from other corporation,
within which to correct or modify the firms or entities.
objectionable portions of the articles or
amendment. The following are grounds for Change of corporate name
such amendment or disapproval: A corporation may change its name by
merely amending its charter in the manner
1. That the articles of incorporation or any prescribed by law. The change of name of
amendment thereto is not substantially the corporation does not result in
in accordance with the form prescribed dissolution. The changing of the name of a
herein. corporation is no more the creation of a
corporation than the changing of the name
2. That the purpose or purposes of the of a natural person.
corporation are patently
unconstitutional, illegal, immoral, or Restriction in use in certain names of words
contrary to government rules and There are special laws prohibiting the use of
regulation. certain names and/or words. Thus, under
the General Banking Act, no person or entity
3. That the Treasurer’s Affidavit not conducting the business of commercial
concerning the amount of capital stock banking shall use the words “bank”,
subscribed and/or paid is false. “banking”, “banker”, “building and loan
association”, “trust corporation”, etc. or
4. That the required percentage of words of similar import. The word
ownership of the capital stock to be “National” under Act 2612 may not be use
owned by citizens of the Philippines has by those doing business as bankers,
not been complied with as required by brokers, or savings institutions. “United
existing laws of the constitution. Nations” both in its full and abbreviated
forms, for commercial and business
No articles of incorporation or amendment purposes. There are other names or words
to articles of incorporation of banks, which pursuant to other special laws may
banking and quasi-banking institutions, not be used.
building and loan association, trust
companies, public utilities, educational Sec. 19. Commencement of Corporate
institution, and other corporations Existence. – A private corporation formed or
governed by special laws shall be accepted organized under this Code commences to
or approved by the Commission unless have corporate existence and juridical
accompanied by a favourable personality and is deemed incorporated
recommendation of the appropriate from the date the Securities and Exchange
government agency to the effect that such Commission issues a certificate of
articles or amendment is in accordance with incorporation under its official seal; and
law. thereupon the incorporators,
stockholders/members, and their
Sec. 18. Corporate name. – No corporate successors shall constitute a body politic
name may be allowed by the Securities and and corporate under the name stated in the
Exchange Commission if the proposed name articles of incorporation for the period of
is identical or deceptively or confusingly time mentioned therein, unless said period
similar to that of any existing corporation or is extended or the corporation is sooner
to any other name already protected by law dissolved in accordance with law.
or its patently deceptive, confusing or
contrary to existing laws. When the change Sec. 20. De Facto corporation. – The due
in a corporate name is approved, the incorporation any corporation claiming in
commission shall issue an amended good faith to be a corporation under this
certificate of incorporation under the Code, and its right to exercise corporate
amended name. powers, shall not be inquired into
collaterally in any private suit to which such
Necessity of Corporate name corporation may be a party. Such inquiry
It is necessary that a corporation should
have a name because that is the only way
may be made by the Solicitor General in a of a contrary tenor. The object of the
quo warranto proceeding. principle of estoppel is to prevent injustice
to an otherwise innocent person.
De facto corporation – generally refer to
organizations exercising corporate power Sec. 22. Effect of non-use of corporate
under colour of a more or less legally charter and continuous in operation of a
constituted corporation. corporation. – If a corporation does not
formally organize and commence the
Elements of De facto corporation transaction of its business or the
1. Existence of a valid law under which a construction of its works within two (2)
corporation can be organized. years from the date of its incorporation, its
2. An attempt in good faith to incorporate. corporate powers cease and the corporation
3. Actual exercise of incorporate powers. shall be deemed dissolved. However, if a
corporation has commenced the transaction
Quo warranto – an inquiry made into the of its business but subsequently becomes
right of a corporation to conduct business. continuously inoperative for a period of at
least five (5) years, the same shall be ground
Illustration for the suspension or revocation of its
Seven competent individual organized a corporate franchise or certificate of
corporation by filing the articles of incorporation.
incorporation and securing a certificate of
incorporation with the SEC. However, the This provision shall not apply if the failure
addresses of two of the original subscribers to organize, commence the transactions of
were omitted in the articles of its businesses or the construction of its
incorporation. In suit filed by X, a creditor, works, or to continuously operate is due to
against the corporation he alleged that the causes beyond the control of the
corporation has no valid existence and corporation as may be determined by the
sought to hold the seven incorporators (also Securities and Exchange Commission.
directors) liable personally on the
obligation. X’s allegation that the Organization
corporation had no valid existence would The idea of organization in reference to
constitute a collateral (side) attack in a corporations means executive structure,
private suit. Only the Solicitor General as election of officers, providing for
government lawyer may raise the question subscription and payment of capital,
by quo warranto proceeding. (Literally by adoption of by-laws, and other steps
“what right”). necessary to endow the legal entity with
capacity to transact business for which it
Sec. 21. Corporation by estoppel. – All was created.
persons who assume to act as a corporation
knowing it to be without authority to do so The Grant of corporate existence, conferred
shall be liable as general partners for all by the issuance of certificate of
debts, liabilities and damages incurred or incorporation, is subject to two subsequent
arising as a result thereof: Provided, conditions, to wit:
however, That when any such ostensible 1. The corporation must “formally
corporation is sued on any transaction organize”.
entered by it as a corporation or on any tort 2. The corporation must actually begin the
committed by it as such, it shall not be “transaction of its business”.
allowed to use as a defense its lack of
corporate personality. Failure to comply with either or both of
these conditions within two (2) years from
One who assumes an obligation to an the date of its incorporation, its corporate
ostensible corporation as such cannot resist power cease and the corporation must be
performance thereof on the ground that deemed dissolved.
there was in fact no corporation.
Sec. 23. The board of directors or trustees.
Estoppel – It is preclusion, which prevent a – Unless otherwise provided in this Code,
man from denying a fact in consequences of the corporate powers of all corporation
his own previous act, allegations, or denial formed under this Code shall be exercised ,
all business conducted and all property of 3. Domestic air carrier, the directing head
such corporations controlled and held by or 2/3 of the board of directors and
the board of directors or trustees to be other managing officers shall be citizens
elected from among the holders of stock, of the Philippines.
or where there is no stock, from among 4. Registered investments companies, the
the members of the corporation, who shall directors thereof must be Filipino
hold office for one (1) year and until their citizen.
successors are elected and qualified. 5. Private development banks, all the
members of the board of directors shall
Every director must own at least one (1) be citizen of the Philippines.
share of the capital stock of the corporation 6. In case of financing corporation, at least
of which he is a director, which share shall 2/3 of all members of the board of
stand in his name on the books of the directors shall be citizen of the
corporation. Any director who ceases to be Philippines.
the owner of at least one (1) share of the
capital stock of the corporation of which he Sec. 24. Election of directors or trustees. –
is the director shall thereby cease to be a At all elections of directors or trustees,
director. Trustees of non-stock corporations there must be present, either in person or
must be members thereof. A majority of the by representative authorized to act by
directors or trustees of all corporations written proxy, the owners of the majority of
organized under this Code must be the outstanding capital stock, or if there be
residents of the Philippines. no capital stock, a majority of the members
entitled to vote. The election must be by
Qualifications of directors ballot if requested by any voting stockholder
1. He must own at least one (1) share of or member. In stock corporations, every
the capital stock of the corporation in stockholder entitled to vote shall have the
his name. right to vote in person or by proxy the
2. Majority of the directors must be a number of shares of stock standing, at the
resident citizen of the Philippines. time fixed in the by-laws, in his own name
3. A director must not have been on the stock books of the corporation, or
convicted by final judgement of an where the by-laws are silent, at the time of
offense punishable by imprisonment the election; and said shareholder may vote
exceeding six (6) years or a violation of such number of shares for as many persons
the provisions of the Corporation Code as there are directors to be elected or he
committed within five (5) years prior to may cumulate said shares and give one
the date of election or appointment. candidate as many votes as the number of
directors to be elected multiplied by the
The directors, once elected, become the number of his shares shall equal, or he may
representatives of the corporation itself, not distribute them on the same principle
its stockholders. The directors of a non- among as many candidate as he shall see fit;
stock corporation are required to be Provided, That the total number of votes
members thereof and like stock cast by him shall not exceed the numbers of
corporations “majority of the directors and shares owned by him as shown in the
trustees of all corporations organized under books of the corporation multiplied by the
the Corporation Code must be residents whole number of directors to be elected:
citizen of the Philippines”. There are some Provided, however, that no delinquent
special corporation not organized with the stocks shall be voted. Unless otherwise
Corporation Code where directors are provided in the articles of incorporation, or
required to be citizens of the Philippines. in the by- laws, members of corporation
They are as follows: which have no capital stock may cast as
1. Bank and banking institution, at least many votes as there are trustees to be
2/3 of the members of the board of elected but may not cast more than one
directors shall be citizen of the vote for one candidate. Candidates receiving
Philippines. the highest number of votes shall be
2. Rural banks, every member of the board declared elected. Any meeting of the
of directors shall be citizens of the stockholders or members called for an
Philippines. election may adjourn from day to day or
from time to
 time but not sine die or definitely if, for any Sec. 25. Corporate officers, quorum. –
reason, no election is held, or if there are Immediately after their election, the
not present or represented by proxy, at the directors of a corporation must formally
meeting, the owners of the majority of the organized by the election of a president,
outstanding capital stock, or if there be no who shall be a director, a treasurer who may
capital stock, a majority of the members or may not be a director, a secretary who
entitled to vote. shall be a resident citizen of the Philippines,
and such other officers as may be provided
Methods of voting for in the by-laws. Any two (2) or more
The voting methods which may be resorted positions may be held concurrently by the
to by a voting stockholder are as follows: same person, except that no one shall act as
1. Straight voting. president and secretary or as president and
2. Cumulative voting for one candidate. treasurer at the same time.
3. Cumulative voting by distribution.
The directors or trustees and officers to be
Example of Straight Voting elected shall perform the duties enjoined
A owns 100 shares of stock in X corporation. on them by law and by the by-laws of the
During the meeting for the purpose of corporation. Unless the articles of
electing five directors, he may cast his vote incorporation or the by-laws provide form a
by giving each of the five candidates 100 greater majority, a majority of the number
votes, hence, he distribute equally his vote of directors or trustees as fixed in the
without preference or discrimination. articles of incorporation shall constitute a
quorum for the transaction of corporate
Example of Cumulative voting for one candidate business, and every decision of at least a
In the preceding illustration, if A owns 100 majority of the directors or trustees present
voting shares and there are five directors to at a meeting at which there is a quorum
be elected, A is entitled to 500 votes which shall be valid as a corporate act , except for
he may “cumulate” by giving it to candidate the election of the officers which shall
Z alone. require the vote of a majority of all the
Example of Cumulative voting by distribution members of the board.
As in the same example above, if A owns Qualification of corporate officer
100 voting shares, and there are five 1. President. He must be a director.
directors to be elected, A is entitled to 500 2. Treasurer. He may or may not be a
votes which he may distribute to candidate director.
Y and Z giving the former 300 and the latter 3. Secretary. He must be a resident and
200 provided that the total number of citizen of the Philippines
votes cast by him does not exceed 500 4. Other officers provided for in the by-
votes. laws.

Voting of sequestered shares of stock Three levels of corporate control

It has been held that the “Presidential 1. The board of director which is
Commission on Good Government may responsible for the corporate policies
properly exercise the prerogative to vote and the general management of the
sequestered stock of corporation, granted business affairs of the corporation.
to it by the President of the Philippines xxx 2. The officers, who in theory execute the
pending the outcome of proceeding to policies lay down by the board , but in
determine the ownership of sequestered practice often have wide latitude in
shares of stock. xxx Substitution of determining the course of business
directors is not be done without reason or operations.
rhyme, and undertaken only when essential 3. Stockholders who like amendments of
to prevent disappearance or wastage of the articles of incorporation.
corporate property, and always under such
circumstance as assure that replacements Teleconferencing of Board Members
are truly processed of competence, In the Philippines, teleconferencing and
experience and probity. videoconferencing of members of board of
directors of private corporation is a reality,
in light of the Republic Act No. 8792.The
Securities and Exchange Commission issued
SEC Memorandum Circular No. 15, on has authority to act in his stead, and to
November 30, 2001, providing the perform the duties of the office.
guidelines to be complied with related to
such conferences. Thus, the court agrees Secretary
with the RTC that persons in the Philippines A secretary must be a resident citizen of the
may have a teleconference with a group of Philippines. It is generally its duty to make
persons in South Korea relating to business and keep corporate records; to make proper
transactions or corporate governance. entries of the votes, resolution and
proceedings of the shareholders and
Directors and officers distinguished directors in the management of the
The officers of a corporation, unlike the corporation, and of all other matters
directors, are true agent of the corporation. required to be entered in the records. The
Each officer may bind the corporation by his secretary is the ministerial officer who
individual acts within the actual or apparent cannot bind the corporation unless he is
scope of authority. On the other hand, a authorized to do so.
director has no authority to act for the
corporation. Treasurer
The treasurer of the corporation “may or
Authority of corporate officers may not be a director”. He is the proper
The corporation transact its business officer and the only proper officer in the
through its officers or agents. An officer’s absence of express provision to the
power as an agent of the corporation must contrary, to receive and keep the money of
be sought from the statute, charter, and the the corporation and to disburse them as he
by-laws or in a delegation of authority to may be authorized.
such officers, from the acts of board of
directors, formally expressed or implied Other officers
from a habit or custom of doing business. The by-laws of the corporation may
provide for such other officers and agent as
Chairman of the Board may be necessary and convenient
A chairman of the board of directors must considering the nature and needs of the
himself director be a director of the business. Their compensation is provided
corporation. His duty as presiding officer is for by the by-laws and the board of directors
not an executive one. It has been suggested in a suitable manner.
that he well be given advisory duties in
determining executive salaries, bonus plans Quorum – signifies the number of persons
and pensions, determining dividend policy, belonging to a corporation required to
selecting auditors, and dealing questions transact business.
with labor and company policy.
Section 25 of the Corporation Code
President requires more people than a simple
The president must be a director of the majority to form a quorum. If no such
corporation. The powers of the president of defining number is determined, a quorum is
a corporation are vested in him by law or a simple majority.
the by-laws; otherwise, he has no power
over the corporate property and business Directors cannot vote by proxy
than has any other director. However, he The directors cannot vote by proxy but
may be given actual authority to make must personally present, and act by
particular contracts, or to execute themselves.
conveyances, borrow money, execute
mortgages, and do other acts, by the Sec. 26. Report of election of directors,
charter, the by-laws, resolutions of directors trustees and officers. – Within thirty (30)
or their informal acquiescence. days after the election of the officers,
trustees and directors of the corporation,
Vice- President the secretary, or any other officer of the
In the absence of the president, or if the corporation shall submit to the Securities
office of the president becomes vacant, as a and Exchange Commission, the names,
rule, the vice president elected and nationalities and residences of the directors,
appointed by the shareholders or directors trustees and officers elected.
Should a director, trustee or officer die, for the purpose, and in either case, after
resign or in any manner cease to hold office, previous notice to stockholders or members
his heirs in case of his death, the secretary of the corporation of the intention to
or any other officer of the corporation, or propose such removal at the meeting. A
the director, trustee or officer himself, shall special meeting of the stockholders or
immediately report such fact to the members of the corporation for the purpose
Securities and Exchange Commission. of removal of directors or trustees, or any of
them, must be called by the secretary on
Sec. 27. Disqualification of directors, order of the president or on the written
trustees or officers. – No person convicted demand of the stockholders representing or
by final judgement of an offense punishable holding at least a majority of the
by imprisonment for a period exceeding six outstanding capital stock, or, if it be a non-
(6) years, or a violation of this Code, stock corporation, on the written demand of
committed within five (5) years prior to the a majority of the members entitled to vote.
date of his election or appointment, shall Should the secretary failed to refuse to call
qualify as a director, trustee or officer of any the special meeting upon such demand, or
corporation. fail or refuse to give the notice, or if there is
no secretary, the call for the meeting may
Sec. 27 of the Corporation Code is an be addressed directly to the stockholders or
additional safeguard that only upright and members of any by any stockholder or
honest individuals be entrusted with member of the corporation signing the
management of the corporate affairs. demand. Notice of the time and place of
such meeting, as well as the intention to
A director of a cooperative who is propose such removal, must be given by
subsequently elected as member of the publication or by written notice as
Sangguniang Panglungsod (City Council) prescribed in this Code. The vacancy
becomes automatically disqualified from resulting from removal pursuant to this
continuing as such director by virtue of the section may be filled by election at the same
clear mandate of PD No. 269 providing that meeting without further notice, or at any
except for “barrio captains and councillors” regular or at any special meeting called for
elective officials are ineligible to become the purpose after giving notice as
officers and/or directors of any cooperative. prescribed in this Code. Removal may be
with or without cause: Provided, That
The SEC ruled that firms engage in wholly or removal without cause may not be used to
partially nationalized activities, aliens are deprived minority stockholders or members
banned from being appointed to of the right of representation to which they
management position such as president, may be entitled under Section 24 of this
vice-president, treasurer, auditor, secretary, Code.
etc. of said companies. However, they can
be elected directors in preparation to their Directors or trustee may be removed even
allowable participation or share in the without cause
capital of such activities, in accordance with The legislative policy is that the
the Commonwealth Act No. 108, as shareholders shall be the ultimate masters,
amended by PD 715, otherwise known as not the directors. The shareholders should
the Anti- Dummy Law. be clothed with the power of judging the
competency and fitness of the directors and
Sec. 28. Removal of director or trustees. – of choosing a board that will carry out of
Any director or trustee of the corporation their business policy.
may be removed from office by a vote of
the stockholders holding or representing at Directors representing minority may not be
least two- thirds (2/3) of the outstanding removed without cause. The power to
capital stock, or if the corporation be a non- removed director or trustee even without
stock corporation , by a vote of at least two- cause given to shareholders or members
thirds (2/3) of the members entitled to may not be used to deprived minority
vote: Provided, That such removal shall take shareholders or members of the right of
place either at a regular meeting of the representation to which they may be
corporation or at the special meeting called entitled under Section 24 of the Corporation
Code. Cumulative voting of
 directors in a stock corporation is majority of the outstanding capital stock at
mandatory and cannot be dispensed with in a regular or special stockholders’ meeting.
the by-laws. Being a statutory right, the In no case shall the total yearly
stockholders cannot be deprived of the use compensation of directors, as such
of cumulative voting. directors, exceed ten percent (10%) of the
net income before income tax of the
May the result of the duly held election of corporation during the preceding year.
directors be altered by mere agreement of the
directors? Sec. 31. Liability of directors, trustees or
The Securities and Exchange Commission officers. – Directors or trustees who willfully
ruled that: “An agreement by which and knowingly vote for or assent to patently
director is reposed in any body except unlawful acts of the corporation or who are
majority of stockholders is in violation of guilty of gross negligence or bad faith in
‘public policy’ and ‘enforceable’ ”. directing the affairs of the corporation or
acquire any personal or pecuniary interest
The Securities and Exchange Commission in conflict with their duty as such directors,
has jurisdiction or authority to “hear and or trustees shall be liable jointly and
decide cases” involving controversies in the severally for all damages resulting
election or appointments of directors, therefrom suffered by the corporation, its
trustees, officers or managers of such stockholders or members and other
corporations, partnerships or associations. persons.
Controversy concerning removal of directors
or trustees may also be heard by the SEC. When a director, trustee or officer attempts
to acquire or acquires, in violation of his
Sec. 29. Vacancies in the office of director duty, any interest adverse to the
or trustee. – Any vacancy occurring in the corporation in respect of any matter which
board of directors or trustees other than by has been reposed in him in confidence, as
removal by the stockholders or members or to which equity imposes a disability upon
by expiration of term, may be filled by the him to deal in his own behalf, he shall be
vote of at least a majority of the remaining liable as a trustee for the corporation and
directors or trustees, if still constituting a must account for the profits which
quorum; otherwise, said vacancies must be otherwise would have accrued to the
filled by the stockholders in a regular or corporation.
special meeting called for that purpose. A
director or trustee so elected to fill the Directors are trustees
vacancy shall be elected only for the It is well-stated rule in corporate law that
unexpired term of his predecessor in office. directors of corporations are trustees and
are required to act in the utmost good faith.
Any directorship or trusteeship to be filled
by reason of an increase in the number of Liability of corporate directors and officers for
directors or trustees shall be filled only by illegal dismissal of employees
an election at a regular or at a special In cases of illegal dismissal, corporate
meeting of stockholders or members duly directors and officers are solidarily liable
called for the purpose, or in the same with the corporation, where terminations of
meeting authorizing the increase of employment are done with malice or in bad
directors or trustees if so stated in the faith. (Acesite Corp. vs. NLRC, G.R. No.
notice of the meeting. 152308, January 26, 2005, 449 SCRA 360)

Sec. 30. Compensation of directors. – In the Sec. 32. Dealings of directors, trustees or
absence of any provision in the by-laws officers with the corporation. – A contract of
fixing their compensation, the directors the corporation with one or more of its
shall not receive any compensation, as such directors or trustees or officers is voidable,
directors, except for reasonable per diems: at the option of such corporation, unless
Provided, however, That any such all the conditions are present:
compensation (other than pier diems) may
be granted to directors by the vote of the 1. That the presence of such director or
stockholders representing at least a trustee in the board meeting in which
the contract was approved was not