Lectures in Business Org 1

10 June 2015
Business org includes partnership, agency and trust as subject.
One thing in common, they all interlock with commercial law.
Partnership it is a contract whereby two or more persons bind themselves to
contribute money, property, or industry to a common fund with the intention of dividing
the profits among themselves.
2 elements of legal partnership
1. CONTRIBUTION by two or more persons of money, property, or Industry (work or
skills) to a common fund.
2. INTENTION is to divide the profits among the parties in accordance with what is
agreed upon or pro rata.
Husband and wife are not allowed to become partners in civil law. They could not
comply the first element which is the contribution by two or more person because they
are already one when they married.
Children with inheritance will not constitute partnership because they did not contribute
money.
Partnership purpose is to operate business
Professionals can form an organization for a specific purpose of exercising their
profession.
Ex.
Lawyers firm
Accountants general professional partnership
When you receive dividend it is not necessarily that you are a partner. You will only have
a prima facie presumption that you have a partnership. Dividends can be a form of
payment of wages that will make you an employee but not a partner.
You must determine why a person receives money from the partnership. It is not
automatic that there is a partnership.
General rule: in formation of a partnership, there is no specific form required as long as
the two essential elements are present you can have a partnership.
Value of partnership
1. For professionals to be productive.
Partnership facilitates production.

2. Business activities that a single person cannot handle for lack of capital, skills etc. can
be utilize. Ex. A person inherit money or property but dont know how to invest his
properties or assets can form a partnership with those who are skilled one.
Formation of a partnership
1. CONSENSUAL perfected by mere consent.
Exception/qualification:
a. When there is a contribution of an immovable property, then you need to have a duly
notarized public document and must be attached to the articles of partnership and must
be registered to the Registry of Deeds. This is to protect 3 rd party, so that they will be
aware of the property as part of the partnership.
b. When the contribution is 3,000 pesos or more, you need to have a public document and
take an inventory of the contribution of the partners and register it to the Securities and
Exchange Commission.
Articles of partnership will describe the details of partnership, purpose, profit division,
assets, lifetime, registration to SEC.
Kinds of partnership
1. As to object
a. Universal all profits, earnings, fruits will belong to the partnership.
b. Particular specific undertakings, things, object including the use of fruits. Not a
continuing partnership.
2. As to liability
a. General liable for all the losses of the partnership, not only the contribution but up to
the extent of all his personal properties.
b. Limited limited liability only to the extent of contribution in partnership.
Purpose of the partnership must be lawful.
17 June 2015
Partnership like a corporation has a separate juridical personality. It can sue and can be
sued. It can purchase properties.
General rule: general partners has no limit as to the liability. Limited partners its liability
is only up to the extent of the amount contributed.
Corporation life span 50 years
Partnership life span indefinite, no specific term
If there is a definite period or terms achieved the purpose and they continue to do
business, it is impliedly presumed that the partnership is renewed.
Industrial partner contribution is his labor or industry, talent or services.

General rule: he cannot engage in any business or industry while he is in a partnership.

He is committing his time or talent to the partnership only.
Reason: conflict of interest.
Except: when the partnership permits you to do so. Even if the partnership permits you,
they can still expel you or retain you to the partnership and demand the benefits that
you obtained and damages while exercising it outside the partnership.
General rule: equal shares should be contributed to the partnership. Profits and losses
should be equally distributed.
Except: agreed upon.
If the partnership is encountering financial problems, there has to be a capital infusion of
the partners. If one partner cannot contribute, he should sell his shares.
Art. 1792. If a partner authorized to manage collects a demandable sum which was
owed to him in his own name, from a person who owed the partnership another sum
also demandable, the sum thus collected shall be applied to the two credits in
proportion to their amounts, even though he may have given a receipt for his own credit
only; but should he have given it for the account of the partnership credit, the amount
shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted
to the other debtor by Article 1252, but only if the personal credit of the partner should
be more onerous to him. (1684)
RIULES ON THE DUTY TO CONTRIBUTE
1.
the contribution must be made at the time the partnership is entered into
UNLESS a different period is stipulated
2.
no demand is needed to put the partner in default
3.
the partner must exercise due diligence in preserving the property to be
contributed before he actually contributes the same
4.
a partner who promises to contribute to the partnership becomes a promissory
debtor of the partnership
RULES ON THE DUTY TO DELIVER THE FRUITS
1.
IF property has been promised, the fruits thereof should also be given
2.
the fruits referred to are those arising from the time they should have been
delivered, without a need of any demand
3.
IF the partner is in BAD FAITH, he is liable not only for the fruits actually
produced, BUT also for those that could have been produced
Who manages the partnership each partner is an agent of the partnership.
GR: any partner can deal with others. The partnership should designate a managing
partner.

Managing partners can be as many as the partners want. They can have equal powers
unless you delegate or designate.
If they could not decide, majority wins. If they cannot decide still, convene the rest of the
partners and ask the partners with the controlling interest to vote. His vote will prevail.
24 June 2015
GR: all dealings of partners with third parties are likewise dealings of the partnership
and the law will treat it as such.
Art. 1804. Every partner may associate another person with him in his share, but the
associate shall not be admitted into the partnership without the consent of all the other
partners, even if the partner having an associate should be a manager. (1696)
It allows one partner to invite another to have a share in his partnership share. He can
enter as a sub-partner but he is not part of the partnership. He needs the consent of all
other partners in order to become a member of the partnership.
Reason: any addition of a member to the partnership will constitute a change in the
relationship of the partnership, because the relationship of the partnership is based on
the maximum trust and confidence.
Except: on unanimous consent: unless the articles of partnership provides.
Partnership books books of account.
- Kept by the management accountant.
- It has to be in the principal place of business.
- Every person shall have access to the book and may inspect it
and have a copy of it.
Art. 1806. Partners shall render on demand true and full information of all things
affecting the partnership to any partner or the legal representative of any deceased
partner or of any partner under legal disability. (n)
Art. 1807. Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits derived by him without the consent of the other partners from
any transaction connected with the formation, conduct, or liquidation of the partnership
or from any use by him of its property. (n)
1806 and 1807 is all about transparency. If you have any transaction outside the
partnership using the company time, resources, or any information that you derived for
being a partner, you should disclose it to your partners. full disclosure. Any earnings
you derive should be remitted to the partnership even if they dont know about it.
Art. 1808. The capitalist partners cannot engage for their own account in any operation
which is of the kind of business in which the partnership is engaged, unless there is a
stipulation to the contrary.

Any capitalist partner violating this prohibition shall bring to the common funds any
profits accruing to him from his transactions, and shall personally bear all the losses. (n)
GR: capitalist partner cannot engage in the same line of business with the partnership.
Reason: there is a conflict of interest.
Except: if there is an agreement to the contrary or the partners allow it.
All the earnings that came after the termination of the partnership by reason of being a
partner, you are bound to remit it to the partnership.
Art. 1809. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable.
Rules on demanding a formal account to the partnership affairs:
a. If one of the partner is expelled illegally from the partnership
b. If it is provided for under the partnership agreement.
c. As provided in 1807.
1. If you feel/hear a reliable information that your partner earned from the partnership and
did not remit it.
d. So long as it is justifiable to the partnership itself or a specific partner.
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Formal account not normally given because there is already a partnership book.
It is an official financial report duly signed by the auditor of the company. It is a formal
financial reporting, notarized under oath.