SAINT LOUIS UNIVERSITY

SCHOOL OF ACCOUNTANCY AND BUSINESS MANAGEMENT

Bonifacio St., Baguio City, 2600 Philippines

POSITION PAPER:
The Difference between Partnerships and
Corporations

MGMT 204
LEGAL ENVIRONMENT OF PHILIPPINE BUSINESS AND CORPORATE ENVIRONMENT

Schedule: 5:30 – 8:30 Wednesday

Room: S523
Professor: Ma. Conception C. Castro-Santiago, AB, MS Pub. Mgmt., Ll. B.

Submitted by: VILLAR, Maan P.

Course: MSBA 1
Submitted on: July 2011
 If there would be one similarity between a partnership and a corporation, it would
be that it is owned and led by a group or a certain number of people as contrasted to the
simpler stricter that a single proprietorship business has. The similarities may end there
because there would be a vast sea of differences that separate a corporation from a
partnership such that even the very law that governs each is different: the corporation is
governed by The Corporation Code of the Philippines (Batas Pambansa Blg. 26) while a
partnership is governed by The Civil Code of the Philippines (particularly on Arts. 1767 –
1867). A separate law is created for a corporation since it is bestowed a juridical or
artificial personality separate from its owners and is thus created by operation of law while
partnerships are born out of the agreement of the parties who wish to undertake
agreement under this arrangement such that an imminent characteristic of a contract of
partnership is that it is consensual (i.e. perfected be mere consent or upon the express or
implied agreement of two or more persons). In essence, a contract of partnership is as well
a contract of agency. The juridical or artificial personality of a corporation is acquired as
soon as the certificate of incorporation is issued by the Securities and Exchange
Corporation while a partnership would only acquire such when the contract of partnership
would be executed, the contract of partnership is nominate because it has a special
designation or name in our law. A juridical personality which a corporation possesses is
acquired by virtue of the law through the fulfillment of the requirements of law, as such a
corporation can enter into contracts, acquire property and can sue and be sued. Delving
deeper, the stockholders or members of a corporation compose the corporation but they
are not the corporation per se. It is a similarity that it shares with a partnership wherein
the individuals who comprise such organizations merely act as agents for the business
organization.

As to the number of people who would form an organization, a partnership would

require only two (2) persons while a corporation would require a minimum of five (5)
incorporators. The life span of a partnership is determined by the relationship of the
partners and it can lead to dissolution when disagreement ensues or when any of the
partners die, even when a partner would be unable to perform his or her assigned
responsibilities for the partnership; the opposite is true for a corporation because its
existence is indefinite, its legality and life may be renewed every fifty (50) years.

The liability of the individuals involved behind these business structures would
have differentiated extent of liabilities. The extent of liability that a corporate shareholder
possesses would be only up to the amount of investment (i.e. the value of shares) that he
has with the corporation while a partner would have limitless liabilities to the obligations
of the partnership. A board of directors is elected by the shareholders to manage a
corporation, there is a certain amount of shares that a shareholder must possess in order to
be eligible for the privilege and right to vote as well as to be qualified to become a part of

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the BOD whereas a partnership’s management is brought about by a consensual decision
by the partners. Minutes are kept and recorded for the meetings held for a corporation and
records for administrative activities; this is not necessitated for partnerships. As to the
right of succession, a partnership would have no such right while a corporation has the
capacity of continuous existence irrespective of death, withdrawal, insolvency or incapacity
of the individual members or stockholders and also regardless of the transfer of their
interest or shares of stock but this does not equate to a corporation’s “immortality”.

The exercise of powers is also a distinctive quality between a partnership and a

corporation. A partnership may implement any power that the partners authorize provided
that it would not go against the law, morals, good customs, public order or public policy
while a corporation can only exercise powers to the extent which is granted by law or
which is incidental or implied through its existence. A partner in a partnership can sue a
partner who mismanages while a member of the board of directors who mismanages in the
corporation is sued by the corporation in its own name. The transferability of interest in a
partnership is based on the principle of deletus personarum such that a partner would not
be able to transfer his interest in the partnership so as to make the transferee a partner
without the consent of all the other existing partners. However, in a stock corporation a
stockholder has the right to transfer his shares without the prior consent of the other
stockholders because a corporation does not regard this principle as essential in the
transferability of its interests. A corporation has the power to adapt any firm name as long
as it is not identical or deceptively similar to any registered firm name or contrary to any
existing laws, a limited partnership on the other hand would have to add the word “Ltd.” to
its name. The greatest difference between a partnership and a corporation perhaps lies in
the method of dissolution, a partnership may be dissolved at any time by the will by any or
all of the partners as well as other factors such as the death of the partners or
contravention to an agreement while for a corporation, the only way that it would meet
dissolution would be if the State would give its consent to such event.

To further the similarities with a corporation and a partnership as was mentioned at

the onset of this paper, a partnership is similar to a corporation in such a manner that it too
has a juridical personality separate and distinct from that of the individuals composing it.
As was mentioned above, a partnership and corporation could only act through agents
which are the individuals who comprise the organization. Both are organizations composed
of an aggregate of individuals with the exception of a corporation sole. The distribution of
profits in both a corporation and a partnership are amongst those who contribute capital
although in a partnership, an industrial partner also shares in partnership profits. Both
types of organizations are only organized only if there is a law that authorizes such
organization and no matter how organized, both are taxed similarly such that a partnership
is taxed alike the corporation subject to income tax.

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 In contrasting a partnership with a corporation, we could see both the advantages
and disadvantages of forming a partnership. Going on the more negative side of the scale,
one disadvantage of forming a corporation is that it has a more complex formation and
management as compared to other types of business organizations and entails a greater
cost of both formation and operation. The limited liability of the shareholders if seen at a
micro perspective would be beneficial at an individual level but on a larger parlance it
weakens the credit of the corporation. Also, there is a lack of personal element in the view
of the transferability of shares. Also, there is a larger degree of government control and
supervision than any other forms of business. The voting rights of stockholders become
merely theoretical because of their large number in bigger corporations and also due to the
use of proxies and also widespread ownership. Stockholders have a voice that is barely
heard in the conduct of the business and in larger corporations, management and control
are separate from the ownership.

On the brighter side, a corporation has the legal capacity to act as a legal unit. Also, it
has continuity of existence because of its independence from the individuals who compose
it. The weakness of credit due to the limited liability of shareholders is somehow offset and
strengthened by the continuity of its existence. There is centralized management in a
corporation because of the board of directors. The general incorporation law also
standardizes the creation, organization, management and dissolution of a corporation.
Gigantic financial enterprises are bred through corporations because it gives individuals
the freedom to invest their separate funds to the enterprise. Limited liability is also
attractive for potential and existing shareholders, added to that they are not general agents
to the corporation and the shares of stocks can be transferred without need of the consent
of the other stockholders.