Partnership - Lecture notes Chapter 1-4

Law on Partnerships and Corporations (RFBT 2)

PARTNERSHIP

• By the contract of partnership 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
• Two or more persons may also form a partnership for the exercise of a profession. (Art. 1767
• A partnership has a juridical personality which is separate and distinct from that of the partners.
• A partnership may sue and be sued in its name or by its duly authorized representatives.

FORM OF PARTNERSHIP CONTRACT

GENERAL RULE: No special form is required for the validity or existence of the contract of partnership.
EXCEPTIONS:
1. Where immovable property or real rights are contributed, the partnership contract shall be void unless:
a. It is reduced to writing in a public instrument (Art. 1771).
b. An inventory of the property contributed is made, signed by the parties and attached to the public
instrument. (Art.1773)
2. Where the contract is by its terms not to be performed within a year from the making thereof, such
partnership contract is covered by the statute of frauds and thus requires a written agreement to be
enforceable
3. Where the contract of partnership has a capital of 3,000 pesos or more, in money or property, it shall
appear in a public instrument and must be recorded in the Office of the Securities and Exchange
Commission. However, a partnership has a juridical personality even in case of failure to comply with
this requirement
Requisites:
1. Intention to create a partnership
2. Common fund obtained from the contributions
3. Joint interest in the profits
Essential Features
1. there must be a valid contract;
2. the parties must have legal capacity to enter into the contract
3. there must be mutual contribution of money, property and industry to a common fund
4. the object must be lawful; and
5. the primary purpose must be to obtain profits

JOINT VENTURE
It is hardly distinguishable from partnership, since their elements are similar, i.e. community of interest
in the business, sharing of profits and losses, and a mutual right of control.
The main distinction in common law jurisdiction is that partnership contemplates a general business
with some degree of continuity, while joint venture is formed for the execution of a single transaction and is
thus of temporary nature

Other Similar Contracts

1. Collaboration- the act of working together in a joint project.

2. Association- act of a number of persons uniting together for some special purpose or business.

Partnership vs. Co-ownership

Partnership Co-ownership

Creation: Generally created by law, but may exist even without a

Always created by a contract, either express or implied contract
Juridical personality : Has no juridical personality
Has a juridical personality separate and distinct from that of
each partner
Purpose: Common enjoyment of a thing or right; does not
Realization of profits necessarily involve sharing of profits

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 Duration: An agreement to keep the thing undivided for more than
No limitation upon the duration is set by law 10 years is not allowed
Transfer of interests : A co-owner can dispose of his share without the consent
A partner may not dispose of his individual interest of the others
in the partnership so as to make the assignee a
partner without unanimous consent
Power to act with third persons : A co-owner cannot represent the co-ownership
In the absence of stipulation to the contrary, a partner
may bind the partnership
Dissolution : Death or incapacity of a co-owner does not necessarily
Death or incapacity of a partner results in the dissolve the co-ownership
dissolution of partnership
Agency or representation : As a rule, there is no mutual representation (although it is
As a rule, there is mutual agency enough for a co-owner to bring an action for ejectment
against a stranger)
Creation : Created by law or by operation of law
Created by mere agreement of the parties
Number of incorporators : Requires at least five incorporators
May be organized by at least two persons
Commencement of juridical personality : Acquires juridical personality from the date of issuance of
acquires juridical personality from the moment of the certificate of incorporation by the Securities and
execution of the contract of partnership Exchange Commission
Powers : Corporation can exercise only the powers expressly
Partnership may exercise any power authorized by the granted by law or implied from those granted or incident to
partners its existence
Management : vested in the board of directors or trustees
When management is not agreed upon, every partner is
an agent of the partnership
Term of existence : corporation may not be formed for a term in excess of 50
any period of time stipulated by the partners years extendible to not more than 50 years in any one
instance

RULES TO DETERMINE EXISTENCE OF PARTNERSHIP (ART 1769)

1. GENERAL RULE: Persons who are not partners as to each other are not partners as to third persons.
EXCEPTION: partnership by estoppel
2. Co-ownership of a property does not itself establish a partnership, even though the co- owners share in
the profits derived from the incident of joint ownership.
3. Sharing of gross returns alone does not indicate a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which the returns are derived.
4. Receipt of share in the profits is a strong presumptive evidence of partnership. However, no such
inference will be drawn if such profits were received in payment:
(a) As a debt by instalments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
d) As interest on a loan, though the amount of payment vary with the profits of the business; and
(e) As the consideration for the sale of a goodwill of a business or other property by instalments or
otherwise

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 CLASSIFICATION OF PARTNERSHIP
1. as to object:
a) universal partnership
i. universal partnership of all present property
ii. universal partnership of profits
b) particular partnership
2. as to liability of partners:
a) general partnership
b) limited partnership
3. as to duration:
a) partnership at will
b) partnership with a fixed period
4. as to legality of existence:
a) de jure partnership
b) de facto partnership
5. as to representation to others:
a) ordinary or real partnership
b) ostensible or partnership by estoppel
6. as to publicity:
a) secret partnership
b) notorious or open partnership
7. as to purpose:
a) commercial or trading
b) professional or non-trading

UNIVERSAL PARTNERSHIP
1. A universal partnership of all present property is one wherein the partners contribute all the property
which actually belong to them to a common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire therewith
2. A universal partnership of profits is one which comprises all that the partners may acquire by their
industry or work during the existence of the partnership and the usufruct of movable or immovable
property which each of the partners may possess at the time of the celebration of the contract
PARTICULAR PARTNERSHIP
A particular partnership is one which has for its object determinate things, their use and fruits, or a
specific undertaking, or the exercise of a profession or vocation
GENERAL PARTNERSHIP
A partnership consisting of general partners who are liable pro rata and subsidiarily and sometimes
solidarily with their separate property for partnership debts
LIMITED PARTNERSHIP
One formed by two or more persons having as members one or more general partners and one or
more limited partners, the latter not being personally liable for the obligations of the partnership

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PARTNERSHIP AT WILL
A partnership wherein no time is specified and is not formed for a particular undertaking or venture and
which may be terminated at any time by mutual agreement of the partners, or by the will of anyone
partner alone; or one for a fixed term or particular undertaking but has been continued by the partners
after termination of such term or particular undertaking without express agreement
PARTNERSHIP WITH A FIXED TERM
A partnership wherein the term for which the partnership is to exist is fixed or agreed upon or one
formed for a particular undertaking, and upon the expiration of the term or completion or the particular
enterprise, the partnership is dissolved, unless continued by the partners
OTHER KINDS OF PARTNERSHIP
De Jure Partnership- one which has complied will all the legal requirements for its establishment.
De Facto Partnership- one which has failed to comply with all the legal requirements for its
establishment.
Ordinary or real partnership- one which actually exists among the partners and also as to third persons
Open or notorious partnership- one whose existence is avowed or made known to the public by the
members of the firm.
.Commercial or trading partnership- one formed for the transaction of business.
.Professional or non-trading partnership- one formed for the exercise of a profession

CLASSIFICATION OF PARTNERS
1. as to CONTRIBUTION:
a) Capitalist partner- one who contributes money or property to the common fund.
b) Industrial partner- one who contributes only his industry or personal service
2. as to LIABILITY:
a) General partner- one whose liability to third persons extends to his separate property, he may either
be a capitalist or industrial partner.
b) Limited partner- one whose liability to third persons is limited to his capital contribution
3. as to MANAGEMENT:
a) Managing partner- one who manages the business or affairs of the partnership; he may be
appointed in the articles of partnership or after constitution of the partnership.
b) Silent partner- one who does not take any active part in the business although he may be known to
be a partner.
c) Liquidating partner- one who takes charge of the winding up of the partnership affairs upon
dissolution
Miscellaneous:
a) Ostensible partner- one who takes active part and known to the public as a partner in the business,
whether or not he has actual interest in the firm
b) Secret partner- one who takes active part in the business by is not known to be a partner by outside
parties nor held out as a partner by the other partners.
c) Dormant partner- one who does not take active part in the business and is not known or held out as
partner

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 Capitalist Partner Industrial Partner

as to contribution contributes his industry (mental or physical)

contributes money or property
as to prohibition to engage in other business cannot engage in any business for himself
Cannot generally engage in the same or similar
enterprise as that of his firm
as to profits receives a just and equitable share
shares in the profits according to agreement thereon;
if none, pro rata to his contribution
as to losses exempted as to losses (as between partners); but is
first, the stipulation as to losses; liable to third persons, without prejudice to
if none, the agreement as to profits; reimbursement from the capitalist partners
if none, pro rata to contribution

OBLIGATIONS OF PARTNERS AMONG THEMSELVES:

I. Obligation with respect to contribution of property
– To contribute what had been promised
– To answer for eviction in case the partnership is deprived of determinate property contributed
– To answer to the partnership for the fruits of the property the contribution of which is delayed, from the
date they should have been contributed to the time of actual delivery
– To preserve the property with the diligence of a good father of a family pending delivery to the
partnership
- To indemnify the partners for any damages caused to it by the retention of the same or by delay
in its contribution.
Obligations with respect to contribution of money and money converted to personal use
a. To contribute on the date due the amount he has undertaken to contribute to the partnership
b. To reimburse any amount he may have taken from the partnership coffers and converted to his own
personal use
c. To pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any
amount from the common fund and converted to his own personal use
d. To indemnify the partnership for the damages caused to it by the delay in the contribution or the
conversion of any sum for his personal benefit

Obligation Not to Engage in Other Business for Himself

Industrial partner- cannot engage in any business for himself unless the partnership expressly
permits him to do so. The other partners have the remedy of either excluding the erring partner from
the firm or of availing themselves of the benefits which he may have obtained.
Capitalist partner- The prohibition extends only to any operation which is of the same kind of
business in which the partnership is engaged unless there is a stipulation to the contrary

Obligation of Managing Partner who Collects Debt

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 Where a person is separately indebted to the partnership and to the managing partner at the same
time, any sum received by the managing partner shall be applied to the two credits in proportion to their
amounts, except where he received it entirely for the account of the partnership, in which case the whole
sum shall be applied to the partnership credit only

Requisites for the application of the rule

1. There exists two debts, one where the collecting partner is creditor, the other, where the partnership
is creditor
2. Both debts are demandable
3. The partner who collects is authorized to manage and actually manages the partnership
Obligation of Partner Who Receives Share in Partnership Credit
A partner who receives, in whole or in part, his share in the partnership, when the others have not
collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership
capital what he received even though he may have given receipt for his share only

Requisites for application of rule

1. A partner has received, in whole or in part, his share in the partnership credit
2. The other partners have not collected their shares
3. The partnership debtor has become insolvent

Obligation of Partner for Damages to Partnership

Every partner is responsible to the partnership for damages suffered by it through his fault. He cannot
compensate them with the profits and benefits which he may have earned for the partnership by his
industry

Duty to Render Information

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 of any partner under legal disability

Obligation to account for any benefit and hold as trustee unauthorized personal profits
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, liquidation of the partnership or form any use by him of its property

RIGHTS OF A PARTNER
1. Property rights of a partner
a. His rights in the specific partnership property
b. His interest in the partnership
c. His right to participate in the management

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 2. Right to reimbursement for amounts advanced to the partnership and to indemnification for risks in
consequence of management
3. Right to associate with another person in his share
4. Right of access and inspection of partnership books
5. Right to true and full information of all things affecting the partnership
6. Right to a formal account of partnership affairs under certain circumstances
7. Right to have partnership dissolved under certain conditions

RULES FOR DISTRIBUTION OFM PROFITS AND LOSSES

1. Distribution of profits
a. According to their agreement (but not iniquitously to defeat Art.1799)
b. If none,
1. Share of capitalist partner shall be in proportion to his capital contribution
2. Industrial partner shall receive such share as may be just and equitable under the circumstances
2. Distribution of losses
a. According to their agreement as to losses (but not inequitously to defeat Art.1799)
b. If none, according to their agreement as to profits
c. If none, in proportion to his capital contribution, but the purely industrial partner shall not be
liable for the losses

RULES FOR DISTRIBUTION OF PROFITS AND LOSSES

GENERAL RULE: A stipulation excluding a partner from any share in the profits or losses is VOID (Article
1799)
EXCEPTION: Article 1797(2) excludes an industrial partner from losses. Thus, a stipulation excluding an
industrial partner from losses is VALID, but he is NOT exempted from liability insofar as third persons
are concerned.
NOTE: In general, LIABILITY refers to responsibility towards third persons, and LOSSES refers to
responsibility as among partners

CONTRACT OF SUB-PARTNERSHIP
• One formed between a member of a partnership and a third person for a division of profits owing to
him from the partnership enterprise
• It is a partnership within a partnership distinct and separate from the main or principal partnership
NOTE: In the absence of unanimous consent of all the partners, a sub-partner does not become a member
of the partnership. Hence, a sub-partner does not acquire the rights of a partner nor is he liable for its
debts

PROPERTY RIGHTS OF A PARTNER

1. Right to specific partnership property
• contemplates tangible property
• The specific partnership property belongs to the partnership as a separate juridical personality. The

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 partners have no actual interest in it until after dissolution
2. Interest in the partnership
• Share in the profits and surplus
• A partner actually owns his respective share

Effects of conveyance by a partner of his interest in the partnership

1. conveyance of his whole interest –partnership may either remain or be dissolved
2. assignee does not necessarily become a partner
3. assignee cannot interfere in the management or administration of the partnership business or affairs
4. assignee cannot demand information, accounting and inspection of the partnership books

Remedies of separate judgment creditor of a partner

• Application for a charging order after securing judgment on his credit to subject the interest of the
debtor partner with payment of unsatisfied amount of the judgment debt

MANAGEMENT OF PARTNERSHIP
When the manner of management has been provided for in the partnership agreement
A. When a managing partner has been appointed
1. Appointment in the articles of partnership
a. Power is irrevocable without just or lawful cause
i. to remove him for JUST cause, vote of partners representing controlling interest is necessary
ii. to remove him without just cause or for an UNJUST cause, there must be unanimity including his
own vote
b. Extent of power
i. if he acts in good faith, he may do all acts of ADMINISTRATION, despite opposition of his partners
ii. if in bad faith, he cannot
2. Appointment other than in the articles of partnership
a. Power to act may be revoked at any time, with or without just cause
b. Extent of power: as long as he remains manager, he can perform all acts of administration,
but if others oppose and he persists, he can be removed

When two or more managing partners have been entrusted with the management of partnership
1) Without specification of their respective duties and without stipulation requiring unanimity of action
GENERAL RULE: Each managing partner may execute all acts of administration EXCEPTION: If any of the
managing partners should oppose
a. Decision of the majority of the managing partners shall prevail
b. In case of a tie, decision of the partners representing the controlling interest shall prevai

2. With stipulation requiring unanimity of action

GENERAL RULE: Unanimous consent of all the managing partners shall be necessary for the validity of the
acts and absence or inability of any managing partner cannot be alleged

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EXCEPTION: When there is an imminent danger of grave or irreparable injury to the partnership, partner
may act alone without the consent of the partner who is absent or under disability
When manner of management has not been agreed upon
a) All partners shall be considered managers and agents
b) Unanimous consent required for alteration of immovable property

OBLIGATIONS OF PARTNERS TO THIRD PERSONS

I. Liability for contractual obligations (ART 1816)
1. All partners, including industrial partners, are personally liable with all their property. Their
individual liability is pro rata and subsidiary, unless otherwise stipulated
2. Liability of partnership for acts of partners
a) Acts for apparently carrying on in the usual way the business of the partnership
GENERAL RULE: Act binds the partnership
EXCEPTION: Partnership is bound if:
 acting partner has in fact no authority and
 the third person knows that the acting partner has no authority
b. Acts of Strict Dominion or Ownership (acts which are not apparently for carrying on in the usual way the
business of the partnership)
GENERAL RULE: Act does not bind the partnership
EXCEPTION: Partnership is bound if:
• the act is authorized by all the partners; or
• they have abandoned the business
c. Acts in contravention of a restriction on authority
i. Partnership is not liable to third persons having actual or presumptive knowledge of the restrictions

Liability arising from partner’s tort (ART1822) or Breach of Trust (ART 1823)
1. Where, by any wrongful act or omission of any partner acting in the ordinary course of business of the
partnership or with authority of his co-partners, loss or injury is caused to any person, not being a
partner in the partnership (Article 1822)
2. Where one partner, acting within the scope of his apparent authority, receives money or property of a
third person and misapplies it (Article 1823)
3. Where the partnership, in the course of its business, receives money or property and it is misapplied
by any partner while it is in the custody of the partnership (Article 1823)
NOTE: All partners are solidarily liable with the partnership for any penalty or damage arising from a
partnership tort or breach of trust

Criminal liability of partnership

• Partnership liability does not extend to criminal liability where the wrongdoing is regarded as individual
in character. But where the crime is statutory, especially when it involves a fine rather than
imprisonment, criminal liability may be imposed

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PRINCIPLE OF DELECTUS PERSONARUM
A rule inherent in every partnership wherein no one can become a member of the partnership without the
consent of all the partners.
NOTE: This element of delectus personae is true only in case of a general partner, but NOT as regards a
limited partner

MUTUAL AGENCY
• Partnership is a contract of “mutual agency”, each partner acting as a principal on his own behalf, and
as an agent of his co-partners and the partnership

Requisites When a Partner Binds the Partnership

1. when he is expressly or impliedly authorized
2. when he acts in behalf and in the name of the partnership

PARTNERSHIP BY ESTOPPEL
Arises when a person, by words spoken or written or by conduct, represents himself or consents to
another representing him to anyone, as partner in an existing partnership, or with one or more persons
not actual partners; he is liable to any such person to whom such representation has been made, who
has, on the faith of such representation given credit to the actual or apparent partnership. (Art 1825)

DISSOLUTION
Change in the relation of the partners caused by any partner ceasing to be associated in carrying on
the business. (Article 1828)
It is the point in time when the partners cease to carry on the business together. It represents the
demise of a partnership

WINDING UP
Process of settling the partnership business or affairs after dissolution

TERMINATION
Point in time when all partnership affairs are wound up or completed and is the end of the partnership
life
CAUSES OF DISSOLUTION
1. Extrajudicial dissolution (ART 1830) - the parties may agree to expand the grounds provided under
Art 1830 but NOT to delimit them. The causes enumerated are as follows:
a. Without violation of the agreement between the partners
i. By the termination of the definite term or particular undertaking specified in the agreement
ii. By the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified
iii. By the express will of all the partners who have not assigned their interest or suffered them

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 to be charged for their separate debts, either before or after the termination of any specified term or
particular undertaking
iv. By the expulsion of any partner from the business bona fide in accordance with such power
conferred by the agreement between the partners
b. In contravention of the agreement between the partners, where the circumstances do nor permit a
dissolution under any other provision of this article by the express will of any partner at any time
c. By any event which makes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership
d. When a specific thing, a partner had promised to contribute, perishes before its delivery. Or where the
partner only contributed the use or enjoyment of the thing and has reserved ownership thereof, its loss,
before or after delivery dissolves the partnership
e. By the death of any partner
f. By the insolvency of any partner or the partnership
g. By the civil interdiction of any partner

Judicial dissolution (ART 1831)

• when so decreed by the court, the presiding judge may place the partnership under receivership and
direct an accounting to be made towards winding up the partnership affair

•On application by or for any partner, the court shall decree a dissolution whenever :
a. A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind
b. A partner becomes in any other way incapable of performing his part of the partnership contract
c. A partner has been guilty of such conduct as tend to affect prejudicially the carrying on of the business
d. A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership business that it is not reasonably practicable to
carry on the business in partnership with him
e. The business of the partnership can only be carried on in a loss
f. Other circumstances render a dissolution equitable

•On application of the purchaser of a partner’s interest under Article 1813 or 1814
a. After the termination of the specified term or particular undertaking
b. At any time if the partnership was a partnership at will when the interest was assigned or when the
charging order was issued

EFFECTS OF DISSOLUTION
A. As to partner’s authority to act for the partnership
GENERAL RULE: Dissolution terminates all authority of any partner to act for the partnership
EXCEPTIONS:
1. Acts necessary to wind up partnership affairs
2. Acts necessary to complete transactions begun but not then finished
Note: Thus, dissolution terminates the ACTUAL authority of a partner to undertake NEW business for the

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partnership

RIGHTS OF A PARTNER UPON DISSOLUTION

1. Where dissolution is NOT in contravention of the partnership agreement
a. To have partnership property applied to discharge partnership liabilities
b. To receive in cash his share of the surplus
2. Where dissolution is in contravention of the partnership agreement
a. Rights of a partner who has not caused the dissolution wrongfully
 To have partnership property applied to discharge partnership liabilities
 To receive in cash his share of the surplus
 To be indemnified for damages caused by the partner guilty of the wrongful dissolution
 To continue the business in the same name during the agreed term of the partnership, by themselves
or jointly with others
B. Rights of a partner who has wrongfully caused the dissolution
1. If the business is not continued by the other partners
i. To have partnership property applied to discharge partnership liabilities
ii. To receive in cash his share of the surplus less damages caused by his wrongful dissolution

2. If the business is continued

 To have the value of his interest in the partnership at the time of the dissolution, surplus less damages
caused by his wrongful dissolution to his co-partners, ascertained and paid in cash or secured by a
bond approved by the court; AND
 To be released from all existing and future liabilities

RIGHTS OF A PARTNER WHERE PARTNERSHIP CONTRACT IS RESCINDED ON THE GROUND OF

FRAUD OR MISREPRESENTATION
1. Right of LIEN on, or RETENTION of, the surplus of partnership property after satisfying partnership
liabilities for any sum of money paid or contributed by him
2. Right of SUBROGATION in place of the partnership creditors after payment of partnership liabilities;
and
3. Right of INDEMNIFICATION by the guilty partner against all debts and liabilities of the partnership

MANNER OF WINDING UP
 Extrajudicial – by the partners themselves without the intervention of the court
 Judicial – under the control and direction of the court upon proper cause shown by any partner, his
legal representative or his assignee

PERSONS AUTHORIZED TO WIND UP

1. partners designated by the agreement
2. in the absence of such agreement, all partners who have not wrongfully dissolved the partnership
3. legal representative of last surviving partner not insolvent

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ORDER OF PAYMENT IN WINDING UP
 General Partnership (ART 1839 (2))
a. those owing to creditors other than partners
b. those owing to partners other than for capital or profits
c. those owing to partners in respect of capital
d. those owing to partners in respect of profits
 Limited Partnership (ART 1863)
a. those owing to creditors, except those to limited partners on account of their contribution, and to
general partners
b. those owing to limited partners in respect of their share of the profits and other compensation by
way of income
c. those owing to limited partners in respect of their capital contributions
d. those owing to general partners other than for capital and profits
e. those owing to general partners in respect of profits
f. those owing to general partners in respect of capital

DOCTRINE OF MARSHALLING OF ASSETS (Article 1839(8))

1. Partnership creditors have preference in partnership assets
2. Separate or individual creditors have preference in separate or individual properties
3. Anything left from either goes to the other
PARTNER’S LIEN
• Right of every partner to have the partnership property applied to discharge partnership liabilities AND
to have the surplus assets, if any, distributed in cash to the respective partners, after deducting what
may be due to the partnership from them as partners
LIMITED PARTNERSHIP
• One formed by two or more persons having as members one or more general partners and one or
more limited partners, the latter not being personally liable for partnership debts
Characteristics of Limited Partnership
1. Limited partnership is formed by substantial compliance in good faith with the statutory requirements
2. One or more general partners control the business and are personally liable to creditors
3. One or more limited partners contribute to the capital and share in the profits but do not participate in
the management of the business and are not personally liable for partnership obligations beyond the
amount of their capital contributions
4. The limited partners may ask for the return of their capital contributions under the conditions
prescribed by law
5. The partnership debts are paid out of the common fund and the individual properties of the general
partners
MANAGEMENT OF LIMITEDPARTNERSHIP
• A general partner in a limited partnership is vested with the entire control of the firm’s business and
has all the rights and powers and is subject to all the liabilities and restrictions of a partner in a general

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 partnership
• A general partner in a limited partnership however has no authority, without written consent or
ratification of all limited partners, to:
1. Do any act in contravention of the certificate;
2. Do any act which would make it impossible to carry on the ordinary business of the partnership
3. Confess judgment against the partnership;
4. Possess partnership property, or assign their rights in specific partnership property, for other that a
partnership purpose;
5. Admit a person as a general partner
6. Admit a person as a limited partner, unless the right to do so is given in the certificate
7. Continue the business with the partnership property on the death, retirement, insanity, civil interdiction
or insolvency of a general partner, unless the right to do so is given in the certificate
• A limited partner is liable as a general partner for the firm’s obligations if he takes part or interferes in
the management of the business

RIGHTS OF A LIMITED PARTNER

1. To have the partnership books kept at the principal place of business of the partnership
2. To inspect, at a reasonable hour, partnership books and copy any of them
3. To demand true and full information of the things affecting the partnership
4. To demand a formal account of the partnership affairs whenever circumstances render it just and
reasonable
5. To ask for dissolution and winding up by decree of court
6. To receive a share in the profits or other compensation by way of income provided: that the partnership
assets are in excess of partnership liabilities after such payment
7. To receive the return of his contribution provided:
a. All the liabilities of the partnership have been paid OR the partnership assets are sufficient to pay
partnership liabilities
b. The consent of all the members (general and limited partners) has been obtained
c. The certificate is cancelled or so amended as to set forth the withdrawal or reduction

LIABILITIES OF A LIMITED PARTNER

Liability for unpaid contribution
a. For the difference between his contribution as actually made and that stated in the certificate as having
been made; AND
b. For any unpaid contribution which he has agreed in the certificate to make in the future at the time and
the conditions stated in the certificate
Liability as trustee
a. Specific property stated in the certificate as contributed by him, but which was not contributed or which
has been wrongfully returned; AND

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b. Money or other property wrongfully paid or conveyed to him on account of his contribution

SUBSTITUTED LIMITED PARTNER

A person admitted to all the rights of a limited partner who has died of has assigned his interest in the
partnership
GENERAL RULE: He has all, the rights and powers, and is subject to all the restrictions and liabilities of his
assignor.
EXCEPTION: Those liabilities which he was ignorant at the time he became a limited partner AND which
could not be ascertained from the certificate

REQUISITES IN ORDER THAT THE ASSIGNEE MAY BECOME A SUBSTITUTED LIMITED PARTNER
1. All the members must consent to the assignee becoming a substituted limited partner, OR the limited
partner, being empowered by the certificate must give the assignee the right to become a limited partner
2. The certificate must be amended in accordance with Art.1865
3. The certificate as amended must be registered in the Securities and Exchange Commission

ALLOWABLE TRANSACTIONS OF ALIMITED PARTNER

– Being merely a contributor to the partnership is not prohibited from:
1. granting loans to the partnership
2. transacting other business with the partnership
3. receiving a pro rata share of the partnership assets with the general creditors if he is NOT also a
general partner

PROHIBITED TRANSACTIONS OF A LIMITED PARTNER

1. receiving or holding as collateral security any partnership property; or
2. receiving any payment, conveyance, or release from liability if it will prejudice the partnership creditor
 Violation of the prohibition will give rise to the presumption that it has been made to defraud partnership
creditors
 The prohibition is NOT ABSOLUTE, there is no such prohibition if the partnership assets are sufficient
to discharge partnership liabilities to persons not claiming as general or limited partners

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