CAUSES FOR JUDICIAL DISSOLUTION – Art 1831
DISSOLUTION AND WINDING UP
• Dissolution - is a change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on as distinguished from the winding
up of the business . Examples: retirement, death, or admission
LIABILITY CREATED BY ANY PARTNER AFTER DISSOLUTION
Requirements of Art. 1833
a)dissolution is caused by act, death or insolvency
• Winding up – is the process of settling business affairs after dissolution; it
involves the collection and distribution of partnership assets, payment of
debts, etc.
b) partner acted for the partnership without any knowledge of the dissolution
c)effect: other partners shall be held liable
• Termination – is the point in time after all the partnership affairs have been
wound up
INSTANCES WHEN PARTNER CAN BIND DISSOLVED PARTNERSHIP TO 3RD
PERSONS
EFFECTS OF DISSOLUTION
Requirements of Art. 1833
•
Partnership not terminated, but continues until the winding up
•
Not automatically the termination of the legal personality
•
Partnership continues for a limited purpose
•
Transaction of new business is not allowed
a) dissolution is caused by act, death or insolvency
b) partner acted for the partnership without any knowledge of the dissolution
c)effect: other partners shall be held liable
Notice of dissolution to creditors – partnership not liable if creditors have
knowledge of the dissolution
CAUSES FOR EXTRAJUDICIAL DISSOLUTION
2
EXISTING LIABILITY OF ANY PARTNER
Kinds of Dissolution -> Extrajudicial – Art. 1830 and Judicial – Art. 183
No violation of the
agreement
*Expiration – continue
(PAW – Art. 1785)
*Express will of any
partner – must be in good
faith; if not, liable for
damages
*Express will of all
partners (no strings
attached) - voluntary
Involuntary
*Violation of the agreement
*Partner expressly withdrawing in bad faith
*Liable for damages
*Unlawful of the business
*Loss of specific thing – if not specific check
Art. 1786 and 1788; determine time of loss;
determine the nature of contribution
*Death of any partner
*Insolvency of any partner – must be
adjudged by a court
*Civil interdiction – cannot validly give
consent
*By decree of court under the ff article
•
Dissolution does not discharge the existing liability of a partner
•
A partner may be relieved from all existing liabilities by an agreement to
that effect bet. Himself, the partnership creditor, and other partners
•
Liability of estate of deceased partner – the estate shall be liable for all
obligations of the partnership incurred while he was a partner
WINDING UP
*It may be done either judicially or extrajudicially
*Persons authorized to wind
a) the partners designated by the agreement
b) if no agreement, all the partners who have not wrongfully dissolved
the partnership
c) legal representative of the last surviving partner
d) the court appointed receiver
Powers of liquidating patner
a) make new contracts – limited for one specific purpose – winding up
b) raise money to pay partnership debts
c) incur obligations to complete existing contracts or preserve
partnership assets
a) if partnership not continued by others, to have the partnership
property applied to discharge its liabilities and to receive in cash his
share of the surplus less damages caused by his wrongful dissolution
b) if the business is continued:
i) to have the value of his interest in the partnership at the time of the
dissolution to his co-partners, ascertained and paid in cash or secured
by bond approved by the court
ii) to be released from all existing and future liabilities of the partnership
d) incur expenses necessary in the conduct of litigation
PAYMENT
•
Rights where dissolution not in contravention of agreement
a) to have the partnership property applied to discharge the liabilities of
the partnership
b) to have the surplus, if any, applied to pay in cash the net amount
owing to the respective partners
•
PARTNERSHIP CONTRACT RESCINDED
•
Rights of the injured partner are the ff:
•
a) right of a lien on, or retention of, the surplus of partnership
property after satisfying partnership liabilities for any sum of money
paid or contributed by him
•
b) right to subrogation in a place of partnership creditors after
payment of partnership liabilities
•
c) right of indemnification by the guilty partner against all debts and
liabilities of the partnership
Rights where dissolution in contravention of agreement
A. rights of partner who has not caused the dissolution wrongfully:
a) to have partnership property applied for the payment of its liabilities
and to receive in cash his share of the surplus
RULES IN SETTLING ACCOUNTS – Art 1839
b)to be indemnified for damages caused by the partner guilty of
wrongful dissolution
CASES WHEREIN CREDITORS OF THE DISSOLVED PARTNERSHIP ARE
ALSO CREDITORS OF THE PERSON/PARTNERSHIP CONTINUTING THE
BUSINESS – Art 1840
c) to continue the business in the same name during the agreed term of
the partnership, by themselves or jointly with others
d) to possess partnership property should they decide to continue the
business
•
Right of partner who has wrongfully caused the dissolution:
BUSINESS IS CONTINUED BUT NO SETTLEMENT OF ACCOUNTS
•
The retiring partner or legal rep. of the deceased partner shall have
the right:
1) to have the value of the interest of the retiring partner or deceased
partner in the partnership ascertained as of the date of retirement or
death
2) to receive thereafter, as an ordinary creditor, an amt = to the value of
his share in the dissolved partnership with interest, or , at his option, in
lieu of interest, the profits attributable to the use of his right
ARTICLE 1842
•
Liquidation is necessary for determination of partner’s share
•
Liquidation is not required when there is settlement or an
agreement as to what he shall receive
LIMITED PARTNERSHIP
See Article 1843
•
Composed of two classes of partners; limited and general
•
Exception to Article 1816, has the same type of liability as
stockholder in a corporation
Characteristics of limited partnership:
i.
Formed by compliance w/ the statutory requirements
ii.
1 or more general partners control the business and are personally
liable to creditors
iii.
1 or more limited partners contribute to the capital and share in the
profits, but do not participate in the mgmt. of the business and not
liable beyond the amt of their capital contri
iv.
Limited partners may ask for the return of their capital
contributions under the conditions prescribed by law
v.
Partnership debts are paid out of common fund and individual
properties of the general partners
vi.
Difference bet. a general partner/partnership and a limited
partner/partnership
REQUIREMENTS FOR FORMATION OF A LIMTED PARTNERSHIP
See Article 1844
Two essential requirements for the formation
i.
Certificate or articles of the limited partnership
ii.
Such certificate must be filed for record in the SEC
•
The filing constitutes as notice to any potential creditors or persons
dealing with the partnership
•
Compliance required: substantial compliance in good faith
LIABILITY FOR FALSE STATEMENT IN CERTIFICATE
•
Example:
C, a limited partner, appeared as a general partner in the
certificate/AOP.
Question? What is the treatment? General or Limited?
Answer: General partner to innocent 3rd persons who relied on the
certificate. Co-partners w/ knowledge of the falsity will be held liable
GENERAL PARTNER IN A LIMITED PARTNERSHIP
RETURN OF CONTRIBUTION OF LIMITED PARTNER
•
•
Similar to general partnership/ acts of administration except 1 to 7
of Art. 1850
•
No power to bind the limited partners beyond the latter’s
investment
•
No power to act for the firm beyond the purpose and scope of the
partnership
•
No authority to change the nature of the business w/out consent of
the limited partners
NOT REALLY A LIMITED PARTNER
•
Article 1852
•
If a person erroneously believes himself/herself to be a limited
partner, he/she may be exempted from liability as a general
partner, provided:
1. On ascertaining the mistake, he promptly renounces his interest in
the profits of the business or other compensation by way of income
2. His surname does not appear in the partnership name
3. He does not participate in the mgmt. of the bus.345
Limited partner may dissolved the partnership:
1. his demand for the return of his contribution is denied
2. when his contribution is not paid although he is entitled to its return
because the other liabilities of the partnership have not been paid or
the partnership property is insufficient for their payment
Note: regardless of his contribution, limited partner has only the right to
demand and receive cash in return of his contribution
LIABILITIES OF A LIMITED PARTNER
Liability for unpaid contribution
1. Difference bet. his contribution as actually made and that stated in
the certificate
2. Unpaid contribution w/c he/she agreed in the certificate to make in
the future
Liability as trustee
1. Specific property stated in the certificate as contributed by him but w/c
s/he had not contributed
BUSINESS TRANSACTIONS W/ LIMITED PARTNERSHIP
2. Specific property of the partnership w/c had been wrongfully returned to
him/her
•
3. Money wrongfully paid or conveyed to him on account of his contribution
•
Limited partner is not prohibited granting loans to the partnership,
transacting other business w/ it, and receiving a pro rata share of
the partnership assets w/ general creditors of he is not also a gen.
partner
The limited partner is considered as a non-partner creditor. But, 3rd
persons enjoy preferential rights insofar as partnership assets are
concerned
4. Other property wrongfully paid or conveyed to him on account of his
contribution
5. Liabilities of a limited partner may be waived, provided:
6. Consent of all members
7. Does not prejudice partnership creditors who extended credit or whose
claims arose before the cancellation or amendment of the certificate
8. Please read Art. 1859 - 1866