1. Partnership – According to the partnership code of the Philippines, Title IX of the Civil Code of the
Philippines, a partnership 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.” Two or more persons may also form a partnership for the exercise of
a profession.
2. Characteristics of a Partnership
o Separate legal existence – A partnership can also be defined as an artificial being created
by operation of law. This results in partnerships having juridical personalities separate
and distinct from their owners. In other words, Property acquired by the partnership
belongs to the partnership not to the individual partners.
o Mutual agency – the acts of a partner are binding on a partnership even though he or she
has no authority to do so as long as the act concerns the normal business operations of
the partnership.
o Unlimited liability – Even though a partnership has separate legal existence, partners are
still liable for debts and obligations that cannot be paid by partnership assets.
o Limited life – The life of a partnership can be easily ended through partnership dissolution
(withdrawal/admission of partners) or liquidation (ceased operations).
o Co-ownership of partnership property – Once a partner has contributed his or her money
and/or property, it does not belong to him or her anymore. The contributed money and
property belong to the partnership and the partners only have a proportionate share of
partnership assets.
o Partnership agreement – The definition provided by the law states that a partnership is a
contract. Contracts are perfected through oral or written agreement.
3. Advantages and Disadvantages of a Partnership
Advantages
Disadvantages
 Easier to create than a corporation
 Unlimited liability
 Better ability to acquire additional
 Mutual agency
capital than sole proprietorships
 Limited life
 Larger pool of human capital than sole
proprietorships
4. Distinguish between Partnership and Corporation
5. Classifications of Partnerships and the different kinds of partners
o General Partnership - the most basic form of partnership. It does not require forming a
business entity with the state. In most cases, partners form their business by signing a
partnership agreement. Ownership and profits are usually split evenly among the
partners, although they may establish different terms in the partnership agreement.
o Limited partnership – Limited partnerships (LPs) are formal business entities authorized
by the state. At least one partner has unlimited liability and at least one partner has
limited liability.
 Limited partners – partners having limited liability
 General partners – partners having unlimited liability
o Limited Liability Partnership – a type of partnership that aims to protect innocent partners
from the malpractice and wrongdoings of other partners. This kind possesses multiple
insurance claims to protect the partners.
 It’s mostly used by individuals forming a partnership for the practice of a
profession (e.g., lawyers, accountants, medical professionals, auditors).
o Limited Liability Company – have features of both a corporation and a partnership. Unlike
the limited partners in a limited partnership, members of a limited liability company can
participate in management without losing the limited liability protection.
 The owners are called “members” and they enjoy limited liability.
6. Compare Sole Proprietorship and Partnerships
Sole Proprietorship
Partnerships
 Owned by a single person
 Owned by 2 or more individuals
 The sole proprietor is responsible for
 The partners are equally responsible
all the losses and profits caused.
for all the losses and profits caused.
 Less risk of internal conflict
 Risk of being held accountable
because of other partners’ actions.
7. Know the difference between Capital and Drawing accounts




Capital account
Capital refers to the money or assets
invested into a business by its owners
When capital is brought into the
business, cash or a non-cash asset
account is debited and capital
account is credited.
inflow of resources
increase in the value of both capital as
well as assets of the business entity




Drawing account
Drawings refer to the money
withdrawn from a business by its
owners for their personal use.
When cash or some other asset are
withdrawn from the business,
drawings account is debited and cash
or a non-cash asset account is
credited.
outflow of resources
deduction in the value of both capital
and assets of the entity.
References:
Florendo, J. G. (2016). Fundamentals of Accountancy, Business, and Management 1. Manila: Rex Book
Store, Inc.
https://www.scribd.com/document/292648395/Corporation-vs-Partnership