TITLE 16 - INVESTIGATIONS, OFFENSES AND PENALTIES
Under the new RCC, the power of the SEC has been strengthened and were
adopted based on the power of the US SEC to strengthen it and to make it
more powerful. So that it can effectively, regulate corporation here in the
Philippines.
In the US, their SEC is very powerful. So kinakatakutan siya ng mga
businesses. However, the SEC in the Philippines it is not sure if it will
exercise its power just like the US SEC, but it is authorized to do so. But the
problem is if the SEC will do it or not. The law of the Philippines is very
good, but they are having difficulties in executing them or implementing
them.
Section 154 – Investigation and Prosecution of offenses
This provision expressly grants the SEC the power to investigate an alleged
violation of the Code, or of a rule, regulation, or order of the SEC, whose
findings, order, or opinions may be published subject to data privacy law.
The SEC is granted the power to investigate an alleged violation of the RCC,
the rule or the regulation that is issued, or any publish opinion of it.
It can punish any individual or corporation for violating any rule, but it must
comply with the due process. It cannot just impose any offense without notice
and giving an opportunity for the defendant to present its evidence to defend
itself.
Section 155 – Administration of Oaths, Subpoena of witness and
documents
A. The SEC is authorized to administer oaths.
Yung SEC is authorized to administer oaths where in mag-require
ng isang tao na magtake ng oath.
Ano ba ang reason if you are taking an oath?
If you lied after taking an oath, you can be liable for the crime of perjury
Taking an oath is very important otherwise, you can be criminally liable if
you lied.
In the Philippines, people who are taking an oath is still lying. Sa Pilipinas
nag take ka na ng oath tapos pag dating sa husgado as witness nag
sisinungaling parin. For instance, there are some public officials were found
to be committing perjury just like President Estrada he was made liable for
the crime of perjury by the Sandigan Sayan.
In the US, perjury is kinatatakutan, if the person takes an oath, they should
take it very seriously. It is a serious crime.
Perjury – The purposeful telling of a lie while under oath to tell the truth in a
matter a person is called to testify for. The purposeful telling of a lie on a
written document that is submitted to the court as a testimony of evidence
B. Subpoena – it is the document that requiring you to attend a
hearing or an investigation by a government agency.
You can be cited for contempt if you didn’t follow the subpoena.
Subpoena: legal document that commands a person or entity to testify as a
witness at a specified time and place (at a deposition, trial, or other hearing),
and/or to produce documents or other tangible objects in a legal proceeding.
Contempt of court: failure to obey a lawful order of a court, showing
disrespect for the judge, disruption of the proceedings through poor behavior,
or publication of material or non-disclosure of material which in doing so is
deemed likely to put a fair trial at risk.
C. The power of SEC is that it can take testimony and can conduct
an investigation.
If you are under oath, and you lied during the investigation of SEC, you can
be liable for perjury. Then if you don’t follow the subpoena, may
pinapadalang dokumento which is subpoena duces tecum (tapos hindi mo
dinala), they will sue you a contempt for not following the order of the SEC.
How about if they are requiring you to attend hearing and you didn’t come,
then it is the violation of the issuance of subpoena ad testificandum.
Subpoena Duces Tecum – a Latin term translates to “under penalty, you
shall bring with you.” doesn’t require any oral testimony or deposition at
trial. Instead, it requires the named party to produce the necessary evidence
or documents to an attorney or the courthouse before proceedings begin.
Typically, subpoenas duces tecum are used to gather things like:
• Medical records
• Ownership deeds
• Computer files
• Contracts
• Books
• Bank statements
• Accounting records
Subpoena Ad testificandum - a court order commanding a person to appear
in court to testify as a witness. Where in it require oral testimony in court.
The SEC through a designate office may do the following (4):
a. Administer oaths and affirmations.
b. Issue subpoena and subpoena duces tecum.
c. Take testimony in any inquiry or investigation, and
d. Perform other acts necessary to the proceedings or
investigation.
Section 156 – Cease and Desist Order
The SEC is authorized to issue cease and desist orders, directing such person
to desist from committing the act constituting the violation, provided it has
reasonable basis to believe that a person has violated, or is about to violate
the RCC, a rule, regulation, or order of the SEC. It may issue cease and desist
order ex parte to enjoin an act or practice which is fraudulent or can be
reasonably expected to cause significant, imminent, and irreparable danger
or injury to public safety or welfare valid for a maximum period of 20 days,
without prejudice to the order being made permanent after due notice and
hearing.
Power of SEC that they can authorize a person or a corporation from desisting
or to stop committing certain act if the SEC has reasonable basis to conclude
that this person or corporation, is violating the RCC for its rule or regulations
or any order.
Take note!
The SEC can issue a cease-and-desist order (CDO).
Ex parte (without notifying the corporation or the person who are accused to
be violating the RCC)
SEC can issue it if it is fraudulent, and it can be reasonably expected
the public injury and public safety will be affected if ex parte will not be
issued. And it will only be valid for a period of 20 days without prejudice to
the order being made permanent after due notice and hearing.
Ex parte – Latin term meaning "on behalf [of]." It refers to improper contact
with a party or a judge. It is a legal proceeding that are conducted without
notice to, without the presence of other parties affected by the proceeding.
Typically, ex parte proceedings are permitted only when a party needs urgent
assistance that cannot wait until the opposing party is informed of the request
and given an opportunity to respond.
GENERAL RULE: It was previously stated that the SEC can only punish a
person if it is with notice and hearing.
EXEMPTION: When there is CDO ex parte, especially when public injury
will be affected, then SEC can issue it immediately without notifying the
accused or the defendant.
EXAMPLE: If you will be going to give an opportunity to notify the
corporation, there is a possibility that the corporation can hide its money and
the government can no longer recover it. So CDO can used without notifying
the corporation or its corporate officers so that they can’t disposed the assets
of the corporation in the conduct of its investigation.
TAKE NOTE!
The CDO can be made permanent provided there is notice of hearing and
finding by the SEC that it will be for the best interest of the public.
Ex parte is issued without notifying the persons involved or the
corporation involved but its period is only up to 20 days, but it made be
permanent after noticing it.
Section 157 – Contempt
Contempt - the disobedience of an order of a court.
Contempt is that if you didn’t follow the order of the SEC, after requiring you
to attend to a court trial.
Failure or refusal to comply with any lawful order, decision, or subpoena
issued by the SEC shall held in contempt and fined, an amount not exceeding
P30,000.00. When the refusal amounts to clear and open defiance of the SEC
order, decision or subpoena, the SEC may impose a daily fine of P1,000.00
until the order, decision, or subpoena is complied with.
EXAMPLE: SEC said that the corporation should let other people to buy
shares, but you didn’t follow the order and you didn’t let them buy the shares
then, you are cited for contempt with an amount of not exceeding 30,000.
Now if it a clear defiance, for instance, pinapakita talaga ng corporation or
the corporate officers na wala silang pakialam sa SEC, they can be required
to pay 1,000 daily fines until order is complied with.
Section 158 – Administrative Sanctions
This provision authorizes SEC to impose any or all of the following
sanctions, taking into account the extent of participation, nature, effects,
frequency and seriousness of violation (4):
A. Imposition of fine ranging from P5,000 to P2,000,000, and not
more than P1,000.00 for each day of not compliant provided it will
not exceed 2M continuing violation but in no case to exceed
P2,000,000.00.
B. Issuance of a permanent cease and desist order. CDO can be made
permanent after notice of hearing
C. Suspension or revocation of the certificate of incorporation; and
D. Dissolution of the corporation and forfeiture of assets.
Take note that imposition of fines and penalties can only be made after due
notice and hearing with the determination that the corporation violated
provisions of the RCC, rules or regulations, or orders of SEC.
The asset of the corporation can be confiscated by the SEC provided it is only
after due of notice and hearing
The provision of section 158 cannot be committed by the SEC without notice
and hearing and it very important to always after notice and hearing to give
due process on the part of the corporation and corporate officers.
Section 159 – Unauthorized use of corporate name, penalties
This imposes a penalty ranging from P10,000.00 to P200,000.00 for the
unauthorized use of corporate name.
Using corporate name that is already existing with other corporation and they
know to themselves that they are copying the name of other corporation name,
they can be made liable for that penalty or file an 10K – 200K.
Section 160 – Violation of disqualification provision, penalties
A fine ranging from P10,000.00 to P200,000.00, at the discretion of the court
shall be imposed on any director, trustee or officer who willfully holds office
despite the knowledge of the existence of a ground for disqualification as
provided in Section 26 of the RCC, or willfully conceals such disqualification.
In addition, this provision shall permanently disqualify those individuals
from sitting as director, trustee, or officer of any corporation.
However, when the violation is detrimental or injurious to the public, the
penalty shall be a fine ranging from P20,000.00 to P400,000.00.
EXAMPLE: In section 160, the person is prohibited from becoming a
director if he was a judge (to declare or pronounce to award or assign
judicially) with the final judgement with the imprisonment of more than 6
years and such disqualification shall remain 5 years for final judgement and
the corporation elect that person to be director after obtaining number of the
highest votes at pang 3rd year palang from the final judgement nung ma elect
siya bilang BOD. So, this is violation of disqualification provision. Hence,
they can be made liable for a fine ranging from 10K-200K on the discretion
of the regional trial court to the director, trustee or officers who lawfully
knows that he is disqualified but took oath or even though it was not known
he conceal such fact, hindi niya pinagpaalam, in this case the director, trustee
or officers will permanently be disqualified from extra holding position in
any corporation here in the PH.
However, when the violation is detrimental or injurious to the public, the
penalty shall be a fine ranging from P20,000 to P400,000.
- Therefore, if it is damaging the public interest the penalty is higher.
Section 161 – Violation of duty to maintain records, to allow their
inspection or reproduction, penalties
Section 162 penalizes submitting incomplete reports or lying wherein hindi
totoo yung mga nilalagay sa sinubmit, in this case the person who signed the
certificate or report knowing it is incomplete, erroneous (inaccurate), or
misleading they shall be fine ranging from 20K-200K and if it is injurious to
the public, it can be fine ranging from 40K- 400K.
Section 163 – Independent auditor collusion, penalties
Under this provision, penalizes unjustified failure or refusal by the
corporation, or by the those responsible for keeping and maintaining
corporate records, to comply on inspection and reproduction of records, with
a fine of P10,000 to P200,000 at the discretion of the court, taking into
consideration the seriousness of violation.
If the violation is injurious or detrimental to the public, a fine ranging from
P20,000 to P400,000 shall be imposed. However, this is without prejudice to
the imposition by SEC of contempt to the corporation.
If the corporation failed to maintain corporate books or it didn’t allow the
inspection of its book or any reproduction, there is also corresponding penalty
under section 161. Any person responsible for keeping or maintain the
corporate books who failed to maintain it or didn’t allow the inspection, they
shall be made liable for 10K-200K.
If it is injurious to the public, it is 20K-400K. Without prejudice (biases), it
means that the SEC can also impose a penalty of contempt. So may fine ka
na babayaran sa halagang 20K-400K. Pwede ka pang kasuhan ng SEC ng
contempt.
Injurious - To interfere with the legally protected interest of another or to
inflict harm on someone, for which an action may be brought.
Section 162 – Willful certification of incomplete, inaccurate, or
misleading statements or reports, penalties
This provides a penalty to any person who willfully certifies a report knowing
that the same contains, incomplete, inaccurate, false, or misleading
information or statement, with a fine ranging from P20,000.00 to
P200,000.00. When the wrongful certification is injurious or detrimental to
the public a fine ranging from P40,000.00 to P400,000.00 shall be imposed.
As to independent auditors who certifies the corporation’s financial
statements despite its incompleteness or inaccuracy, they shall be punished
with a fine ranging from P 80,000 to P500,000.
Moreover, when the statements or report certified is fraudulent or has the
effect of causing injury to the general public, the auditor may be punished
with a fine ranging from P100,000 to P600,000.
Independent auditors are being hired by the corporation so that they can
validly show the true fiscal position of the corporation. Kailangan totoo yung
mga nilalagay nila at kung hindi totoo ang mga nilalagay nila, they can be
punished with fine ranging from 80K-500K.
If it is injurious to the public, it can be fine ranging from 100K-600K.
Section 164 – Obtaining corporate registration through fraud,
penalties.
Individuals responsible for the formation of a corporation, through fraud, or
who assisted directly or indirectly therein, shall be punished. The fine shall
range from P200,000.00 to P2,000,000.00. If the violation is injurious or
detrimental to the public, the fine shall range from P400,000.00 to
P5,000,000.00.
How about if the corporation obtain its registration through fraud?
What will be the penalties?
EXAMPLE: yung mga pinaglalagay nila is hindi totoo, yung AOI nila ay
peke, or wala naman pala silang treasurer or corporate secretary and hindi
pala mga totoong tao then the fine shall range from 200K-2M. And if its
injurious to the public, it shall range from 400K-5M.
Section 165- Fraudulent conduct of business, penalties
Fraudulent business transactions and conduct shall be fined from
P200,000.00 to P2,000,000.00. When the violation is injurious or detrimental
to the public, the penalty shall be from P400,000.00 to P5,000,000.00.
Ito yung mga panloloko sa publiko, for instance yung mga corporation na na
engaged sa networking na hindi naman pala totoo at tumatanggap ng
investment ng mga tao, in this case they can be fine ranging from 200K-2M
and if it is injurious to the public, it can be fine 400K-5M. We are punishing
here the conduct of fraudulent business practices.
Section 166 – Acting as Intermediaries for graft and corrupt practices,
penalties
A corporation that allows itself to be used for fraud, or for committing or
concealing graft and corrupt practices shall be specifically liable for a fine
ranging from P100,000 to P5,000,000.
Concealing - tinatago, it its being used to conceal a crime, dito dinedeposit or
dinadala yung mga nakaw na yaman. Dito din pinaparada yung mga bribe sa
public officials, the assets that were received by public officials through
corruption under RA 3019. Wherein dito pinapark sa corporation as a capital
contribution or buying/subscription of shares.
Republic Act 3019 - “public officers” as including elective and appointive
officials and employees, permanent or temporary, whether in the classified
or unclassified or exempt service receiving compensation, even nominal,
from the government as defined in the preceding subparagraph.
If there is prima facie evidence of corporate liability under Section 166,
and there was a finding any directors, officer, agents, or representatives
are engaged in graft and corrupt practices, and the corporation’s failed
to install (2):
A. Safeguard for the transparent and lawful delivery of services; and
B. Policies, code of ethics, and procedure against graft and corruption.
There is prima facie evidence of corporate liability if directors, officer,
agents, or representatives are engaged in graft and corrupt practices.
-
If they failed to install safeguard for the transparent delivery of
services; and to provide policies, code of ethics or code of conduct
to combat graft and corruption.
Prima facie – there is a presumption (of liability), and it should be used as a
disputable proof (panglaban) that there is no liability on the part of the
corporation. So, kung walang evidence na ma pe-present yung corporation
(mag papatunay na hindi siya liable), the assumption is the corporation is
liable for being used as a vehicle for graft and corruption. Thus, there is a
proof that it is committing graft and corruption (pag hindi na present yung
prima facie). Kasi kapag hindi mag pe-present ng evidence ang corporation.
That prima facie evidence shall be used as evidence against them (dahil hindi
nila napatunayan na hindi sila liable).
Prima facie - a legal claim has sufficient evidence to proceed to trial or
judgment.
If there is special provision in the law saying that the corporation should be
liable for the commission of graft and corrupt practices.
EXAMPLE: R.A 3019 of Anti-Graft and Corrupt Practices Act. Then the
liability shall be same from prima facie.
If a corporation used for fraud, or for committing or concealing graft and
corrupt practices as defined under pertinent statutes, shall be specifically
liable for a fine ranging P100,000 to P5,000,000.
Section 167 – Engaging intermediaries for graft and corrupt practices,
penalties
As to appointing an intermediary who engage in graft and corrupt practices
for the corporation’s benefit or interest, it provides that a fine ranging from
P100,000 to P1,000,000 shall be imposed.
When the corporation use an intermediary or a middleman to gain access.
EXAMPLE: government office nag lalagay sila ng mga tao doon. Usually in
government contracts, gumagamit sila connection sa loob ng government
office para maka kuha sila ng kontrata. Thus, that intermediary or middleman
who engage in graft and corrupt practices for the corporation shall be fine
ranging from P100,000 to P1,000,000.
Section 168 – Tolerating Graft and corrupt practices
This identifies that a director, trustee, or officer who knowingly fails to
sanction, report, or file the appropriate action with proper agencies, allows or
tolerates the graft and corrupt practices or fraudulent acts committed by a
corporation’s directors, trustees, officers, or employees shall be punished
with a fine of P500,000 to P1,000,000.
If a director, trustee, or officer knowingly fails to sanction, report, or file the
appropriate action with proper agencies, thus, allowing graft and corrupt
practices or fraudulent acts then that director, trustee, or officer shall be
punished with a fine of P500,000 to P1,000,000.
EXAMPLE: In Facebook, a whistleblower woman. Sinabi niya in US senate
committee here na yung Facebook hindi cinocombat yung fake news. Dahil
raw mas kumikita ang Facebook sa mga fake news. And if the Facebook, for
instance it is domestic corporation under the Philippine laws. If tinanggal ni
Facebook yung whistle blower na iyon or pinressure, then the court shall
punish Facebook with a fine ranging from P100,000 to P1,000,000.
RCC gave the legal meaning of whistleblower it is a person who provides a
truthful information relating to the commission or possible commission of
any offense or violation under the RCC.
Section 170 – Other violations of the RCC, Separate liability
This blanket provision specially declares that violations of any other
provisions of the RCC or its amendments not otherwise punished shall be
punished thru a fine of not less than P10,000 but not more than P1,000,000.
EXAMPLE: Alam nung director/trustee/officer na yung corporation or yung
employee ng corporation ay gumagawa ng graft and corruption. Pero, they
did not report it to SEC or DOJ or worse they did not punish the said
employees that are committing graft and corrupt practices. Then that director,
trustee, or officer shall be liable of P500,000 to P1,000,000.
Any violation of provisions of the RCC or its amendments shall be fined not
less than P10,000 but not more than P1,000,000.
Section 169 – Retaliation against whistleblowers
In the event that the offender is a corporation, the provisions provides that the
penalty may be imposed upon said corporation and its directors, trustees,
shareholders, members, officers and even employees found to be responsible
for the violation or indispensable to its commission.
Any person who, knowingly and with intent to retaliate, commits acts
detrimental to a whistleblower such as interfering with the lawful
employment or livelihood of the whistleblower, shall at the discretion of the
court, be punished with a fine ranging from P100,000 to P1,000,000. This is
a first time defining the meaning of whistleblower, which provides truthful
information relating to the commission or possible commission of any
offense or violation under the RCC.
This is a special protection that was introduced by the RCC. It is protecting
the whistleblowers.
Whistleblowers – person within the corporation who reports a wrong of
corporation to an appropriate government agency. Nag susumbong ng mga
mgaling gawain ng corporation sa mga government agency.
Section 171 – Liability of Directors, Trustees, Officer, or other
employees
If the corporation was found to be responsible for the violation of the offense
the employees shall be liable also. So if the corporation was found to be in
violation, directors, trustees, shareholders, members, officers and even
employees should also be found to be responsible. Parang they will be
considered as a accompany in the commission of the punishable acts. It is
like the criminal law wherein yung mga tumulong can also be punished.
Section 172 – Liability of Aiders, and abettors and other secondary
liability
TITLE 17 – MISCELLANEOUS PROVISIONS
Section 173 – Outstanding capital stock
Kung ano yung punishment nug mismong gumawa nung violation, yung mga
tumulong doon pweding same sila ng marerecieve na punishment or pwedi
ring lower than doon sa mismong gumawa nung violation. It depends on the
discretion/judgment of the court.
An individual shall be punished with a fine not exceeding that imposed
on the principal offenders, for the commission of the following acts (6):
A. Aid.
B. Abet.
- A and B - encourage or assist someone to commit (a crime).
EXAMPLE: we are aiding and abetting this illegal traffic
C. Counsel.
- Nag advice ng maling gawain
D. Command.
- Inutusan gumawa ng mali
E. Induce.
- Napilit gumawa ng mali
F. Cause any violation of the provisions of the RCC, or any rule,
regulation, or order of the SEC.
- Or kahit anong act na naka violate sa provisions ng RCC or any
order of SEC.
Letter A to F, shall received a fine but not exceeding doon sa mismong
nag kasala.
Outstanding capital stock - total shares of stock issued by the corporation.
Either under binding subscription contracts to subscribers or stockholder,
whether fully or partially paid, except as treasury shares.
Section 174 – Designation of Governing boards
This provision allows non-stock or special corporations to designate their
governing boards by any other name other than that as board of trustees. Thus,
some institutions may designate their governing boards as board of regents.
Corporations, whether non-stock or special corporations allows their
governing to be called by any other name other than that as board of trustees.
So, kung non-stock or special corporations ka, you are allowed to have a
governing board other than board of trustees. For instance, yung nakalagay
“Council of Elders” yung nag ma-manage or nag se-set ng policies.
Is it allowed na yung iba manage nung corporation?
Yes, dahil hindi lang naman specifically na board of trustees yung name na
allow ng board ng ating batas.
Section 175 – Collection and use of registration, incorporation, and
other fees
SEC is allowed to collect fees for incorporation and registration.
The penalty shall be imposed at the discretion of the court, after taking into
account their participation in the offense.
So, the primary consideration in Section 172 is what is the participation of
the person: namilit, tumulong, nag-advice, o umutos para magawa yung
violation, then yung discretion/judgement na ipapataw is dependent on the
court. But let’s assume that discretion must not be subject to grave abused,
otherwise, it’ll be subject to court of appeals and supreme court.
This provision now authorizes the SEC to collect, retain, and use fees, fines,
and other charges pursuant to the provisions of the RCC and its rules and
regulations.
The amount collected shall be deposited and maintained in a separate
account which shall form a fund for its modernization and to augment
its operational expenses such as, but not limited to the following (7):
A. Capital outlay.
- SEC may collect fees to acquire, maintain, repair, or upgrade their
capital asset such as machinery, equipment, land, facilities, or other
business necessities to make improvements.
-
-
-
B. Increase in compensation and benefits comparable with
prevailing rates in the private sector.
This is being used for their operation and to provide compensation
for their employees’ para ma ka match ng nasa mga private sectors,
syempre dahil mas mataas ng konti yung sa private sector.
C. Reasonable employee allowance.
Yung other part ng nakokolekta nilang fees through incorporation
and registration can be given allowance to their employees such as
their lawyers, CPA, examiners, administrative officers, secretaries,
etc.
D. Employee health care services, and other insurance.
As well as to provide benefits like health insurance (HMO).
HMO or Health Maintenance Organization: a healthcare delivery
system that most employees are entitled to use as part of the benefit
they receive from their employers.
-
E. Employee career advancement and professionalization.
Also, seminars specially in government, as an employee if your
work is quite technical, you’re being sent abroad to attend seminars.
-
F. Legal assistance, seminars; and
Same with different sectors of civil society, they might also be sent
to other places to attend seminars.
G. Other professional fees.
Section 177 – Reportorial requirements of corporations
It requires every corporation both domestic and foreign shall submit to
the SEC the following (3):
A. Annual report of its operations, or commonly called as General
Information Sheet (GIS).
- General Information Sheet: names, addresses, number of shares held
of the shareholders.
income statement, balance sheet, and
B. Audited Financial Statement. :statement
of cash flows
C. Other requirements that may be required by the SEC.
The SEC also requires corporations to submit to it any changes in the
prescribed period from such change.
Section 178 – Visitorial power and confidential nature of examination
This provision explicitly provides that all interrogatories and answers thereto,
as well as the results of any examination of the operations, books, and records
of any corporation, shall be kept strictly confidential, except insofar as the
law may require the same to be made public or are necessary to be presented
as evidence before any court.
SEC is authorized to examine the operations, books, and records of the
corporation, provided it is kept confidential, insofar as they necessary to
protect the public interest or public good. SEC may examine the books and
records specially if there is a need to present them in court of law or justice,
particularly if gagawing evidence.
Section 176 – Stock ownership in corporations
Domestic corporation – corporation organized under Philippine laws.
SEC may not publish it to the public, since may mga corporate secrets iyan.
And it will be prejudicial to the corporation if ipagkakalat yon.
How do we determine whether a corporation is Filipino owned
(domestic) or Foreign owned?
By doing nationality test. If 60 percent of the capital stock with voting rights
is owned by Filipinos.
EXCEPT: if kailangan talagang sabihin sa publiko.
The nationality test must only be applied to the total number of outstanding
shares entitled to vote. Thus, the 60 percent Filipino ownership requirement
shall be applied only to class of shares with voting rights.
The SEC is the government agency created and tasked to oversee and regulate
the operations of domestic as well as licensed foreign corporation in the
country. As such, it is the instrumentality of the government having
responsibility over the full implementation of the RCC.
Section 179 – Powers, functions and jurisdiction of the SEC
-
Has full responsibility in implementation and interpretation of the
RCC.
The RTC, court of appeals, and supreme court shall give due consideration
on interpretation of SEC when it comes to RCC.
Why RTC, court of appeals, and supreme court shall give due
consideration on interpretation of SEC when it comes to RCC?
Because SEC is the main government agency that is tasked the RCC that is
why ni re-respect ng husgado yung interpretation ng SEC when it comes to
RCC.
settling
ARBITRATION IS VERY INTERESTING! It is now the trend in setting
disputes in Philippines and most specially in western countries. Gusto nilang
mapabilis ung settlement ng dispute.
Specially kasi kapag nag file ka ng kaso sa husgado, matagal ang process.
So, under section 181, the AOI may:
Section 180 – Development and implementation of electronic filing and
monitoring system
Arbitration agreement may be provided in the AOI or by-laws of a
corporations. The following rules shall be observed (7):
A. Dispute resolution – when an agreement is in place, disputes
between the corporation, its shareholders, or members, which arise
from the implementation of the AOI or by-laws, or from intracorporate relations shall be referred to arbitration. A dispute shall be
non-arbitrable when it involves criminal offenses and interests of
third parties.
- So, under section 181, the AOI: can provide a dispute resolution
which is settled through arbitration.
The law mandates the SEC shall develop and implement an electronic and
monitoring system, promulgate rules to facilitate and expedite, among others,
corporate name reservation and registration, incorporation, submission of
reports, notices, and documents required under this law and sharing of
pertinent information with other government agencies.
EXAMPLE: I want to sue AYALA corporation and may nakalagay sa AOI
na hindi ako pweding mag demanda agad, dapat mag appoint muna ako ng
arbitrator kapag may ayaw ako sa AYALA corporation. Then, AYALA
corporation will also appoint one arbitrator. Then the two arbitrators will
appoint a third arbitrator.
ACCESIBILITY: SEC shall endeavor to implement an electronic and
monitoring system para hindi na pumupunta yung employees ng corporation
na may need i-file na document sa SEC. Gusto ng congress through electronic
means nalang or digitalized.
What is the purpose of arbitration of dispute?
Mas mapa bilis ang pag settle ng dispute, walang corruption, at mas
confidential yung proceedings.
But if there is a conflict in the implementation of RCC, the court must defer
to SEC, considering it is the main government agency tasked to implement it.
There are some intances kasi na kapag pupunta pa physically or personally
sa SEC, pipila pa wherein doon nag s-start yung corruption and red tape. Yun
yung iniiwasan ng congress.
Section 181 – Arbitration for corporations
Corporation are also allowed to provide their AOI that incase of conflict
among shareholders or among the shareholders and corporation. The court of
law will not take the case but rather the parties either between corporation or
shareholders or among the members of non-stock corporation may appoint
arbitrators.
Take Note! Criminal offenses are not subject to arbitration. Because it can
be against the public policy if you will arbitrate criminal offenses.
B. The agreement shall be binding on the corporations, its directors,
trustees, officers, and managers.
- Arbitrators - render a decision and it shall be binding on the parties
whether it is shareholders versus the corporation or among members.
C. To be enforceable, the arbitration agreement should indicate the
number of arbitrators and the procedure for their appointment.
- Minsan, isa lang yung arbitrators for both parties, jointly yung
pipiliin ng mag kalaban na conflict/parties: between corporation or
-
shareholders or among the members of non-stock corporation or
shareholder vs. shareholder.
Pwedi din naming, meron silang arbitrator na tig isa kada parties.
Tapos yung arbitrator’s ng each party, pweding mag appoint ng third
arbitrary member.
D. The power to appoint the arbitrators forming the arbitral tribunal
shall be granted to a designated independent third party. If the
parties failed to appoint the arbitrators, the parties may request the
SEC to arbitrators. In any case, the arbitrators must be accredited or
must belong to organizations accredited for the purpose of
arbitration.
E. The arbitral tribunal shall have the power to rule on its own
jurisdiction and on questions relating the validity of the arbitration
agreement.
F.
The arbitral tribunal shall have the power to grants interim measures
necessary to ensure enforcement of the award, prevent a miscarriage
of justice, or otherwise protect the rights of the parties; and
G. A final arbitral award under this provision shall be executory after
fifteen days from receipt thereof by the parties and shall be stayed
only by the parties filing a bond or the issuance by the appellate
court of an injunctive writ.
Section 184 – Effect of amendment or repeal of the RCC
No right or remedy in favor of or against any corporation, its shareholders,
members, directors, trustees, or officers, nor any liability incurred by any
such corporation, shareholders, members, directors, trustees, or officers, shall
be removed or impaired either by the subsequent dissolution of said
corporation or by any subsequent amendment or repeal of the RCC or any
part thereof.
Section 185 – Applicability to existing corporations
Corporations are granted two years to comply with any new requirements
under the RCC.
So, all the existing corporation nung 2019 are given a 2-year period (until
2021) to comply with the new requirements.
A corporation lawfully existing and doing business in the Philippines affected
by the new requirements of this Code shall be given a period of not more than
two (2) years from the effectivity of this Act within which to comply.
Section 186 – Separability clause
If any provision of this Act is declared invalid or unconstitutional, the other
provisions hereof which are not affected thereby shall continue to be in full
force and effect.
Section 187 – Repealing clause
-
There will be a decision by arbitral tribunal, and it shall be also
considered as judgement by the court, and it shall also be the
executor.
Section 182 – Jurisdiction over party-list organizations
Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the
Philippines”, is hereby repealed. Any law, presidential decree or issuance,
executive order, letter of instruction, administrative order, rule, or regulation
contrary to or inconsistent with any provision of this Act is hereby repealed
or modified accordingly.
Jurisdiction over the party-list organization shall be transferred to the
COMELEC.
Section 188 – Effectivity
Section 183 – Applicability of the RCC
Take note! Bangko Sentral ng Pilipinas (BSP) and Insurance Commission
(IC) shall exercise primary authority over special corporation such as banks,
non-bank financial institutions, and insurance companies.
The RCC shall take effect upon publication in Official Gazette or in two
newspapers of general circulation.
The law was signed into law by President Duterte on February 20, 2019.
Partnership
One of the components of LAWED 2 is partnership
Partnership – a contract whereby two or more persons bind themselves to
contribute money, property, or industry ( you can contribute either of the
three) to form to a common fund, with the intention of dividing the profits
among themselves.
The intention in forming a partnership is to contribute it to a common fund,
your contribution, and in that endeavor or in that undertaking, you obtain a
profit (kumita kayo), you must divide it among yourselves/shares
What is the reason why business is entered to an end?
Is to engage in an endeavor or undertaking in a business. That is the
purpose of partnership.
h.
Intent to create partnership essential.
The intent in every partnership is important because there are some
situations that the partners are no intentions to have a partnership. It
may only be a temporary transaction. Kaya dapat kung makikipag
agree ka or you are entering to a contract even a transaction, the
intention is always to form a partnership and not merely a simple or
isolated transaction.
Essential elements of partnership:
Agreement to contribute money, property or industry to a common
fund (mutual contribution to a common stock); and
b. Intention to divide the profits among the contracting parties (joint
interest in the profits)
Common stock is a security that represents ownership in a corporation
A joint venture involves two or more businesses pooling their resources
and expertise to achieve a particular goal
Characteristics of Partnership: (difference with other Contracts) (8)
Partnership is a kind of a contract; it is a contract with special name.
a. Bilateral – it is entered into by two or more persons and the rights
and obligations arising therefrom a reciprocal; it is a bilateral
contract because it has two or more persons who agree that they
must contribute something, and it must be in a common fund.
b. Onerous – each of the parties aspires to procure for himself a
benefits through the giving of something; Onerous because you
must give or contribute something
c. Nominate – it has a special name or designation in our law.
d. Consensual – perfected by mere consent; it is a consensual contract
because for it to be perfected, there must be a consent among the
parties.
e. Commutative – undertaking of each of the partners is considered as
the equivalent of that of the others; each of the partner is considered
to be equivalent, theres no superior
f. Principal – its life does not depend on the existence of another
contract; its existence does not depend to another contract
g. Preparatory – it is entered into as a means to an end, that they
engage in business.
Fiduciary – it is based on trust and confidence. It is fiduciary in
character because it is entered into trust and confidence. And
sometimes, a partnership is dissolved, because there is no longer
trust and confidence among the partners.
a.
Common Fund
A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or loses that they may
arise, even if it is shown that they have not contributed any capital of their
own to a common fund. Their contribution maybe in the form of credit or
industry.
There must be a common fund because it is used to pursue a business and to
divide the profits.
If there is a loss, they should be shoulder by all the partners who contributed
to that common fund.
Share in Profits and Losses:
The essence of partnership is to share in the profits and losses.
Rules to determine existence of partnership:
a.
(4)
Persons who are not partners as to each other are not also partners
to as to third persons. Kung hindi kayo partners bilang kayo lang,
then sa public, sa ibang tao, you will not also be considered as
partners.
b.
c.
d.
Co-ownership / co- possession does not itself establish a partnership.
Example: May minana yung mga magkakapatid sa kanilang tatay.
Does it mean that there was already a partnership that was
created among the siblings?
NO, because it says that the co-ownership or co – possession does
not itself establish a partnership.
Sharing of gross returns does not of itself establish partnership. Ito
yung naghati kayo sa kita it merely an isolated transaction or a
onetime transaction.
Receipt of a person share in the profits is prima facie evidence that
he is a partner, however this rule shall not apply when payment is
for: Debt, Wages, Annuity, Interest, Consideration for sale. Kung
nakatanggap siya ng kanyang parte sa kita, there is a prima facie
evidence that he is a partner. However, if the money that was
received is a debt, a wage, sweldo or mana or interest sa utang, or
bayad sa pagbente ng isang property then it is not a partnership and
it cannot take as an evidence for the existence of a partnership.
Because there’s a legitimate reason why that person receive a share.
A prima facie case is a cause of action or defense that is sufficiently
established by a party's evidence to justify a verdict in his or her favor,
provided such evidence is not rebutted by the other party.
- Co-owners share in the profits derived incident to the joint ownership. Kaya
lang sila naghahati hati ng kita because it is merely merely incident to their
ownership. Aksidente lang pero in Partnership kaya kayo nakakatanggap
ng kita because there was a business that was conducted or that was engaged
by the partners.
- In partnership there is an existence of fiduciary relationship (a relationship
in which one party places special trust, confidence, and reliance in and is
influenced by another who has a fiduciary duty to act for the benefit of the
party) but in co-ownership, there is no fiduciary relation between the parties.
- In partnership, the remedy for dispute, kapag meron kayong away, you
either dissolve the partnership or you terminate the partnership. But in coownership, when there is a dispute, the remedy will be a nonperformance of
a contract. It will be an action to file a case against your co-owner to do
something.
-
a.
b.
c.
There is no intent to commit a partnership in a co-ownership. But
in partnership, there must be unmistakable (evidence that cannot
be misinterpreted and misunderstood,) it must be a clear intention to
have or to form a partnership.
Typical incidents of partnership:
The partners share in profits and losses
They have equal rights in the management and conduct of the
partnership business. Meron silang kanya kanyang karapatan sa
pagmamanage ng negosyo.
Every partner is an agent of partnership and entitled to bind the other
partners by his acts, for the purpose of its business. Kung ano yung
act niya na ginawa sa third person for example sinabi niya sa mga
tao nagbebenta kami ng bigas, kumuha siya ng order.
Does it bind the partners?
YES, because he is considered as the agent to the partnership.
d.
All partners are personally liable for the debts of the partnership with
their separate property except limited partners. Yan ang difference
ng partnership sa shareholders sa corporation. In a corporation,
the shareholder is not liable with regards to the liability or debts of
the corporation. Its liability is only up to the extent the shares that
he owns. But a partner, in partnership his separate property can
be made liable.
What is the exception of this rule?
If you are a limited partner, you are not liable up to the extent of
your separate property.
e.
f.
A fiduciary relationship exists between the partners.
On dissolution, the partnership is not terminated, but continues until
the winding of business of partnership is completed. Tulad lang yan
ng corporation. The business continues until the winding up.
2. Registered before SEC but the registration before the SEC is not
essential, for it to obtain as separate personality unlike a
corporation which requires registration before the SEC for it to
obtain a separate personality. In partnership registration, it is not
necessary to obtain separate personality.
NOTE: Even if partnership is not registered with SEC, the partnership is still
valid and possesses a distinct personality.
Real Property or real rights:
Any stipulation that excludes a partner in sharing from profits and losses shall
be valid. Dapat lahat ng partners nagaamabag sa loss, sa lugi at lahat ay may
parte sa kita or profit.
Exception: Industrial partner is not liable for losses. However, he is not
exempted from liability to third persons.
Partnership is formed by agreement of the parties.
1. It must be in a public instrument
2. With inventory signed by the parties and attached to the public
instruments.
3. Registered in the Registry of Property of the province where the real
property is found to bind the third persons. There must be also a registration
before the registry of deeds where the property is located or situated to bind
the third person para malaman ng ibang tao.
Formalities needed for the creation of partnership.
GENERAL RULE: No special form is required for its validity or existence.
Exception: If the property or real rights have been contributed to the
partnership.
Partnership is formed by agreement of the parties. And formalities needed for
the creation of partnership. And there is no specific form or document
required for its validity or existence. However, if the property that will be
contributed is a real property (lupa, building) or real right (Karapatan sa isang
real property) then it must be in a document which must be a public
instrument and it must be signed by the parties.
Limited Partnership- must be registered with SEC, otherwise the limited
partnership is not valid as limited partnership, hence the partners will be
considered as general partners. It must be registered before the SEC and there
must be atleast one limited partner and one general partner.
Partnership Term (hanggang kailan ba nageexist ang isang partnership)
It is one in which the term of its existence has been agreed upon by the parties
either:
a. Expressly – there is definite period; there is a definite date or period
kung kialan matatapos ang partnership.
b. Impliedly – a particular enterprise or transaction is undertaken. Pag
natapos na ang transaction or ang negosyo, matatapos na rin ang
partnership.
Personal Property:
a.
Less than P3,000 – may be oral agreement
EXAMPLE: ambag mo is pera or cellphone, it is a personal
property, it doesn’t require a document. Oral agreement will suffice.
b.
P3,000 or more
1. It must be in a public; ibig
agreement ninyo.
sabihn dapat notaryado yung
PLEASE NOTE that partners may fix a term in a partnership contract. Thus,
all partners are bound to remain for the duration of the said term. If the fixed
term has expired or there was a accomplishment of particular undertaking it
will result to automatic to automatic dissolution of the partnership. Partners
may fix a term in a partnership contract. Kaya lahat ng partners are required
to follow or to comply or to remain in the partnership during the partnership
term existence. If the partnership term has expired or there is an already
accomplishment, natapos na yung business transaction or business endeavor,
then it will result to the automatic dissolution of the partnership.
When does a partnership take effect?
The partnership contracts take effect upon the execution of the contract.
There is a partnership life already.
Partnership commences to exist upon the execution of the contract, in the
absence of stipulation of the date of effectivity of the said contract. The
effective date shall be the signing or execution of the contract.
Mayroon bang limit yung life ng partnership?
WALA. Like a corporation, it has no term limit or time limit.
There is no time limit prescribed by law for the life of partnership.
1.
1.
Liability of partners:
a. General Partnership – one where all partners are general partners who
are liable even with respect to their individual properties, after the assets
of the partnership have been exhausted. All partners are general partners,
and they are liable up to the extent of their separate property. When you
are a general partner, your personal assets or separate property can be
made liable but only upon in one condition kapag hindi sufficient
yung mga assets or properties ng partnership. Doon lang nila pwede
habulin yung mga personal propertiesor separate properties ni general
partner.
Classification of Partnership:
1. As to object
2. Liability of partners
3. Duration
4. Legality of Existence
5. Representation to others
6. Publicity
7. Purpose
b. Limited partnership – formed by 2 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. Ibig
sabihin si limited partner is only liable up to the extent of his
contribution. Their separate property will not be liable to the debts of
the partnership.
As to object:
a. Partnership at will – partnership for a particular undertaking or venture
which may be terminated anytime by mutual agreement. The existence
a partnership will be terminated anytime by agreement of all the
partners.
a. Universal Partnership – comprises of all property, including properties
which belongs to each partner at the time of the constitution of
partnership, and profits which may be acquired thereafter. All properties
are included that belongs to the partners and all profits that they will
obtain, they will be divided among them.
b. Particular Partnership – it is one which has for its object, determinate
things or specific undertaking or exercise of profession or vocation. The
reason for it is only for specific undertaking.
EXAMPLE: law firm lang kayo, or ang gagawin lang ninyo ay magbebenta
lang kayo ng lupa, that is what we call a particular partnership. Ma maliit ang
coverage ng particular partnership because it is only a simple or one object.
Specific reason why you form it at kasama na doon kung iilan lang yung
iaambag ninyo sa common fund.
2.
Duration
b. Partnership with a fixed period – term of which the partnership is to
exist is fixed or agreed upon or one formed for a particular undertaking.
The partnership will exist at a fixed date or agreed date at the time it
was formed.
EXAMPLE: Kung January 2025 ang nakalagay diyan, upon the arrival of
that date, the partnership will be dissolved and terminated.
3.
Legality of Existence
a.
De Jure Partnership – if a partnership comply with all the
requirements or all the requisites for its formation were complied
with.
b.
De Facto Partnership – not all the requisites for the formation of
the partnership are not complied.
4.
Representation to others
a.
Ordinary or Real Partnership – ibig sabihin totoo kayo na
partnership and you comply all the requirements for the formation
of the partnership, and you really exist, you are a business. You are
the court tract of partnership.
Ostensible or partnership by estoppel - when two or more
persons attempt to create a partnership but fail to comply with
the legal requirements, the law considers these persons as
partners. Because they represented themselves as a partner to the
public.
b.
c.
b.
5.
Publicity
a.
Secret Partnership – partnership that is not known to many but
only as to its partners. Parang M.U tinatago ninyo sa public. Kayo
lang dalawa nag may alam.
Notorious – it is known not only to the partners, but to the public
as well.
Any persons who intends to join a partnership should have the consent
of all the partners. (Principle of delectus personate)
In entering into a partnership, all of the partners consent should be
obtained. Kaya sa law firm, when you become a partner, there must be
unanimous consent (they all agree about one particular matter)
Kinds of Partners
a.
b.
c.
b.
d.
e.
6.
Purpose
a.
b.
Commercial – one formed for transaction of business.
Professional – one formed for the exercise of profession. It is not
for profit mainly it is because for the exercise of profession like
accounting firms or law firms these are the professional partnership.
f.
g.
h.
Notably, any person capacitated to contract may enter into a contract of
partnership.
EXCEPTIONS:
a. Persons who are prohibited from giving each other any donation
or advantage cannot enter into a universal partnership.
Example: a person which has a lawful wife, he cannot donate it to
his mistress. Hindi niya pwedeng gawing partner ang kanyang
mistress sa kanyang negosyo.
Persons suffering from civil interdiction those that were
imprisoned. They were forfeited their right to enter into a contract.
Persons who cannot give consent to a contract like minors,
insane persons, deaf mites who do not know how to write.
i.
j.
Capitalist – contributes money or property to the common fund.
Industrial – contributes only his industry or personal existence.
Skill or labor.
General – one whose liability to 3rd persons extends to his separate
or personal property. A partner who’s its separate property will
become liable to the partnership’s debts if the partnership’s asset are
insufficient to cover the debts.
Limited – one whose liability to 3rd persons is limited to his capital
contribution. His liability is up to the extent of his contribution.
Managing – the partner who manages the affairs or business of the
partnership. Siya yung innapoint ng mga partners na mag manage.
Liquidating – takes charge of the affairs of the partnership affairs
upon dissolution
Partnership by estoppel- is not really a partner but is liable as
partner for the protection of the innocent 3rd persons. Liable siya kasi
pinagsasabi niya na partner siya sa public.
Continuing Partner – continues the business of a partnership
after it has been dissolved by reason of admission of new partners,
retirement, death, or expulsion of one of the partners.
Example: ABC ay nagtayo ng partnership. Si C umalis na sa
partnership. Si A at B nagdecide na ipagpatuloy parin ang
partnership. Si A at B ang tinatawag nating continuing partners
because they decided to continue the partnership.
Surviving Partner – remains after a partnership has been
dissolved by death of any partner
Sub-Partner- is not a member of the partnership; contracts with a
partner with reference to the latter’s share in the partnership. Si
partner binigay niya ang kanyang shares sa ibang tao na hindi
partner at ang taong to ay tawag sa kanya ay sub partner as if the
share of the partner is being assigned to the 3rd person and we call
that 3rd person as a sub-partner.
k. Ostensible – takes active part and known to the public as partner in
the business. Active ang kanyang participation at alam ng mga
public.
l. Secret- takes active part in the business but is not known to be
partner by outside parties. Active ang participation pero di
pinapalam sa public ang knayang ginagawa
m. Dormant- do not take active part in the business and is not known
or held out as partner. Ito yung mga tamad but he is a partner pero
he only receives the shares of the prfits or contributes to the loss of
partnership.
NOTE: The reason why partnership dissolves or dissolution because of
withdrawal of the partner or death of the partner. Kaya kapag may
namatay doon sa partnership, madidisolve na at kapag ipinagpatuloy kahit
may namatay at nagwithdraw, this will consider a new partnership or a new
enity.
A partner has obligation arising:
a. Among themselves
b. To third persons
This obligation is based on trust and confidence of the partner since
partnership is grounded on the fiduciary relationship of the partners and as
well as third persons,
Difference between General Partner and Limited Partner
PARTNERSHIP
By: Attys. Ann Sophie Nepomuceno-Llagas
& Juan Paulo M. Nepomuceno
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. A
managing partner of a partnership may execute all acts of administration including the right to sue
debtors of the partnership in the case of their failure to pay their obligation when it becomes
demandable (Tai Tong Chuache and Co. vs Insurance Commission 158 SCRA 336)
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)
>A partnership contract which states that the partnership is established to operate a fish pond is
not rendered void because no inventory of the fishpond was made (where it did not clearly appear
in the articles of partnership that the real property had been contributed by anyone of the partners)
(Agad vs Mabolo Agad and Co. 23 SCRA 1223)
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 Php 3,000 pesos or more, in money or property, it shall
appear in a public instrument and must be recorded in the Securities and Exchange Commission. However, a
partnership has a juridical personality even if it fails to comply with this requirement.
Requisites:
1.
2.
3.
Intention to create a partnership
Common fund obtained from contributions
Joint interest in the profits
Essential features:
1.
2.
There must be a valid contract
The parties must have legal capacity to enter into the contract
>With regard to the legal capacity of contracting parties, individuals not legally incapacitated to contract
may enter into a contract of partnership. With respect to corporations, the Supreme Court held in Aurbach
vs. Sanitary Wares Manufacturing Corporation 180 SCRA 130, that although a corporation may not enter
into a partnership contract, it may however engage in a joint venture with others. A joint venture has been
generally understood to mean an organization formed for some temporary purpose.
3. There must be mutual contribution of money, property and industry to a common fund.
>A partnership of a civil nature was formed because Gatchalian and Co. put up money to buy a
sweepstakes ticket for the sole purpose of dividing equally the price which they may win as they did in fact
in the amount of Php50,000.00 (Gatchalian vs CIR 67 Phil 666)
>Where the father sold his rights over 2 parcels of land to his 4 children so they can build their residences,
but the latter after 1 year sold them and paid the capital gains, they should not be treated to have formed
an unregistered partnership and taxed corporate income tax on the sale and on the dividend income tax
on their shares of the profits from the sale (Obillos Jr. vs, CIR)
4. The object must be lawful; and
5. The primary purpose must be to obtain profits
PARTNERSHIP
CO-OWNERSHIP
As to creation: Always created by a
contract either express or implied
Generally created by law and may exist
without a contract
As to juridical personality: Has a juridical
personality separate and distinct from that
of each partner
Has no juridical personality
As to purpose: Realization of profits
Common enjoyment of a thing or right;
does not necessarily involve sharing of
profits
As to duration: No limitation
An agreement to keep the thing undivided
for more than 10 years is not allowed
Transfer of interests: A partner may not
dispose of his individual interest in the
partnership so as to make the assignee a
partner without unanimous consent.
A co-owner can dispose of his share
without the consent of the other
As to power to act with third persons: In the
absence of stipulation to the contrary, a
partner may bind the partnership
A co-owner cannot represent the coownership
As to dissolution: Death or incapacity of a
partner results in the distribution of
partnership
Death or incapacity of a co-owner does not
necessarily dissolve the co-ownership
As to Agency or representation: As a rule,
there is no mutual agency
As a rule, there is no mutual representation
(although it is enough for a co-owner to
bring an action for ejectment against s
stranger)
As to profits: May be stipulated upon
Must always depend upon proportionate
shares and any stipulation to the contrary is
void
As to form: May be in any form except
when real property is contributed
No public instrument is needed even if real
property is the object of the co-ownership
JOINT VENTURE
-It is hardly distinguishable from partnership since their elements are similar, i.e. community of interests 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 single transaction and is thus of temporary nature.
-In Kilosbayan Inc. vs Guingona Jr. 232 SCRA 110, the Court defined a joint venture as an association of persons or companies jointly
undertaking some commercial enterprise; generally all contribute assets and share risks. Its requisites are:
a.
b.
c.
A community of interest in the performance of the subject matter;
A right to direct and govern the policy in connection therewith;
Duty to share profits and losses
> Under the Civil Code, a partnership may be particular or universal, a particular partnership may have for its object a specific
undertaking. Hence, a joint venture may treated like any other contract, innominate in nature to be regulated and governed primarily by
the stipulations of the parties thereto and suppletorily by the general provisions of the Civil Code on obligations and contracts, by rules
governing the analogous contracts (i.e. law on partnership), and by customs of the place.
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-ownes 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 installments 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 installments or
otherwise
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.
b.
Partnership at will
Partnership with a fixed period
4. As legality of existence:
a.
b.
De jure partnership
De facto partnership
5. As to representation to others:
a.
b.
Ordinary or real partnership
Ostensible or partnership by estoppel
6. As to publicity:
a.
b.
Secret partnership
Notorious or open partnership
7. As to purpose
a.
b.
Commercial or trading
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.
>In a universal partnership of all present property, the property which belongs to each of the partners at the
time of the constitution of the partnership, becomes the common property of all the partners, as well as the
profits which they may acquire therewith.
>A stipulation for the common enjoyment of any other profits may also be made; but the properties which
the partners may acquire subsequently by inheritance, legacy or donation cannot be included in such
stipulation, except the fruits thereof
>Where the articles of partnership do not specify the nature of the universal partnership, whether it is one of
present property or of profits only, it will be presumed that the parties only intended a partnership of profits
Note: Future properties cannot be contributed. Thus, property subsequently acquired by (1) inheritance; (2)
legacy or (3) donation cannot be included by stipulation except the fruits thereof.
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.
>Movable or immovable property which each of the partners may possess at the time of the celebration of the
contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership
Note: Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal
partnership (Art. 739, Art 87 Family Code)
Profits acquired by their partners through chance (lottery) without employment of any physical or
intellectual efforts are not included.
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
PARTNERSHIP AT WILL-is one wherein no time is specified and is not formed for a particular
undertaking or venture and which may be terminated anytime by mutual agreement of the partners or by
the will of any 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-one wherein the term for which the partnership is to exist is fixed
of agreed upon or one formed for a particular undertaking, and upon the expiration of the term or
completion of the particular enterprise, the partnership is dissolved, unless continued by the partners.
OTHER KINDS OF PARTNERSHIP
1. De jure partnership-one which has complied with all the legal requirements for its establishment
2. De facto partnership-one which has not complied with all the legal requirements for its establishment
3. Ordinary or real partnership-one which actually exists among the partners and also as to third
persons
4. Ostensible partnership or partnership de facto-one which in reality is not a partnership but is
considered a partnership only in relation to those who, by their conduct or admission, are precluded
to deny or disprove its existence.
5. Secret partnership-one wherein the existence of certain persons as partners is not avowed or made
known to the public by any of the partners’
6. Open or notorious partnership-one whose existence is avowed or made known to the public by the
members of the firm
7. Commercial or trading partnership-one formed for the transaction of business
8. Professional or non-trading partnership-one formed for the exercise of profession
CLASSIFICATION OF PARTNERS
1.
a.
b.
As to contribution:
Capital partner-one who contributes money or property to the common fund
Industrial partner-one who contributes only his industry or personal service
2. As to liability:
a.
b.
General partner-one whose liability to third persons extends to his separate property, he may either be a capitalist or industrial partner
Limited partner-one whose liability to third persons is limited to his capital contribution
3. As to Management:
a.
b.
c.
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
Silent partner-one who does not take any active part in the business although he may be known to be a partner
Liquidating partner-one who takes charge of the winding up of the partnership affairs upon dissolution
4. Miscellaneous:
a.
b.
c.
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
Secret partner-one who takes active part in the business but is not known to be a partner by outside parties nor held out as a partner by the
other partners.
Dormant partner-one who does not take an active part in the business and is not known or held out as partner.
CAPITALIST PARTNER
INDUSTRIAL PARTNER
As to contribution: Contributes money or
property
Contributes his industry
As to prohibition to engage in other
businesses: cannot generally engage in the
same or similar enterprise as that of his
firm
Cannot engage in any business for himself
As to profits: (a) shares in the profits
according to agreement thereon; (b) if
none, pro rate to his contribution
Receives a just and equitable share
As to losses: (a) first, the stipulation to
losses; (b) if none, the agreement as to
profits; © if none, pro rata to contribution
Exempted as to losses (as between the
partners); but is liable to third persons,
without prejudice to reimbursement from
the capitalist partners
OBLIGATIONS OF PARTNERS AMONG THEMSELVES
1.
a.
b.
c.
d.
e.
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 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
2. Obligations with respect to contribution of money and money converted to personal use
a.
b.
c.
d.
To contribute on the date due the amount he has undertaken to contribute to the partnership
To reimburse any amount he may have taken from the partnership coffers and converted to his own
personal use
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
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
3. Obligation not to engage in other business for himself
a.
An 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.
Note: The prohibition is absolute and applies whether the industrial partner is to engage in the same business in which
the partnership is engaged or in any kind of business. It is clear that the reason for the prohibition exists in both cases, which is to
prevent any conflict of interest between the industrial partner and the partnership and to insure faithful compliance by said partner with
his prestation.
a.
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.
4. Obligation to Contribute Additional Capital
As a general rule, a capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute but in case of
an imminent loss of the business, and there is no agreement to the contrary, he is under obligation to contribute an additional share to
save the venture. If he refuses to contribute, he shall be obliged to sell his interest in the partnership to other partners.
5.Obligation of Managing Partner who collects debt
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:
a.
b.
c.
There exists two debts, one where the collecting partner is creditor, the other , where the partnership is
creditor
Both debts are demandable
The partner who collects is authorized to manage and actually manages the partnership
6. 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 of his share only.
Requisites for application of the rule:
a.
b.
c.
A partner has received, in whole or in part, his share in the partnership credit
The other partners have not collected their shares
The partnership debtor has become insolvent
7. 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.
8. Duty to Render Information
Partners shall render on demand true and full information of all things affecting the partnership to any partner or
legal representative of any deceased partner or any partner under legal disability.
9. Obligation to account for any benefit and hold as trustee unauthorized personal profits
RIGHTS OF A PARTNER
1.
a.
b.
c.
Property rights of a partner
His rights in the specific partnership property
His interest in the partnership
His right to participate in the management
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
Note: The 10 year period to demand an accounting by a partner begins at the dissolution of the partnership
7. Right to have partnership dissolved under certain conditions
RULES FOR DISTRIBUTION OF PROFITS AND LOSSES
1.
a.
b.
Distribution of Profits
According to their agreement (but not to defeat Art. 1799)
If none:
I. share of a capital partner shall be in proportion to his capital contribution
II. industrial partner shall receive such share as may be just and equitable under the circumstances
2. Distribution of losses
a.
b.
c.
According to their agreement (but not to defeat Art 1799)
If none, according to their agreement as to profits
If none, in proportion to his capital contribution, but purely industrial partners shall not become liable
General Rule: A stipulation excluding a partner from any share in the profits or losses is void (Art 1799)
Exception: Art. 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 refer to responsibility 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
2. Interest in the partnership
Effect of conveyance by a partner of his interest in the partnership
a.
b.
c.
d.
Conveyance of his whole interest-partnership may either remain or be dissolved
Assignee does not necessarily become a partner
Assignee cannot interfere in the management or administration of the partnership business or affairs
Assignee cannot demand information, accounting and inspection of the partnership books
3. Right to participate in the management
A.
I.
a.
When the manner of management has been provided for in the partnership agreement
When a managing partner has been appointed
Appointment in the articles of partnership
a.1 Power is irrevocable without just or lawful cause
a.2 Extent of power
-If he acts in good faith, he may do all acts of administration despite opposition of his partners. If in bad faith, he cannot
a.
Appointment other than in the articles of partnership
-Power to act may be revoked at any time, with or without just cause
II. When two or more partners have been entrusted with the management of partnership
a. Without specification of their respective duties and without stipulation requiring unanimity of action
General rule: Each managing partner may exercise all acts of administration
Exception: If any of the managing partners should oppose:
a.1 Decision of the majority of the managing partners shall prevail
a.2 In case of a tie, decision of the partners representing the controlling interest shall prevail
a. With stipulation requiring unanimity of action
General rule:Unanimous consent of all managing partners required
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
B. When manner of management has not been agreed upon
1. All partners shall be considered managers and agents
2. Unanimous consent required for alteration of immovable property.
OBLIGATIONS OF PARTNERS TO THIRD PERSONS
I.
1.
2.
a.
Liability for contractual obligations (Art. 1816)
All partners, including industrial partners, are personally liable with all their property. Their individual liability is pro rata and subsidiary, unless otherwise
stipulated
Liability of partnership for acts of partners
Acts for apparently carrying on in the usual way the business of the partnership
General rule: Act binds the partnership
Exception: Partnership is not bound if:
i. Acting partner has in fact no authority and
Ii. The third person knows that the acting partner has no authority
a.
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:
I. the act is authorized by the partners
Ii. they have abandoned the business
C. Acts in contravention of a restriction on ownership
Partnership is not liable to third persons having actual or presumptive knowledge of the restrictions
II. Liability arising from partner’s tort (Art 1822) or Breach of Trust (Art 1823)
1.
2.
3.
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 (Art 1882)
Where on partner, acting within the scope of his apparent authority, receives money or property of a third person and
misapplies it (Art 1823)
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 (Art 1823)
Note: All partners are solidarily liable with the partnership for any penalty or damage arising from a partnership tort or breach of trust
III. 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.
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. This rule is only true 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.
2.
When he is expressly or impliedly authorized
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 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.
DISSOLUTION
-Change in the relation of the partners caused by any partner ceasing to be
associated in carrying on the business (Art. 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 (Refer to the enumeration under the pertinent articles hereunder)
1.
2.
Extrajudicial dissolution (Art. 1830)-the parties may agree to expand the grounds provided under Art.1830
but not to delimit them.
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 affairs.
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.
2.
Acts necessary to wind up partnership affairs
Acts necessary to complete transactions begun but not then finished
Note: The dissolution terminates the actual authority of a partner to undertake new business for the
partnership
QUALIFICATIONS TO THE GENERAL RULE:
1.
a.
b.
With respect to the partners (insofar as partners themselves are concerned)
Dissolution is not by act, insolvency or death of a partner; general rule applies. Hence, dissolution
terminates the actual authority of a partner to undertake new business for the partnership
Dissolution is by act, insolvency or death of a partner
General rule: Authority of partners inter se to act for the partnership is not deemed terminated. Thus,
each partner is liable to his co-partners for his share of any liability created by any partner acting for
the partnership as if the partnership has not been dissolved.
Exceptions:
1.
2.
The cause of dissolution is the act of a partner and the acting partner had knowledge of such dissolution
The cause of dissolution is the death or insolvency of a partner and the acting partner had notice or
knowledge of such dissolution
2. With respect to persons not partners
a.
1.
2.
3.
When partnership is bound to third persons after dissolution
Act appropriate for winding up partnership affairs
Act appropriate for completing unfinished transactions
Completely new transactions which would bind the partnership if dissolution had not taken place provided the other part is in
good faith
b. When partnership is not bound to third persons after dissolution
1.
2.
3.
4.
5.
When partnership was dissolved because it was unlawful to carry on the business, except when the act is for winding up
Where the acting partner in the transaction has become insolvent
Where the partner is unauthorized to wind up except if the transaction is with third persons in good faith
Where act is not appropriate for winding up partnership affairs or for completing unfinished transactions
Completely new transaction which would bind the partnership if dissolution had not taken place with third persons in bad faith
B. As to partner’s existing liability
General rule: Dissolution does not automatically discharge the existing liability of
any partner
Exception: A partner may be relieved from all existing liabilities upon dissolution
only by an agreement between:
1. Partner concerned
2. Other partners
3. Partnership creditors
Note: The consent of the partnership creditors and the other partners to the
novation may be implied from their conduct
RIGHTS OF A PARTNER UPON DISSOLUTION
1.
a.
b.
Where dissolution is not in contravention of the partnership agreement
To have partnership property applied to discharge partnership liabilities
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
1.To have partnership property applied to discharge partnership liabilities
2.To receive in cash his share of the surplus
3. To be indemnified for damages caused by the partner guilty of the wrongful dissolution
4. To continue the business in the same name during the agreed term of the partnership, by themselves or jointly with other
5. To possess partnership property should they decide to continue the business
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
1.
If the business is continued
I. 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
Ii. To be released from all existing and future liabilities
Note: The value of the goodwill of the business is not considered in ascertaining the value of the interest of the guilty partners
RIGHTS OF A PARTNER WHERE PARTNERSHIP CONTRACT IS RESCINDED ON THE
GROUND OF FRAUD OR MISREPRESENTATION
Rights of a partner entitled to rescind:
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
3. Right of indemnification by the guilty partner against all debts and liabilities of the partnership
MANNER OF WINDING-UP
1. Extrajudicial by the partners themselves without the intervention of the court
2. Judicial-under the control and direction of the court upon proper cause shown by any partner, his
legal representative or assignee
PERSONS AUTHORIZED TO WIND-UP
1.
2.
3.
Partners designated by the agreement
In the absence of such agreement, all partners who have not wrongfully dissolved the partnership
Legal representative of last surviving partner not insolvent
ORDER OF APPLICATION OF THE ASSETS
1.
2.
3.
4.
Those owing to partnership creditors
Those owing to partners other than for capital and profits
Those owing to partners in respect of their capital contributions
Those owing to partners in respect of their share in the profits
DOCTRINE OF MARSHALLING OF ASSETS (Article 1839 par 8)
1.
2.
3.
Partnership creditors have preference in partnership assets
Separate or individual creditors have preference in separate or individual properties
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
Note: The Supreme Court declared a firm to be a general partnership in a case where it appears that the inclusion of “Ltd” in the firm
was only a subterfuge resorted to by the partners in order to evade liability for possible losses, while assuming their enjoyment of
advantages to be derived from the relation. In other words, if the parties intended a general partnership, they are general partners
although their purpose is to avoid the creation of such a relation.
Characteristics of a limited partnership:
1.
2.
3.
4.
5.
Limited partnership is formed by substantial compliance in good faith with the statutory requirements
One or more general partners control the business and are personally liable to creditors
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’
The limited partners may ask for the return of their capital contributions under the conditions prescribed by law
The partnership debts are paid out of the common fund and the individual properties of the general partners
LIMITED PARTNER/PARTNERSHIP
GENERAL PARTNER/PARTNERSHIP
Extent of Liability: Limited parter’s liability
extends only to his capital contribution
General partner is personally liable for
partnership obligations
Right to participate in the management of
partnership: Limited partner has no share in
the management of a limited partnership
and renders himself liable to partnership
creditors as a general partner if he takes
part in the control of the business
General partners have equal right in the
management of the business (when the
manner of management has not been
agreed upon)
Contribution: Limited partner must contribute
cash or property to the partnership but not
services
General partner may contribute money,
property or industry to the partnership
Proper party to proceedings by or against
the partnership: Limited partner is not a
proper party to proceedings by or against a
partnership unless: 1. He is also a general
partner; 2. Where the object of the
proceeding is to enforce a limited partner’s
right against or liability to the partnership
General partner is the proper party to
proceedings by or against a partnership
Transferability of interest: Limited partner’s
interest is freely assignable with assignee
acquiring all the rights of the limited partner
subject to certain exceptions
General partner’s nterest in the partnership may
not be assigned as to make the assignee a new
partner without the consent of the other partners,
although he may associate a third person with him
in his share
Inclusion of partner’s name in the firm name: The
general rule is that the name of a limited partner
must not appear in the firm name
Name of a general partner may appear in the firm
name
Prohibition to engage in another business: No
such prohibition in case of a limited partner
General partner is prohibited from engaging in a
business which is of the same kind of business in
which the partnership is engaged, if he is a
capitalist partner, or in any business for himself if
he is an industrial partner
Effect of retirement, death, insanity or
insolvency: Retirement, death, insanity or
insolvency of a limited partner does not
dissolve the partnership for his executor or
administrator shall have the rights of a
limited partner for the purpose of selling his
estate
Retirement, death,insanity or insolvency of
a general partner dissolves the partnership
Creation: Limited partnership is created by
the members after substantial compliance
in good faith with the requirements set forth
by law
General partnership, as a general rule, may
be constituted in any form by contract or by
conduct of the partnership
Members of the partnership: Composed of
one or more general partners and one or
more limited partners
Composed only of general partners
Firm name: Must be followed by the word
Limited
No such requirement
Governed by Art. 1839
Governed by Art. 1863
ESSENTIAL REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP
1.
2.
A certificate of limited partnership which states the matters enumerated in Article 1844, which must be
signed and sworn;
Such certificate must be filed for record in the SEC
Note: A strict compliance with the legal requirements is not necessary. It is sufficient that there is substantial
compliance in good faith. If there is no substantial compliance, the partnership becomes a general partnership as
far as third persons are concerned, in which all the members are liable as general partners.
However, a firm which fails to substantially comply with the formal requirements of a limited
partnership is a general partnership only as to its relations to third persons. The firm is a limited partnership,
subject to all rules applicable to such partnership; and as between the partners they are bound by their
agreement; and that all the limited partner’s relations to his co-partners and their obligations to him growing out of
their relation remain unimpaired
As to third persons or creditors guilty of estoppel, the firm shall not be treated as a general
partnership despite lack of substantial compliance to the requirements of a limited partnership. If creditors deal
with the firm as a limited partnership, they will be estopped from insisting that there is no such partnership, or that
the terms of the partnership were not sufficiently stated in the notice of its formation.
MANAGEMENT OF LIMITED PARTNERSHIP
>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 partnership
>A general partner in a limited partnership however has, no authority, without written consent or ratification of all
limited partners, to:
1.
2.
3.
4.
5.
6.
7.
Do any act in contravention of certificate
Do any act which would make it impossible to carry on the ordinary business of the partnership
Confess judgment against the partnership
Possess partnership property, or assign their rights, in specific partnership property, for other than a
partnership purpose
Admit a person as general partner
Admit a person as a limited partner, unless the right to do so is given in the certificate
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 a certificate
Note: 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.
2.
3.
4.
5.
6.
7.
a.
b.
To have the partnership books kept ath the principal place of business of the partnership
To inspect, at a reasonable hour, partnership books and copy any of them
To demand true and full information of the things affecting the partnership
To demand a formal account of the partnership affairs whenever circumstances render it just and reasonable
To ask for dissolution and winding up by decree of court
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
To receive the return of his contributions provided:
All the liabilities of the partnership have been paid or the partnership assets are sufficient to pay partnership liabilities
The consent of all the members has been obtained
EXCEPTIONS:
When the return of the contribution may be rightfully demanded:
1.
2.
3.
On the dissolution of the partnership
Upon the arrival of the date specified in the certificate for the return
After he has given 6 months notice in writing to all other partners; if no time is specified in the certificate for the return of the contribution of for
the dissolution of the partnership
C. The certificate is cancelled or so amended as to set forth the withdrawal or reduction
LIABILITIES OF A LIMITED PARTNER
1. Liability for unpaid contribution
a. For the difference between his contribution as actually made and that stated in the certificate as
having been made; amd
b. For any unpaid contribution which which he has agreed in the certificate to make in the future at the
time and the conditions stated in the certificate
2. Liability as trustee
a. Specific property stated in the certificate as contributed by him, but which was not or which has been
wrongfully returned; and
b. Money or other property wrongfully paid or conveyed to him on account of his partnership
Note: These liabilities can be waived or compromised only by consent of all the members; but a waiver or
compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim
arose after the filing and before the cancellation or amendment of the certificate, to enforce such liability.
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 with the SEC
ALLOWABLE TRANSACTIONS OF A LIMITED PARTNER
Being merely a contributor to the partnership is not prohibited from:
1.
2.
3.
Granting loans to the partnership
Transacting other business with the partnership
Receiving a pro rata share of the partnership assets with the general creditors if he is not also a general partner
Note: In transacting a business with the partnership as a non-member, the limited partner is considered a non-partner creditor
PROHIBITED TRANSACTIONS OF A LIMITED PARTNER
1.
2.
Receiving or holding as collateral security any partnership property; or
Receiving any payment, conveyance, or release from liability if it will prejudice the partnership creditors
NOTES:
>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