Partnership - 1. With a fixed term or Particular under-taking A contract whereby two or more persons bind themselves to contribute money, property, or industry to a common fund, the intention of dividing profits among themselves - 2. At will According to Purpose 1. Commercial or Trading 2. Professional or Non-trading May also form a partnership for the exercise According to Legality of Existence of a profession 1. De Jure – Existing in law Contract = Agreement 2. De Facto – Existing in fact but not in law - Written or verbal Kinds of Partners 1. Consent 2. Object 1. General 3. Cause – dividing profits among themselves 2. Limited 3. Capitalist – Contributed money or property Industry = Labour 4. Industrial – Labour Characteristics of a Partnership 5. Managing – Can be many 1. Mutual contribution 6. Liquidating – Responsible in liquidation 2. Division of Profits or Losses 7. Ostensible – Does something and known 3. Co-ownership of contributed assets 8. Dormant – opposite of ostensible; Does not 4. Mutual Agency - Fiduciary Relationship do something and not known (Trust and Confidence) - 9. Secret - Does something but not known 10. Silent – Opposite of secret; Does not do Acted outside the authority (Divide profits but not losses) something but known 11. Normal Partner or Partner by Estoppel - not a partner but acting as one 5. Limited Life 6. Unlimited Life Partnership Formation 7. Income Taxes 8. Partner’s Equity Account Classification of Partnerships - May overlap - Partnership is formed through a contract Registration of Partnership 1. Articles of Partnership 2. SEC According to Object 1. Universal partnership of all present property) o Absolute Community of Property o Future acquisitions not included 2. Universal partnership of profits o - Capitalisation – greater than equal 3000 - Contribution of real property – must be registered to the Registry of Deeds; - Have limited partner – name must have “Ltd” Fair Value Conjugal Property 3. Particular Partnership - Price at which an asset or liability could exchanged in a current transaction between According to Liability 1. General – Unlimited liability 2. Liability – Limited Liability According to Duration knowledgeable, unrelated willing parties. Individuals with no existing business form a partnership - New set of books A sole proprietorship and another individual o Original – Does not change form a partnership; o Beginning – Start of every period o Average Two or more sole proprietorship form a BIR – New set of books Consider months outstanding partnership - – o Ending – End of every period 3. By allowing Interest, Salaries, and/or Bonus Steps in transferring accounts in the old books to the *Interest and Salaries - not expensed new book *Bonus – Good performance; not all the time there is bonus; usually for managing partner 1. Adjust accounts to FV (Old) 2. Close nominal and real accounts (Old) 3. Transfer to new books Depreciated Accounts – Contra-account is not Salaries included Interest Accounts Receivable – Contra-account is included Bonus (General Rule) *Agreed Value – Proper Valuation Partnership Operation Partner Partner A B Total Remainder (P/L) Total Allocation Rules for the Distribution of Profits or Losses Partnership Dissolution Profits 1. Partner’s agreement - by any partner ceasing to be associated in 2. No agreement the carrying on as distinguished from the 1. Capitalist Partner - Original Capital winding up of the business of the partnership Contribution (RA 1828) *If there is no original CC, use the beginning CC - On dissolution, the partnership is not terminated 2. Industrial Partner - Just and Equitable Under the Circumstances Change in the relation of the partners caused - Most changes in the ownership of a partnership Losses are accomplished without interruption of its normal operation 1. Partner’s Agreement Causes of Dissolution 2. No agreement 1. Use profit sharing agreement 2. Capitalist Partner - Original Capital Contribution *If there is no original CC, use the beginning CC 3. Industrial Partner – Does not share in any losses Distribution Based on Partner’s Agreement 1. Equally or in another agreed ratio 2. Based on Partner’s CC 1. Admission of a partner 2. Withdrawal or Retirement of a partner 3. Death of a partner 4. Incorporation of the partnership Admission of a Partner 1. Purchase of Interest from Existing Partner/s o New Partner to Old Partner o Total Capital of the partnership does not change Bonus A, Capital B, Capital 2. Investment of Assets in a Partnership o New partner to Partnership o Total Capital of the partnership To Remaining Partners - To Withdrawing Partner Asset Revaluation changes - - All existing partners must agree to admit the - To Remaining Partners - To Withdrawing Partner - To Old Partners new partnership Incorporation of a Partnership Agreed Contributed Bonus/Asset Capital Capital Revaluation Steps Old 1. Adjust Partner 2. Close New 3. Transfer Partner Partner’s Capital to Share Capital and Share Total Premium Agreed Capital – Total capital od the partnership after considering the capital credits given to each Partnership Liquidation - Winding up of its business activities characterized by sale of all non-cash assets, partner settlement of all liabilities, and distribution of Contributed capital – Sum of the capital balances remaining cash to the partners of the old partners and actual investment of the new Steps in Liquidation partner If AC and CC are not equal, there is Asset 1. Realization of all non-cash assets Realization – Conversion of non-cash assets Revaluation into cash Bonus Gain/Loss on realization - To Old Partner - To New Partners 2. Settlement of Labilities a. Outside Creditors Asset Revaluation - To Old Partners Only Withdrawal/Retirement of a partner o Liquidating Expenses o Salaries o Taxes o Creditors b. Inside Creditors Death of a Partner 3. Distribution to Partners 1. Sale of Interest to a Partner or an Outsider o Between partners o Total Capital of the partnership does Lumpsum Method 2. Sale of Interest to the Partnership Between a partner and the partnership o Total Capital of the partnership changes Not distributed using P/L Sharing Losses Methods of Partnership Liquidation not change o - All non-cash assets are realized and all liabilities are settled before a single final cash distribution is made to the partners Instalment Method - Realization of noncash assets is accomplished over an extended period of time. It is a process of selling some assets, paying the creditors, paying the remaining cash to the partners, realizing additional assets and making additional payment to partners. The liquidation will continue until all the non-cash assets have been realized and all equitable cash is distributed to partnership creditors and partners Safeguards 1. Schedule of Safe Payments - Done every time you want to distribute to partners - Worst case scenario o All non-cash assets will never be realized o All partners are insolvent 2. Cash Priority Program - Done at the beginning - LAB – Loss Absorption Balance - Highest LAB – Priority
