PARCOR: CHAPTER 1 withdrawal account that serves similar functions as

the related accounts for sole proprietorships.

DEFINITION
DEFINITION OF CORPORATION
In a contract of partnership, two or more persons bind
themselves to contribute money, property or industry It is an artificial being created by operation of law,
to a common fund with the intention of dividing the having the right of succession, and the powers,
profits among themselves. Two or more persons also attributes and properties expressly authorized by law
form a partnership for the exercise of a profession. or incident to its existence (Revised Corporation Code
(Civil Code of the Philippines Article 1767) of the Philippine (RCCP), Section 2).

CHARACTERISTICS OF A PARTNERSHIP ADVANTAGES OF PARTNERSHIP VS SOLE

PROPRIETORSHIP
Mutual Contribution. There cannot be a partnership
without contribution of money, property or industry 1. Brings greater financial capability to the business.
(i.e. work or services which may either be personal
2. Combines special skills, expertise and experience of
manual efforts or intellectual) to a common fund.
the partners.
Division of Profits or losses. The essence of
3. Offers relative freedom and flexibility of action in
partnership is that each partner must share in the
decision-making.
profits or losses of the venture.

Co-ownership of contributed assets. All assets

contributed into the partnership are owned by the ADVANTAGES OF PARTNERSHIP VS CORPORATION
partnership by virtue of its separate and distinct
personality. If one partner contributes an asset to the 1. Easier and less expensive to organize.
business, all partners jointly own it in a special sense. 2. More personal and informal.
Mutual agency. Any partner can bind the other
partners to a contract if he is acting within his express
or implied authority. DISADVANTAGES OF PARTNERSHIP VS
CORPORATION
Limited life. A partnership has a limited life. It may be
dissolved by the admission, death, insolvency, 1. Easily dissolved and thus unstable compared to a
incapacity, withdrawal of a partner or expiration of corporation.
term specified in the partnership agreement. 2. Mutual agency and unlimited liability may create
Unlimited liability. All partners (except limited personal obligations to partners.
partners), including industrial partners are personally 3. Less effective than a corporation in raising large
liable for all debts incurred by the partnership. If the amounts of capital.
partnership cannot settle its obligations, creditors’
claims will be satisfied from the personal assets of the
partners without prejudice to the rights of the
separate creditors of the partners.

Income taxes. Partnership, except general

professional partnerships, are subject to tax at the
rate of 30% (per R.A. 9337) of taxable income.
PARTNERSHIP DISTINGUISHED FROM CORPORATION

Partners’ equity accounts. Accounting for partnership

are much like accounting for sole proprietorships. The
difference lies in the number of partners’ equity
accounts. Each partner has a capital account and a
 7. Dormant partner – One who does not take active
part in the business of the partnership and is not
known as a partner.

8. Silent partner – One who does not take active part

in the business of the partnership though may be
known as a partner.

9. Secret partner – One who takes active part in the

business but is not known to be a partner by outside
parties.

10. Nominal or partner by estoppel – One who is

actually not a partner but who represents himself as
one.

ARTICLES OF PARTNERSHIP

A partnership may be constituted orally or in writing.

In the latter case, partnership agreements are
embodied in the Articles of Partnership.

Essential provisions may be contained in the

agreement:

1. The partnership name, nature, purpose and

location. 2. The names, citizenship and residences of
CLASSIFICATION OF PARTNERSHIP
the partners.

3. The date of formation and the duration of the

partnership.

4. The capital contribution of each partner, the

procedure for valuing noncash investments,
treatment of excess contribution (as capital or as
loan) and the penalties for a partner’s failure to invest
and maintain the agreed capital.
KINDS OF PARTNERS
5. The rights and duties of each partners.
1. General partner – One who is liable to the extent of
his separate property after all assets of the 6. The accounting period to be adopted, the nature of
partnership are exhausted. accounting records, financial statements and audits by
independent public accountants.
2. Limited partner – One who is liable only to the
extent of his capital contribution. He is not allowed to 7. The method of sharing profit or loss, frequency of
contribute industry or services only. income measurement and distribution, including any
provisions for the recognition of differences in
3. Capitalist partner – One who contributes money or contributions.
property to the common funds of the partnership.
8. The drawings or salaries to be allowed to partners.
4. Industrial partner – One who contributes his
knowledge or personal services to the partnership. 9. The provision for arbitration of disputes,
dissolutions and liquidation.
5. Managing partner – One whom the partners has
appointed as manager of the partnership. SEC REGISTRATION

6. Liquidating partner – One who is designated to ➢ When the partnership capital is P3,000 or
wind up or settle the affairs of the partnership after more, in money or property, the public
dissolution. instrument must be recorded with the
Securities and Exchange Commission (SEC)
 Even if it is not registered, the partnership they are to be recorded at values agreed upon by the
having a capital of P3,000 or more is still valid partners. In the absence of any agreement, the
and therefore has legal personality. contribution will be recognized at their fair values at
➢ The SEC shall not register any corporation the date of transfer to the partnership.
organized for the practice of public
Fair market value of an asset is the estimated amount
accountancy (The Philippine Accountancy Act
that a willing seller would receive from a financially
2004, Section 28)
capable buyer for the sale of the asset in a free
➢ The purpose of the registration is to set “a
market. Per International Financial Reporting
condition for the issuance of the licenses to
Standards (IFRS) No. 3, fair value is the price at which
engage in business or trade. In this way, the
an asset or liability could be exchanged in a current
tax liabilities of big partnership cannot be
transaction between knowledgeable, unrelated willing
evaded, and the public also determine more
parties.
accurately their membership and capital
before dealing with them A partnership may be formed in any of the following
ways:
Documents to be submitted:
1. Individuals with no existing business form a
• Articles of partnership
partnership
• Verification slip for the Business Name
• Written undertaking to change business 2. Conversion of a sole proprietorship to a partnership
name, if required a. A sole proprietor and an individual without an
• Tax Identification Number (TIN) of each existing business form a partnership. b. Two or more
partner and that of the partnership sole proprietors form a partnership
• Registration data sheet for partnership duly
3. Admission or retirement of a partner (to be
accomplished in six (6) copies
discussed in dissolution of partnership)
• ther documents that may be required:
4. Two or more partnerships form a partnership (to be
1. Endorsement from other government agencies if
discussed in advanced accounting)
the proposed partnership will engage in an industry
required by the government

2. For partnership with foreign partners, SEC Form F-

105, bank certificate on the capital contribution of
partners, proof of remittance of contribution of
foreign partners.

Pay the registration/filing and miscellaneous filing fee

equivalent to 1/5 of 1% of the partnership capital but
not less than P1,000 and legal research fee which is
1% of the filing fee.

- Forward documents to the SEC Commissioner for

signature.

ACCOUNTING FOR PARTNERSHIP

- Owners’ Equity Accounts

- Loan Receivable From or Payable to Partners

PARTNERSHIP FORMATION

Valuation of Investment by Partners

Partners may invest cash or non-cash assets in the

partnership. When a partner invests non-cash assets,