CHAPTER 1: ACCOUNTING FOR prejudice to the rights of the separate

creditors of the partners.

PARTNERSHIPS
Income Taxes- except general professional
PARTNERSHIP partnership (partners individually pay tax), are
subject to tax at the rate of 30% (per R.A. No.
▪ According to the Civil Code of the
9337) of taxable income.
Philippines, Article 1767, a partnership is a
contract whereby two or more persons bind Partner’s Equity Accounts- each partner has a
themselves to contribute money, property, capital account and a withdrawal account
or industry to a common fund, with the that serves similar functions as the related
intention of dividing the profit among accounts for sole proprietorships.
themselves.

▪ Note: the term “person” may refer to a

natural person or juridical person which may ADVANTAGES OF A PARTNERSHIP
either be an individual, a corporation or
(as compared to sole proprietorship)
other partnership.
▪ An association of two or more persons to 1. Brings greater financial capability to the
carry on, as co-owners, a business for profit business.
(Uniform Partnership Act, Section 6) 2. Combines special skills, expertise, and
▪ The partnership has a juridical personality experience of the partners.
(legal entity feature) separate and distinct 3. Offers relative freedom and flexibility of
from that of each of the partners (Civil action in decision-making.
Code of the Philippines, Article 1768)
As compared with a corporation
CHARACTERISTICS OF PARTNERSHIP
1. Easier and less expensive to organize.
Mutual Contribution- contribution of money, 2. More personal and informal.
property or industry (i.e. work or services which
may either be personal manual efforts or DISADVANTAGES OF A PARTNERSHIP
intellectual) to a common fund.
1. Easily dissolved and thus unstable
Division of Profits and Losses- each partner compared to a corporation.
must share in the profits and losses of the 2. Mutual agency and unlimited liability may
venture. create personal obligations to partners.
3. Less effective than a corporation in raising
Co-ownership of Contributed Assets- all assets amounts of capital.
contributed are owned by the partnership by
virtue of its separate and distinct juridical PARTNERSHIP DISTINGUISHED FROM
personality. If one partner contributes an asset CORPORATION
to the business, all partners jointly own it in a
Manner of Creation- a partnership is created
special sense.
by mere agreement of the partners while a
Mutual Agency- any partner can bind the corporation is created by operation of law.
other partners to a contract if he is acting
Number of Persons. Two or more persons may
within his express or implied authority.
form a partnership; in a corporation, not
Limited Life- it can be dissolved by the exceeding fifteen (15). A corporation with
admission, death, insolvency, incapacity, single stockholder is considered a One Person
withdrawal of a partner or expiration of the Corporation (Sec, Revised Corporation Code
term specified in the partnership agreement. of the Philippines, in Chapter 5)

Unlimited Liability- All partners (except limited Commencement of Juridical Personality. In a

partners), including industrial partners, are partnership, juridical personality commences
personally liable for all the debts incurred by from the execution of the articles of
the partnership. The creditors’ claims will be partnership, in corporation, from the issuance
satisfied from their personal assets without of certificate of incorporation by the SEC.
Management. In a partnership, every partner According to duration:
is an agent of the partnership if the partners
did not appoint a managing partner; in a a. Partnership with a fixed term or for a
corporation, management is vested on the particular undertaking. (ex. Engrs
Board of Directors. constructing building)
b. Partnership at will. One in which no term is
Extent of Liability. In a partnership, each of specified and is not formed for any
the partners except a limited partner is liable particular undertaking. (as long as the
to the extent of his personal assets; in a partners agree)
corporation, stockholders are liable only to
the extent of their interest or investment in the According to purpose:
corporation. a. Commercial or trading partnership. One
Right of Succession. In a partnership, there is that is formed for the transaction of
no right of succession. A corporation has the business. (service, merch, manufacturing)
capacity of continued existence regardless of b. Professional or non-trading partnership.
death, withdrawal, insolvency or incapacity One that is formed for the exercise of
of its directors or stockholders. profession. (doctors, lawyers)

Terms of Existence. In a partnership, for any

period of time stipulated by the partners; in a According to legality of existence.
corporation, shall have perpetual existence
unless its articles of incorporation provides a. De Jure Partnership. One which has
otherwise (Sec 11, Revised Corporation Code complied with all the legal requirements
of the Philippines) (50 years then renew) for its establishment. (SEC, BIR, DTI, Mayor’s
permit, etc.)
CLASSIFICATION OF PARTNERSHIPS b. De Facto Partnership. One which has failed
According to object: to comply with all the legal requirements
for its establishment. (still a partnership
a. Universal Partnership of all present since it is just by mere agreement)
property. all contributions become
part of the partnership fund.
b. Universal partnership of profits. All that KINDS OF PARTNERS
the partners may acquire by their
industry or work during the existence 1. General Partner- liable to the extent of his
of the partnership and the use of separate property after all assets of the
whatever the partners contributed at partnership are exhausted. (Will pay first
the time of the institution of the their personal liabilities)
contract belong to the partnership. If 2. Limited Partner- liable only to the extent of
the articles of universal partnership his capital contribution. He is not allowed
did not specify its nature, it will to contribute industry or service only.
considered a universal partnership of 3. Capitalist Partner- contributes money or
profits. property to the common fund of the
c. Particular partnership. The object of the partnership.
partnership is determinate—its use or fruit, 4. Industrial Partner- one who contributes his
specific undertaking, or the exercise of a knowledge or personal service to the
profession or vocation. partnership.
5. Managing Partner- one whom the partners
According to liability: has appointed as manager of the
a. General. All partners are liable to the partnership. (Oversees day-to-day
extent of their separate properties. operations)
b. Limited (LTD). The limited partners are only 6. Liquidating Partner- one who is designated
liable to the extent of their personal to wind up or settle the affairs of the
contributions. The law states that there partnership after dissolution.
shall be at least one general partner.
7. Dormant Partner-one who does not take 9. The provision of disputes, dissolution, and
active part in the business of the liquidation.
partnership and is not known as a partner.
8. Silent Partner. One who does not take
active part in the business of the SEC REGISTRATION
partnership though may be known as a
partner. - When the partnership capital is P3,000 or
9. Secret Partner. One who takes active part more, in money or property, the public
in the business but is not known to be a instrument must be recorded with the SEC.
partner by outside parties.
10. Nominal Partner or Partner y Estoppel- - Even if it is not registered, the partnership
one who is not a partner but represent having a capital of P3,000 or more is still
himself as one. (Managing partners that valid and therefore has legal personality.
are hired to manage the partnership, - The SEC shall not register any corporation
liable for the liability since he is the one organized for the practice of public
seen by clients) accountancy. (The Philippine
Accountancy Act of 2004, Sec. 28)

- The purpose of the registration is to set “a

GOVERNMENT REQUIREMENT FOR condition for the issuance of the licenses
PARTNERSHIPS to engage in business or trade. In this way,
the tax liabilities of big partnerships cannot
ARTICLES OF PARTNERSHIP
be evaded, and the public can also
A partnership can be constituted orally or in determine more accurately their
writing. membership and capital before dealing
with them.” (Dean Capistrano, IV Civil
Partnership agreements: Code of the Philippines)

1. The partnership name, nature, purpose, BASIC STEPS TO REGISTER PARTNERSHIP WITH
and location. SEC:

2. The names, citizenship and residences, of 1. Propose business name and verify in the
the partners. verification unit of SEC. it should bear the
word “Company” or “Co.”. if it’s a limited
3. The date of formation and the duration of
partnership, the word “Limited” or “Ltd”. A
the partnership.
professional partnership may bear the word
4. The capital contribution of each partner, “Company”, “Associates”, or “Partners” or
the procedure for valuing non-cash other similar descriptions. (SEC
investments, treatment of excess Memorandum Circular 5, Series 2008)
contribution (as capital or as loan) and the
2. Submit the following documents:
penalties for a partner’s failure to invest
and maintain the agreed capital. a. Articles of Partnership
b. Verification Slip for business name.
5. The rights and duties of each partner.
c. Written undertaking to change business
6. The accounting period to be adopted, the name if required.
nature of accounting records, financial d. Tax identification number of each partner
statements and audits by independent and/or that of the partnership.
public accountants. e. Registration data sheet for partnership duly
accomplished in six copies.
7. The method of sharing profits or loss, f. Other documents.
frequency of income measurement and • Endorsement from other govt.
distribution, including any provisions for the agencies (if it will engage in an
recognition of differences in contributions. industry regulated by the govt.)

8. The drawings or salaries to be allowed to • For partnership with foreign partners:

partners. SEC Form F-105 , bank certificate on
 the capital contribution of partners,
proof of remittance of contribution of
foreign partners.

3. Pay the registration/filing and miscellaneous

fees (filing fee equivalent to 1/5 of 1% of the
partnership capital contribution of partners,
proof of remittance which is 1% of the filing
fee.

4. Forward documents to the SEC

Commissioner for signature.

ACCREDITATION TO PRACTICE PUBLIC

ACCOUNTANCY

- Register with the Professional Regulation

Commission (PRC) and the Professional
Regulatory Board of Accountancy.

- The registration shall be renewed every 3

years (Philippine Accountancy Act of 2004,
Sec. 31)

- The rules and regulation covering the

accreditation for the practice of public
accountancy are specified in the Annex B
of the Rules and Regulations Implementing
Republic Act 9298 or the Philippine
Accountancy Act of 2004.