Ortega, Danielle Bianca G.

BUSORG
2013400097

2-C

Why Corporations cannot enter into Partnerships?

Partnership and Corporation
A contract of partnership, as stated in Article 1767 of the Civil
Code of the Philippines, is one where two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing profits among themselves.
Partnerships may also be formed by two or more persons for the
exercise of a profession.
Corporations, according to the Corporation Code of the
Philippines or BP. 68, is an artificial being created by operation of law,
having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence.
Both entities have there own juridical personality, however
granted in a different manner- partnership, via execution of the
contract of partnership while corporation via issuance of certificate of
incorporation by the Security Exchange Commission. In contrast to the
powers of partnership and corporation, the former may allow exercise
thereof as authorized by partners; on the other hand, the latter is
limited by that which is granted to them by the law. In the case of
liability, all partners are liable for the debts of partnership to third
persons while stockholders of a corporation are only liable to the
extent of their shares.
It is clear from this point that corporations and partnerships
function in completely different way, although the end result may be
for profit or some joint venture in attaining a specific goal. If a
corporation having its own guidelines of conducting business and at
the same time joins a partnership that also has its own way of
conducting business then there would be confusion. It may seen be in
through its liability against a third person wherein, if a corporation
were to be in a partnership then the liability of the former as a partner
will be equal to that of its other partners (individual or not), however it
is a rule in corporation that its stockholders may only be liable to the
extent of its shares. Hence, the confusion as created by the situation.
Corporation entering into partnership

Only those who are capacitated to enter into a contract of

partnership may enter into a contract of partnership (Nolledo, 2002).
However, the law does not specify on who may be partners in a
partnership, juridical or natural persons. A partnership however may be
a partner to another partnership (De Leon, 2010). A corporation, on the
other hand, is different due to the fact that it may only be authorized
to act as through its board of directors and officers.
In U.S. jurisprudence, corporations cannot enter into partnership
with other individuals or other corporations. If allowed to do so, would
defeat the purpose of corporations wherein it is mandated that only
those authorized may be allowed to manage its affairs (SEC Opinion,
1994). After all, corporations and partnerships each have their
separate judicial personality from the moment of its creation. If a
corporation were to join a partnership then it will give birth to a
different identity thus losing its original identity to the latter.
There are a few exceptions to this rule. In the Philippines, the
Security Exchange Commission adopts that general rule. However
acknowledge of a few exceptions to the rule:
a.)
b.)

c.)

d.)

Corporations may enter into joint venture partnership

with another where the nature of the venture is in line
with the business authorized by its charter.
The entry of a foreign corporation, as a limited partner
in a limited partnership, merely for investment purposes
and shall not take part in the management and control
of the business operation of the partnership- such
investment is allowed by the Foreign Investment Act (De
Leon, 2010).
Authority to enter into a partnership is expressly
conferred by the charter or the articles of incorporation
of the corporation, and nature of which is in line with the
business (Campbell, 2013).
Articles partnership must provide that the all partners
will manage the partnership, and must stipulate that all
partners be jointly and severally liable for all the
obligations of the partnership (Villanueva,)

Conclusion
The main reason why the law prohibits corporations from
entering into partnerships is all due to public policy. It is the policy of
the law that a corporation shall manage its own affairs separately and

exclusively, specifically those conferred with authority to do by law

creating it. If a corporation were to be in a partnership, then it will be
bound by the acts of persons who are not its duly appointed and
authorized agents and officers.

Reference:

Article 1767 Title IX of the Civil Code of the Philippines

Sec. 2 Title 1 of the Corporation Code of the Philippines
De Leon, Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p.17-18.
Security Exchange Commission Opinion 23 February 1994.
Nolledo, J., Handbook on Partnership Law and Corporation Code,
2002 ed., p. 11.
Campbell, D., International Joint Ventures, 2013 ed., p. PHL3.
Villanueva, Agency, Trusts, Partnerships and Joint Ventures, p.
575.