aelanbiruararumpac

thirdyeararellano

1) Requisites
Partnership
There are two
partnership-

in

the

establishment

of

Limited

essential requisites in the formation of a limited

1) The required certificate containing all the fourteen (14) enumerated data,
must be signed and sworn to by all the partners, that is, both limited and
general;
2) The certificate must be filed with the Office of the Securities and Exchange
Commission.

2) Substantial compliance in good faith with the requisites

suffices- the last paragraph of the article states that a limited partnership
is formed if there has been substantial compliance in good faith with the
foregoing requisites. Strict compliance is not required, although it is always
the ideal situation.

Effect of Lack of Substantial Compliance

If

there is no
substantial compliance with the legal requirements for the formation of a
limited partnership, the partnership becomes general partnership as far as
third persons are concerned, in which case, all the members are liable as
general partners.

3) Effect of filing of False Certificate

-The perjurious limited partner becomes a general partner. He will be liable
for any loss suffered by a person who relied on the false statement.
1857 states that,
If the certificate contains a false statement, one who suffers loss by reliance
on such statement may hold liable any person to the certificate who knew
the statement to be false:
1) At the time he signed the certificate;
2) Subsequently, but within a sufficient time before the statement was relied
upon upon to enable him to cancel or amend the certificate, or to file a
petition for its cancellation or amendment as provided in Article 1865.

4) Article 1846. The surname of a limited partner shall not

appear in the partnership name unless:
1

aelanbiruararumpac
thirdyeararellano

1) It is also the surname of a general partner, or

2) Prior to the time when the limited partner became such, the business had
been carried on under a name in which his surname appeared.
A limited partner whose surname appears in a partnership name contrary to
the provisions of the first paragraph is liable as a general partner to
partnership creditors who extend credit to the partnership without actual
knowledge that he is not a general partner.

5) Exception to the general rule on liability- The limited

partner, by way of exception, is liable for obligations of the partnership under
the following situations:
a) When he contributes services instead of only money or property (Art.
1845);
b) When there is a false statement in the certificate or articles of partnership
which he knows and failed to correct on time.
c) When his surname appears in the firm name;
d) When he participates and takes part in the control of the business (Art.
1848);
e)When he commits fraud on the creditors on the partnership under Art.
1854;
f) When there is failure to comply with the requirements for the formation of
a limited partnership (Art. 1844)

6) General Rule on Liability of Limited Partner; ExceptionAs a rule, a limited partner is not liable as a general partner. His liability is
limited to the extent of his contribution to the partnership. However, if he
takes part in the control of the business which contemplates active
participation in the business of the partnership, he becomes liable as a
general partner. And the sad part of it is that while he becomes liable as a
general partner, he does not acquire the rights of one.

7) Requisites for Admission of Additional Limited PartnerArticle 1849 states that After the formation of a limited partnership,
additional limited partners may be admitted upon filing an amendment to
the original certificate in accordance with the requirements of Art. 1865. The
certificate shall be duly files with the Securities and Exchange Commission.

8) Certain Acts Which a General or All the General

Partners Cannot Do- Art 1850 states that a General partner shall have
the rights and powers and be subject to all restrictions and liabilities of a
partnership without limited partners. However, without the written consent
2

aelanbiruararumpac
thirdyeararellano

or ratification of the specific act by all the limited partners, a general partner
or all of the general partners have no authority to: CICPAAC
1) Do any act in contravention of the certificate;
2) Do any act which would make it impossible to carry on the business of
the partnership;
3) Confess a judgment against the partnership;
4) Possess partnership property, or assign their rights in specific partnership
property, for other than a partnership purpose;
5) Admit a person as a general partner;
6) Admit a person as a limited partner, unless the right to do so is given in
the certificate;
7) Continue the business with partnership property on the death,
retirement, insanity, civil interdiction or insolvency of a general partner,
unless the right to do so is given in the certificate.

Reason Why A Limited Partner is Allowed to Loan Money

And to Transact Business With the Partnership - Unlike the
9)

relationship between a general partner and the partnership which is based

mainly on trust and confidence, the relationship between limited partner and
the partnership is not based on trust and confidence. Consequently, a limited
partner is not prohibited from engaging in business for himself even if such
business will compete with the one being conducted by the partnership (Art.
1854). General partners, however, are prohibited from doing so in the
absence of stipulation.
The limited partner may even transact business with the partnership as
though he is a stranger.
There is no conflict of interest because he is not supposed to participate in
the active management of the business (Art. 1848).

10) Priority as to the Return of Limited Partners

Contributions- Art. 1855 states that where there are several limited
partners the members may agree that one or more of the limited partners
shall have a priority over other limited partners as to the return of their
contributions, as to their compensation by way of income, or as to any other
matter. If such an agreement is made, it shall be stated in the certificate, and
in the absence of such a statement all the limited partners shall stand upon
equal footing.

11) Return of Contribution of Limited Partner Is in the

Form of Cash; Exception- Regardless of the nature of the contribution,
whether property, rights, or otherwise, a limited partner has only the right to
demand and receive cash in return for his contribution. Exception, he may
3

aelanbiruararumpac
thirdyeararellano

receive his contribution in another form, if there is a statement to that effect

in the certificate, or even if none, if all the partners gave their consent.

12) Rights of Executor or Administrator of the Estate of

the Deceased Limited Partner- The executor or administrator of the
estate of the deceased limited partner shall acquire all the rights of a limited
partner for the purpose of settling his estate. If the deceased had assigned
his interest in the partnership (Art. 1859), the executor or administrator may
constitute the assignee as a substituted limited partner if the deceased was
empowered to do so under the Articles of the Partnership (Art. 1859 par.3)

13) Amendment of Certificates of Articles of PartnershipArt. 1864, The certificate shall be cancelled when the partnership is
dissolved or all limited partners ceased to be such. A certificate shall be
amended when (NSAPGCETFD)
1) There is a change in the name of the partnership or in the amount or
character of the contribution of any limited partner;
2) A person is substituted as a limited partner;
3) An additional limited partner is admitted;
4) A person is admitted as a general partner;
5) A general partner retires, dies, becomes insolvent or insane, or is
sentenced to civil interdiction and the business is continued under Article
1860;
6) There is a change in the character of the business of the partnership;
7) There is a false erroneous statement in the certificate;
8) There is a change in the time as stated in the certificate for the return of
a contribution;
9) A time is fixed for the dissolution of the partnership, or the return of a
contribution, no time having been specified in the certificate; or
10) The members desire to make a change in any other statement in the
certificate in order that it shall accurately represent the agreement among
them.

14) Return of Contribution Rightfully Received- When a

contributor has rightfully received the return in whole or in part of the capital
of his contribution, he is nevertheless liable partnership for any sum, not in
excess of such return with interest, necessary to discharge its liabilities to all
creditors who extended credit or whose claims arose before such return.

15) Erroneous Belief Of A Contributor That He Has Become

A Limited Partner; Effect- Without prejudice to the provisions of Art.
1848, a person who has contributed to the capital of the business conducted
by a person or partnership erroneously believing that he has become a
limited partner in a limited partnership, is not, by reason of his exercise of
4

aelanbiruararumpac
thirdyeararellano

the rights of a limited partner, a general partner with the person or in the
partnership carrying on the business, or bound by the obligations of such
person or partnership, provided that on ascertaining the mistake he promptly
renounces his interest in the profile of the business, or other compensation
by way of income (Art. 1852).

16) May a Person Be A General Partner And A Limited

Partner At The Same Time?- A person may be a general partner and
a limited partner at the same time, provided that this fact shall be stated in
the certificate provided for in Art. 1844.
A person who is a general, and also at the same time a limited partner, shall
have all the rights and powers and be subject to all the restrictions of a
general partner; except that, in respect to his contribution, he shall have the
rights against the other members which he would have had if he were not
also a general partner (Art. 1853)

A limited partner whose capital contribution is greater than that

specified in the certificate of limited partnership is not liable for making
a false statement under Section 6 of the Limited Partnership Act (basic
of Art. 1847), since there is no liability without showing a loss, and
such loss can be established only by showing a capital contribution
which is less, not greater than that soecified (Gilman Paint and Varnish
Co v Legum)
When the name of not one of the general partners appears in the firm
nam, it is not considered a limited partnership but a general
partnership (Jo Chung Cang v Pacific Com)
The law requires that the contribution of each limited partner must be
stated. Hence, if the aggregate sum given by two or more limited
partners is given, the law has not been complied with (Spencer Optical
Mfg. Co. v Johnson)
If the proposed limited partnership has not complied substantially with
the requirements of the law the same will not be considered as a
limited partnership, but a general partnership, in which all the
members are liable to the extent of their separate property.