Concept of business organization 7.

Separate juridical personality

Main Types: Co-ownership – ownership of an undivided thing/right belongs to
1. Sole proprietorship different persons.
2. Partnership 1. Existence of juridical personality
3. Corporation 2. Cause of existence
Factors in Identifying Type of Business Organization: 3. Disposition of interest
1. Setting-up requirements 4. Succession
2. Regulatory/legal requirements 5. Purpose
3. Taxation Business Trust
4. Liability a. Trust – equitable ownership over a certain property and another
Option to convert business structure: legal title thereto
1. Sole proprietorship to partnership b. Trustor – equitable owner
2. Sole proprietorship to corporation c. Beneficiary – person who benefits
3. Partnership to corporation Conjugal Partnership
Sole/single proprietorship defined: a. Marriage of husband and wife.
- Oldest, simplest and prevalent form of business enterprise b. Common fund – proceeds of income, separate properties (acquired
- Unorganized business owned by one person by either or both spouses) through their efforts or by chance.
- Sole proprietorship is personally liable c. Divided equally – upon dissolution of marriage.
- No juridical personality Rules in Determining Whether a Partnership Exists
Setting-up sole proprietorship 1. Persons who are not partners to each other are not partners as to
1. Registration with DTI third persons.
2. Registration with the BIR 2. Co-ownership or co-possession ≠ partnership
3. Secure Mayor’s Permit w/ LGU 3. Sharing of gross returns ≠ partnership
4. Other Registrations: SSS, Phil health, Pag-ibig 4. Receipt by a person of a share in profits (prima facie evidence)
Taxation of sole/single proprietorship except
- Rules of the individual owner apply a. Debt
- Financial statements of sole/single proprietorship b. Wages
Advantages of sole/single proprietorship c. Annuity to a widow or representative of dead partner
1. Easiest to register d. Interest on loan
2. Owner has full control/authority e. Consideration for sale of goodwill or a business or other
3. Highly flexible property
4. Lesser reportorial/compliance requirements Who may be partners
Disadvantages of sole/single proprietorship 1. Natural persons – with legal capacity and not prohibited by a
1. Limited capitalization provision of law.
2. Limited growth/business activities 2. Corporations
3. Liability of owner extends to personal assets a. All corporations are managing partners
Partnership Basic Concepts b. Articles of Incorporation – expressly allow to enter into
Definitions partnerships
- By the contract of partnership, two or more persons bind Factors to consider in choosing partner/s
themselves to contribute money, property, or industry to a common 1. Financial capacity
fund, with the intention of dividing the profits among themselves 2. Integrity and reputation
- Essential elements of a contract 3. Health and age
1. Consent 4. Character, disposition, and ability to get along with people
2. Subject matter 5. Experience, ability, and training
3. Cause Capital
- Juridical entity created by the contract of two or more persons who - Cash, lands, or goods
bind themselves to contribute money, property or industry to a - Rendition of personal services
common fund for the purpose of dividing profits among - Use of property by one or more of the partners
themselves. - Mutual exertion of influence in each other’s favor.
Separate Juridical Personality
Elements of a Partnership 1. Duly constituted partnership = separate from each of the partners
a. Intent to form a partnership 2. Attributes
b. Participate in profits and losses a. Capacity to enter into contracts
c. Community of interest that would allow each of them to: b. Capacity to acquire properties
- make contract c. Capacity to sue and be sued
- manage the business 3. Substance not the name (joint venture, consortium)
- dispose of the whole property 4. Contract is entitled as “Memorandum of Agreement”.
Basic Features of a Business Partnership Formal Requirements
1. Voluntary agreement - Immovable property is contributed = registered with the SEC
2. Association for profit - Inventory of the inventory is signed and attached to the Articles of
3. Contribution to common fund Partnership
4. Lawful purpose Types of Partnerships
5. Mutual agency  As to object
6. Articles must not be kept secret 1. Universal partnership
 - Partnership of all present property - Liable to damages in case of failure to contribute
- Partnership of profits (may acquire by their industry or work e. Imminent loss of business
during the existence of the partnership) - Refusal to contribute additional capital = warrant to sell
2. Particular partnership interest to other partners (except industrial partner
a. Inheritance, legacy or donation = cannot be included in the 4. Management of partnership
universal partnership of property - Unanimity in management
b. In favor of universal partnership of profits - When not agreed upon
c. Prohibited giving donation to each other = cannot enter into a. All partners are agents and each may bind partnership
partnerships b. No important alteration in the immovable property, without
d. Object consent of others
- Determinate things 5. Liability for damages
- Their use or fruits 6. Liability of Partnership for Amounts Disbursed by Partners
- Specific undertaking - From time of disbursement
- Exercise of profession or vocation - Obligations contracted in good faith
 As to liability 7. Profit Sharing
1. General Partnership - Based on Agreement
2. Limited Partnership - Based on Profit Sharing Ration
 As to term - Based on Capital Contribution
1. Partnership at will - Exclusion from profit is void
2. Partnership with a fixed term 8. Losses Sharing
When SEC Registration is Required - Based on Agreement
1. Immovable property is contributed - Based on Profit Sharing Ration
2. Capital of ₱3,000 or more in money or property - Based on Capital Contribution
SEC Registration 9. Partnership Books and Information
Basic Requirements - Principal place of business
1. Name Verification Slip - Right of partners to inspect
- The partnership name shall bear the word “Company” or “Co.” - Duty of voluntary disclosure
- If it is a limited partnership, the word “Limited” or “Ltd” should 10. Restrictions on capitalist partners
be added to the partnership name. Obligations to 3rd Persons
2. Articles of Partnership 1. Firm Name
3. Affidavit of a partner undertaking to change partnership name (not - those who are not partners but include their names in the firm
required if Articles of Partnership has provision on this name are subject to liability of a partner (Nominal/Ostensible)
commitment) - a deceased partners’ name may be used provided the firm
Additional requirements: indicates in its communications that said partner is deceased
1. Endorsement/clearance from other government agencies, if 2. Liability to 3rd Parties
applicable - Including industrial partners
2. For partnership with foreign partners 3. Partners as agents of the Partnership
- SEC Form No. F-105 - every partner is an agent of the partnership for the purpose of the
- Bank certificate on the capital contribution of the partners business
- For foreign partners who want to register their investments with - who does something in representation of another or on behalf of
the BSP: Proof of remittance another with the consent or authority of the latter.
Obligations of the Partners - an act of a partner for carrying on in the usual way the business
1. Commencement = execution of contract (unless stipulated) of the partnership binds the partnership, except if:
2. Termination a. the partner in fact has no authority to act for the partnership
a. continuation after a fixed term or particular undertaking in the particular matter
b. termination of such term or particular undertaking b. the person with whom the partner is dealing has knowledge of
- continuation of business without settlement or liquidation is the fact that he has no such authority.
prima facie evidence of continuation of partnership - Actions that may only by undertaken with consent of all
3. Regarding Capital Contribution partners
a. Assumption: Partners contribute equal capital 1. Assignment of partnership property in trust for creditors
b. Debtor to partnership for promised capital or on assignee’s promise to pay the debts of the
- Warranty in case of eviction (specific and determinate partnership;
things) 2. Dispose of the goodwill of the business
- Liability for fruits from promised delivery date 3. Do any other act which would make it impossible to carry
- Preservation of properties (diligence of a good father of a on the ordinary business of a partnership
family) 4. Confess a judgment;
- Indemnification of partnership (retention of property or 5. Enter into a compromise concerning partnership claim
delay in contribution) or liability;
c. Contribution of Goods 6. Submit a partnership claim or liability to arbitration;
- Appraisal shall be prescribed in the contract or by experts 7. Renounce a claim of the partnership.
if there is no stipulation 4. Conveyance of Real Property of Partnership
- Subsequent changes in appraisal value shall be for the a. Title to real property is in the partnership name and sold
account of the partnership in name of partnership
d. Contribution of Money
 b. Title to real property is in the partnership name and sold
in the name of a partner
c. Title to real property is in the name of one or more of the
partners
5. Admission or Representation of a Partner
6. Constructive Notice to Partnership
7. Liability of Wrongful Acts or Omissions
- a partnership is liable to the same extent as the acting partner if
a. acting partner acts in the ordinary course of business of
partnership or with authority of the other partners
b. acting partner acts wrongfully or omits to act
c. the wrongful act or failure to act results in injury to a third
person or penalty
8. Liability of Partner by Estoppel
a. Represents himself to anyone as a partner in an existing
partnership or with one or more persons not actual partners
b. Consents to another representing him to anyone as a partner in
an existing partnership or with one or more persons not actual
partners; or
c. Publicly represents himself or consents to another representing
him to anyone as a partner in an existing partnership or with
one or more persons not actual partners
9. Liability of Partner Admitted Into Existing Partnership
- liable for all obligations of the partnership which arose before
his admission into the partnership
- be satisfied only out of partnership property, unless there is a
contrary agreement.
10. Preference of Partner’s and Partners’ Creditors
- creditors of the partnership shall be preferred over the creditors
of each of the partners
Dissolution and Winding Up
1. Dissolution
- partners cease to carry on the business together
- change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the business
 Causes
- Without violation of agreement
- With violation of agreement
- Others
 Modes
- Judicial
- Extrajudicial
 Authority of Partners
- With respect to partners
- With respect to non-partners
2. Winding Up
- Process of settling partnership affairs after dissolution
- Winding up of Partners, Discharge of Liabilities, Sharing in the
Profits
3. Termination
- when all partnership affairs are wound up
Causes of Dissolution
1. Without violation of agreement
a. Termination of definite term or particular undertaking
b. Express will of any partner acting in good faith in a partnership
at will
c. Express will of all partners whose interests have not been
assigned or charged
d. Bona fide expulsion of any partner
2. With violation of agreement
3. Others
a. Any event which would make it unlawful for the partnership to
be carried on or for the members to carry it on in the partnership
b. Loss of a thing promised by a partner before delivery to the
partnership or loss of a thing only the use or enjoyment of
which was transferred by a contributing partner
c. Death of any partner
d. Insolvency of any partner or of the partnership
e. Civil interdiction of any partner
- parental authority or guardianship
- marital authority
- right to manage and dispose of property
f. Judicial decree of dissolution, upon application by or for a
partner:
- Declaration of insanity of a partner
- A partner becomes incapable of performing his part of the
partnership contract
- A partner is guilty of a conduct that prejudicially affects
carrying on of business of the partnership
- A partner willfully or persistently commits a breach of the
partnership agreement
- The business can only be carried on at a loss
- Other circumstances that would render dissolution
equitable
Rights of Partners Upon Dissolution
1. If cause of dissolution is other than contravention of partnership
agreement:
a. partners may have partnership property applied to discharge
liabilities
b. surplus of the partnership property shall be used to pay in cash
the net amount owing to the partners
c. if cause of dissolution is expulsion of a partner who is
discharged from partnership liabilities
4. expelled partner may receive in cash net amount due him
from partnership
2. If cause of dissolution is contravention of partnership agreement:
a. Partners who have not caused dissolution:
5. have the right to have partnership property applied to pay
partnership liabilities
- have the right to receive from surplus net amount due him
- have the right to claim for damages for breach of agreement
from partner who wrongfully caused dissolution
b. Partners who have not caused dissolution may continue the
business under the same name provided:
- the partner who caused dissolution is paid the value of his
interest in the partnership at dissolution less damages due
from him
- the partner who cause dissolution is indemnified for present
or future liabilities
c. Partner who caused dissolution wrongfully:
- has the right to receive from surplus net amount due him
subject to his liability for damages
- if the business is continued, he has the right to be paid in
cash the value of his partnership interest less damages due
from him.
Who May Undertake Winding Up
- Partners who have not wrongfully dissolved partnership
- Legal representative of the last surviving partner, not insolvent
- The court, upon application by a partner or his legal representative
Rescission of Partnership Due to Fraud or Misrepresentation
- The party entitled to rescind has the following rights:
1. lien on or right of retention of partnership property for his
capital or advances
2. right as creditor to be paid for his payments made for the
partnership
3. indemnity from the person guilty of fraud