Module on Business Law 2

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  • 7/28/2019 Module on Business Law 2



    Definition of law on partnership

    Concept and nature of partnership; forms of partnershipcontracts; contribution of partners; conveyance of properties

    Commencement of partnership; obligations of a capitalist andan industrial partner; sub-partnership and its effect; right toengage in business; right to account partners interest inpartnership property

    Contractual obligations of the partnership; instances of solidaryliability; partnership by estoppel.

    Distinguish dissolution, winding up and termination causes ofdissolution grounds for dissolution by decree of court; power tobind dissolved partnership; manner of winding up

    Liquidation and distribution of assets, accrual of a partnersright to account; concept and nature of limited partnership

    Contribution of a limited partner; liability of a limited partner;admission of a limited partner; rights of a limited partner;compensation.

    Return of contribution; effect of retirement, death etc of a limitedpartner; amendment and cancellation of certificate.

    Attributes of a corporation; corporate entity doctrine; piercingthe veil of corporate fiction; classification of corporation;classification of shares; term of corporate existence; contents ofarticles of incorporation; acquisition of juridical personality.

    Qualification/disqualifications and election ofdirectors/trustees/corporate officers; removal ofdirectors/trustees or resignation; vacancies compensation; self-dealing and interlocking directors; powers of the corporation.

    Kinds of powers of the corporation; other powers of corporation

    Ultra vires acts; ratification of ultra vires act; by-laws and itsfunctions, validity of by laws and its contents, revocation of bylaws, distinguished from articles of incorporation

    Subscription of shares of stocks, nature of certificate of stock;liability of stockholder for non-payment of subscription;procedures for sale of delinquent stocks, corporate books andrecords; procedure for effecting plan of merger or consolidation

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    Instances when appraisal right available when right to paymentceases; purpose of a non-stock corporation; distinguished fromstock corporations; close corporations; provisions in articles ofincorporation; pre-emptive right of stockholders

    Educational and religious corporations; manner of dissolvingcorporations; corporate liquidation; foreign corporations;application and issuance of license; doing business in thePhilippines; sue due to isolated transactions

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    Read carefully the subject matter and at the end of each subjectyou find questions which you are to answer which will serve asyour examination and will form part of your grade. Answers tothe questions shall be submitted before the scheduled finalexamination.

    CONTRACT OF PARTNERSHIP 2 or more persons bindthemselves to contribute money, property or industry to acommon fund; with the intention of dividing the profits amongthemselves.


    1. valid contract2. contribution of money, property or industry to a

    common fund3. organized for gain or profit4. lawful object or purpose; established for the common

    benefit or interest of the partners.

    *** mere co-ownership or co-possession) do not establish*** mere sharing of gross returns ) a partnership

    Kinds of Partnership:1. universal refer to all present property or to all profits2. particular has for its object determinate things, their use

    or fruits or specific undertaking or the exercise of aprofession or vocation

    3. general one where all the partners are general partners,where their liabilities extend to their individual propertiesafter the assets have been exhausted.

    4. limited one where at least one partner is a general partner

    and the others are limited partners.

    Leonine Partnership a partnership where one partner is madeliable for the losses, but is not entitled to share in the profits.Not allowed.

    Kinds of Partners:1. as to liability

    a. general those who can be held for partnership

    obligations even to the extent of their privatepropertyb. limited n- those who cannot be held liable for

    partnership obligations2. as to contribution

    a. capitalist contribute money or property to commonfund

    b. industrial those who contribute only their skill orindustry to the common fund

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    3. as to managementa. managing those who manage or administerpartnership affairsb. silent those who have no voice in the managementof partnership affairs

    4. as to third personsa. ostensible those publicly known as suchb. secret those whose connection with the partner-

    ship is not knownc. by estoppel those who represent themselves or

    consent to another or others representing them to anyone aspartners either in an existing partnership or in one that isfictitious or apparent also known as de facto partners.

    Rights of partnership:1. it has a personality separate and distinct from the partners2. it can acquire or possess property3. it can incur obligations4. it can bring actions5. it can be adjudged insolvent

    Sharing of net profits is prima facie evidence that one is apartner except if such profits were received in payment:

    1. as a debt by instalment or otherwise2. as wages of an employee or rent to a landlord3. as an annuity to a widow or representative of a deceased

    partner4. as an interest on a loan, though the amount of payment

    vary with the profits of the business5. as the consideration for the sale of a goodwill of a

    business or other property by instalment or otherwise.

    PRINCIPLE OF DELECTUS PERSONAE no one can becomemember of the partnership association without the consent of allthe partners.

    Right of a partner to demand formal accounting of partnershipaffairs, When:

    1. he is wrongfully excluded from the partnership business orpossession of its property by his co-partners

    2. rights exist under the terms of any agreement

    3. a partner has derived profits from any transactionconnected with the formation, conduct or liquidation of thepartnership or from any use by him of his property; or

    4. whenever other circumstances render it just andreasonable

    Property rights of a partner:1. rights in specific partnership property2. interest in the partnership and his share of the profits and


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    3. right to participate in the management only in no. 2 isassignable.

    Rights of a partner in specific partnership property:1. has an equal right with other partners to possess specific

    partnership property for partnership purposes2. not assignable, except in connection with the assignment

    of rights of all partners in the same property3. not subject to attachment or execution except on a claim

    against the partnership4. not subject to legal support.

    Partnership maybe held liable to a third person for the act of oneof the partners: When:

    1. contract was entered into in the name and for the accountof the partnership and under its signature and

    2. such partner was authorized to act for the partnership

    Effects of conveyance by partner of his interest in thepartnership:

    1. conveyance of his whole interest, partnership may eitherremain or be dissolved

    2. assignee does not necessarily become a partner3. assignee cannot even interfere in management or

    administration of the partnership business or affairs; andassignee cannot also demand:

    a. informationb. accountingc. inspection of the partnership books

    Rights of Assignee:1. get whatever assignor-partner would have obtained2. avail usual remedies in case of fraud in the management

    3. ask for annulment of contract of assignment if he wasinduced to join through any of the vice of consent

    4. demand an accounting (only in case of dissolution)

    DISSOLUTION change in the relation of the partners caused byany partner ceasing to be associated in the carrying on of thebusiness

    WINDING UP process of liquidating partnership affairs

    TERMINATION moment when partnership affairs were woundup.

    Causes of dissolution of partnership:1. without violation of the agreement between partners;

    a. by termination of the definite term or particularundertaking specified in the agreement

    b. by express will of any partner, who must act in goodfaith, when no definite term or particular undertaking

    is specified

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    c. by express will of the partners who have notassigned their interests or suffered them to becharged for their separate debts, either before orafter the termination of any specified term orparticular undertaking

    d. by expulsion of any partners from the business bonafide in accordance with such power conferred by theagreement between the partners

    2. in contravention of the agreement between partners wherethe circumstances do not permit a dissolution;

    3. by any event which makes it unlawful for the business ofthe partnership to be carried on or for the members tocarry it on in partnership

    4. when a specific thing which a partner had promised to

    contribute to the partnership perishes before the deliveryin any case by the loss of the thing, when the partner whocontributed it having reserved the ownership thereof, ahsonly transferred to the partnership the use or enjoyment ofthe same; but the partnership shall not be dissolved by theloss of the thing when it occurs after the partnership hasacquired ownership

    5. by death of any partner6. by insolvency of any partner or of the partnership7. by civil interdiction of any partner8. by decree of court


    GENERAL PARTNER LIMITED PARTNER1.can be held personallyliable for partnershipobligations after allpartnership assets are


    1.cannot be held liable

    2.may participate in themanagement of partnership

    2.does not

    3.may contribute money,property or industry tocommon fund

    3.can contribute money orproperty only may appear in the firmname

    4.does not

    5.there is a limitation on rightto engage in another businessor in the same kind of business such limitation

    Substituted Limited Partner a person admitted to all the rights

    of a limited partner who has died or has assigned his interest in

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    a partnership. Has all rights and powers and is subject to allrestrictions and liabilities of his assignor, except those liabilitiesof which he was ignorant at the time he became a limited partnerand which could not be ascertained from the certificate.

    Order of payment in the winding up of partnership liabilities

    1./general partnership -a. those owing to creditors other than partnersb. those owing to partners other than for capital and profitsc. those owing to partners in respect of capitald. those owing to partners in respect of profits

    2. limited partnershipa. those to creditors in the order of priority as provided by

    law, except those limited partners on account of theircontributions and to general partnersb. those to limited partners in respect to their share of theprofits and other compensation by way of income on theircontributionsc. those to limited partners in respect to the capital of theircontributionsd. those to general partners other than for capital andprofitse. those to general partners in respect to profitsf. those general partners in respect to capital

    QUESTION NO. 1What are the tests or indicia to determine the existence of a


    QUESTION NO. 2Assuming that there is mutual contribution of money,

    property or industry to common fund, is the receipt by a personof a share of the profits of a business conclusive evidence thathe is a partner in the business? Explain

    QUESTION NO. 3a. Can a husband and wife enter into a contract of

    partnership?b. A organized a limited partnership with himself as

    general partner and his two friends, B and C, as

    limited partners. One year later, A and B got married,and thereafter the two bought the interest of C for anominal amount. The Commissioner of InternalRevenue now maintains that the marriage of A and Band their subsequent acquisition of the interest of Cin the partnership dissolved the limited partnershipand if there was no dissolution, the fiction of juridicalpersonality of the partnership should be disregardedfor income tax purposes because the spouses haveexclusive ownership and control of the business.

    Consequently, the income tax returns of A and his

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    wife B should have included his and his wifesindividual incomes and that of the limitedpartnership. Is this correct? Reason.

    QUESTION NO. 4a. Who shall manage the partnership? Qualify your answer.

    b. A, B, C and D organized a general partnership with A and B

    as industrial partners and C, who contributed 30,000 to thepartners common fund, and D, who contributed 10,000 to thecommon fund as capitalist partners. A and B were bothappointed managing without any specifications of theirrespective duties. When the firm commenced business

    operations, the two appointed X as accountant of the company.A year later, A decided to dismiss X. but this was opposed by B.How can the conflict between the two be resolved?

    c. Suppose that in the above problem, nobody was appointedmanaging partner of the firm, how shall the conflict between Aand B resolved?


    A, B and C formed a general partnership with the followingcontributions to the common fund: A, 2,000; B, 4,000; C, 6,000.There was no agreement on the division of profits orapportionment of losses. After some years of businessoperations, the assets of the partnership dwindled to 3,000; sothe partners agreed to stop their loan of 12,000. Under thecircumstances, from whom can Corpuz demand satisfaction ofhis credit, and to what extent?


    CORPORATION artificial being created by operation of lawhaving the right of succession, and the powers, attributes andproperties expressly authorized by law and incident to itsexistence.

    CONCESSION THEORY juristic principle in the creation ofcorporation under which a corporation is an artificial creature

    without any existence until it has received the imprimatur of thestate acting according to laws, through SEC

    Theory of Corporate Enterprise or Economic Unit corporationnot merely an artificial being, but more as an aggrupation ofpersons doing business or an underlying business unitPrimary franchise - the franchise to exist as a corporation

    Secondary Franchise right or privilege conferred upon existing

    corporation, such as to use the streets of a municipality to lay

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    pipes or tracks or operate a messenger and express deliveryservice.

    ATTRIBUTES OF CORPORATIONdistinct personalityperpetual successionacquisition of property, contracting obligations and bringing

    of suits; andreceipt and enjoyment in common of privileges and


    Doctrine of piercing the veil of corporate fiction allows thestate to disregard for certain justifiable reasons the fiction of

    juridical personality for the corporation, separate and distinct



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