Bohol Island State University
OAPE2: Partnership and Corporation
INSTRUCTIONAL MODULES IN
PARTNERSHIP AND CORPORATION
OAPE2
First Semester A.Y. 2023-2024
Credit Units: 3 Units
Number of Hours: 3 hrs. LEC
JOSEPH JAMES A. OLAVIDES
BOHOL ISLAND STATE UNIVERSITY – CANDIJAY CAMPUS
Bohol Island State University
OAPE2: Partnership and Corporation
OAPE2 - PARTNERSHIP AND CORPORATION
Course Outline
PART I THE PARTNERSHIP
Module 1 Accounting Cycle Application – Review on Sole Proprietorship
Process
Module 2 Partnership Basic Consideration
Module 3 Partnership Formation
Module 4 Partnership Operation and Distribution of Profit
Module 5 Dissolution of A Partnership
Module 6 Liquidation of a Partnership
Module 7 Course Evaluation
PART II THE CORPORATION
Module 8 The Nature and the Laws on the Formation of a Corporation
Module 9 Accounting for the Issuance of Shares of Stock
Module 10 Accounting for Retained Earnings and Distribution of Profits
Module 11 Course Evaluation
Bohol Island State University
OAPE2: Partnership and Corporation
MODULE 2: Partnership Basic Consideration
Learning Objectives:
1. Define and explain the nature of a partnership and how it is formed
2. Enumerate the basic elements and characteristics of a partnership
3. List the advantages and disadvantages of a partnership
4. Recall the basic contents of the Article of Co-Partnership
PPT Presentation will be sent through Google Classroom:
DEFINITION OF A PARTNERSHIP
Partnership Law, Article 1767 – “By the contract of partnership, two or more
persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profit among themselves.”
Civil Code of the Philippines, Article 1767 – “Two or more persons may also
form a partnership for the exercise of a profession.”
General Professional Partnership is a type of partnership as allowed by law
that two or more persons can act as partners in the practice of their profession.
This Partnerships are generally associated with the practice of law, public
accounting, medicine and other professions
Uniform Partnership Act, Section 6 – “An association of two or more persons
to carry on, as co-owners, a business for profit.”
Civil Code of the Philippines, Article 1768 – “The partnership has a juridical
personality separate and distinct from that of each of the partners.”
IMPORTANT CHARACTERISTICS OF A PARTNERSHIP
Partnership Law, Article 1768 states that the partnership
has a juridical personality separate and distinct from that of
Separate Legal
each of the partners with which the partnership may,
Personality
therefore, acquire property in its own name and may enter
into contracts.
The partnership may be created by oral or written
agreement between two or more persons, or merely by
Ease of
inferences from the implication of their conduct. The
Formation
formation of a partnership does not require as many
formalities as a corporation.
Bohol Island State University
OAPE2: Partnership and Corporation
Division of
The essence of partnership is that each partner must share
Profit or
in the profits or losses of the venture.
Losses
All assets contributed into the partnership are owned by the
Co-Ownership partnership. If one partner contributes an asset to the
of Contributed business, all partners will then jointly own it through the
Assets proprietary interest in the partnership. This interest refers to
each partner's share in the earnings and in the capital.
Any partner can bind the other partners to a contract if he is
Mutual Agency
acting within his express or implied authority.
A partnership may be dissolved by the admission, death,
Limited Life insolvency, incapacity, withdrawal of a partner or expiration
of the term specified in the partnership agreement.
All partners, EXCEPT limited partners, may be held
personally liable for all debts incurred by the partnership. If
Unlimited the partnership can't settle its obligations, creditors' claims
Liability will be satisfied from the personal assets of the partners
without prejudice to the rights of the separate creditors of
the partners.
Partner's Each partner has a capital account and a withdrawal
Equity account that serves similar functions as the related
Accounts accounts for sole proprietorships.
Partnerships, EXCEPT general professional partnerships,
Income Taxes
are subject to 30% tax rate of taxable income.
ADVANTAGES OF A PARTNERSHIP
Advantages versus Sole Proprietorships
1. Brings greater financial capability to the business.
2. Combines special skills, expertise and experience of the partners.
3. Offers relative freedom and flexibility of action in decision making.
Advantages versus Corporations
1. Easier and less expensive to organize
2. More personal and informal
DISTINGUISH PARTNERSHIP FROM SOLE PROPRIETORSHIP AND
CORPORATION
Bohol Island State University
OAPE2: Partnership and Corporation
Partnership Distinguished from Corporation
FORM OF ORGANIZATION
PARTNERSHIP CORPORATION
Manner of created by mere agreement created by operation of
Creation of the partners law
Number of at least five (5) persons,
two or more persons
Persons not exceeding fifteen (15)
commences from the
Commencement commences from the issuance of certificate of
of Juridical execution of the articles of incorporation by the
Personality partnership Securities and Exchange
Commission
every partner is an agent of
the partnership if the management is vested on
Management
partners did not appoint a the Board of Directors
managing partner
each of the partners except stockholders are liable
Extent of a limited partner is liable to only to the extent of their
Liability the extent of his personal interest or investment in
assets the corporation
Right of there is NO right of
there is right of succession
Succession succession
not to exceed fifty (50)
Terms of any period of time
years but subject to
Existence stipulated by the partners
extension
KINDS OF PARTNERS
Bohol Island State University
OAPE2: Partnership and Corporation
1. As to the Nature of Contribution
a. A capitalist partner is one who contributes cash or non-cash
properties.
b. An industrial partner is one who contributes only his labor,
knowledge, and skill.
c. An industrial-capitalist partner is one who contributes not only his
labor, knowledge, and skill but also cash or non-cash properties.
2. As to object
a. Universal partnership
i. Universal Partnership of all present property –
Contributions made by all partners shall become partnership
fund.
ii. Universal Partnership of profits – Any industry or work
acquired by the partners during the existence of the
partnership at the time of the institution of the contract b
iii. 2elong to the partnership.
b. Particular partnership – Has for its object is determinate things,
their use or fruits, or specific undertaking, or the exercise of a
profession or vocation.
3. As to liability of the partners
a. General Partnership. One where all the partners are general
partners who are liable to the extent of their separate properties.
b. Limited Partnership. One where there is at least one general
partner and at least one limited partner. The general partners are
liable to the extent of their separate properties, while the limited
partners are liable only to the extent of their contribution to the firm.
4. As to Knowledge by the Public and Management of the Partnership
a. A secret partner is a partner who is not known to the public as a
partner but participates actively in the management of partnership
affairs.
b. A silent partner is a partner who is known as a partner but does
not take an active part in the management of partnership affairs.
c. A dormant partner is one who is not known to be a partner and
does not take an active part in the management of the partnership.
5. As to Duration
a. With a fixed term
b. For a particular undertaking
Bohol Island State University
OAPE2: Partnership and Corporation
c. At will
6. As to the Nature of Management Work
a. A managing partner is one who is chosen by the partners to
manage the operation of the partnership for the partners.
b. A liquidating partner is one who is designated to wind up the
affairs of the partnership.
7. As to purpose
a. Trading or Commercial. Formed for the purpose of selling
products/goods to the prospective customers or consumers.
b. Practice of Profession. Formed for the purpose of using
professional knowledge and skills for the clients.
8. As to legality of existence
a. De jure partnership. A partnership that has complied all the legal
requirements for its formation.
b. De facto partnership. One which has failed to comply with all the
legal requirements for its establishment.
9. Pseudo Partners
a. A nominal partner is one who is not a partner but allows the use of
his name either for accommodation or for consideration. He does
not participate in the partnership’s management and has no
financial investment in the business.
b. A partner by estoppel is one who is not a partner but represents
himself or consents to another representing him to a third person as
a partner in an existing partnership. The law considers him to be a
partner in that existing partnership as far as the third person is
concerned
STEPS IN THE FORMATION OF A PARTNERSHIP
1. Business Name
Bohol Island State University
OAPE2: Partnership and Corporation
The partnership must have a business name. File an application for a
business name with the Securities and Exchange Commissions (SEC).
The business name will be reserved for thirty days until the Article of Co-
Partnership is approved.
2. Securities and Exchange Commission (SEC)
An Article of Co-Partnership, the partnership contract, should be filed with
the SEC for approval. Within one month from the date of filing, such
partnership contract shall be approved or disapproved by the said
Commission
3. SSS, PhilHealth, and Pag-IBIG
The partnership must also register with the Social Security System,
Philippine Health Insurance Corporation, and Home Development Mutual
Fund (Pag-IBIG) to secure the certificates of membership and employer ID
number.
4. Business Permit
Before starting operations, a business permit should be secured from the
city or municipality where the business is located.
5. Bureau of Internal Revenue (BIR)
Finally, the partnership must register with the Bureau of Internal Revenue
to secure a tax identification number (TIN) and be classified as VAT or
non-VAT taxpayer. Further, the partnership must also acquire approval
from the BIR for its books of accounts and business forms, such as the
sales invoices and official receipts.
THE ARTICLES OF PARTNERSHIP AGREEMENT AND SEC REGISTRATION
ARTICLES OF PARTNERSHIP
Bohol Island State University
OAPE2: Partnership and Corporation
A partnership may be constituted orally or in writing. In the latter case,
partnership agreements are embodied in the Articles of Partnership. The
following essential provisions may be contained in the agreement:
1. The partnership name, nature, purpose and location;
2. The names, citizenship and residences of the partners;
3. The date of formation and the duration of the partnership;
4. The capital contribution of each partner, the procedure for valuing non-
cash investments, treatment of excess contribution (as capital or as loan)
and the penalties for a partner’s failure to invest and maintain the agreed
capital;
5. The rights and duties of each partner;
6. The accounting period to be adopted, the nature of accounting records,
financial statements and audits by independent public accountants;
7. The method of sharing profit or loss, frequency of income measurement
and distribution, including any provisions for the recognition of differences
in contributions;
8. The drawings or salaries to be allowed to partners;
9. The provision for arbitration of disputes, dissolution, and liquidation.
Partnership agreements are usually with the aid of or in consultation with
lawyers and certified public accountants. Some of the areas where the
partners may seek the advice of an accountant are as follows:
1. The determination of the fair market value to be assigned to the noncash
assets initially invested to the partnership.
2. The ascertainment of the individual partner’s initial interest in the
partnership capital.
3. The formulation of the plan for sharing in the profits or losses.
4. The determination of the methods to compute the interest of a withdrawing
partner as a result of his retirement or death. A factor to be considered in
cases of withdrawal is the necessity of revaluing the assets and
recognizing intangible asset values such as goodwill.
5. The determination of the closing procedures to be followed, that is,
whether or not income and withdrawals are to be closed to the capital
account at the end of the accounting period, thereby, increasing or
decreasing the total capital.
CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP
1. Consensual – because it is perfected by mere consent
Bohol Island State University
OAPE2: Partnership and Corporation
2. Nominate – because it has a special nomenclature or designation in law
3. Preparatory – because its organization or formation must be perfected
first before it can validly enter into contract with third persons
4. Onerous – because it involves contributions of the partners to a common
fund.
5. Bilateral or multi-lateral – because it is entered into or stipulated by two
or more persons
6. Principal – because it can stand alone, its existence is not dependent
upon another contract.
SEC REGISTRATION
When the partnership capital is P3,000 or more, in money or property, the public
instrument must be recorded with the Securities and Exchange Commission
(SEC). Even if it is not registered, the partnership having a capital of P3,000 or
more is still valid and therefore has legal personality.
The SEC shall not register any corporation organized for the practice of public
accountancy.
The purpose of the registration is to set “a condition for the issuance of the
licenses to engage in business or trade. In this way, the tax liabilities of big
partnerships cannot be evaded, and the public can also determine more
accurately their membership and capital before dealing with them.
References:
Palma, R. (2013), Basic Accounting 2: Partnership and Corporation
