CHAPTER 4 - LIMITED PARTNERSHIP
1. Define a Limited Partnership.
❖ According to Art. 1843
❖ Limited partnership is one formed by two or more persons, having one or
more general partners and one or more special/limited partners, who are not
personally liable for partnership debts.
2. What are the characteristic features of a limited partnership?
(1) Formed by compliance with statutory requirements (Art. 1844)
(2) One or more general partners control business and are personally liable to
creditors of partnership (Art. 1848, 1850)
(3) One or more limited partners contribute capital and share in the profits but
do not participate in management and not personally liable beyond
contribution
(4) Limited partners may ask for return of capital contributions under conditions
prescribed by law
(5) *Debts are paid out of common fund and separate properties of general
partners
● Note: XPN to the GN that all partners including industrial are liable pro rata with all
their property for partnership debts
● Note: Limited partners has same type of liability as a stockholder of a corporation
● Note: Reason for statutes
(1) Secure capital
Differences between general and limited partner
GENERAL LIMITED
Creation any form after compliance with statutory
requirements (Art. 1844)
Contribution money, property, industry money or property, not services
Membership all are general partners at least one General Partners
and at least one Limited Partners
Management right All are managers, when No participation (active, takes
management has not been control of the business) in the
agreed upon management and if he do so,
becomes liable as general
partner
Extent of liability partners are liable for only liable to the extent of capital
partnership obligations contribution
Effect of d,i, dissolves partnership will not dissolve partnership but
retirement, insanity executor shall have the rights of
a limited partner for the purpose
of selling his estate
Prohibition to engage capitalist partner/industrial no prohibition unless prohibited
in other business partner by the law
Assignment of interest in specific partnership interest is assignable
interest prop? is not assignable unless
consented to by all of the other
partners
Firm name may or may not include the must be followed by ltd, surname
name of others of LP shall not appear in the
partnership name
3. What are the requirements to form a limited partnership?
❖ Art. 1844
(1) Sign and swore in the certificate of articles of limited partnership which
states matters in 1844
(2) Must be filed for record in the Office of the Securities and Exchange
Commission
● To give actual or constructive notice to third person as to the nature of limited liability
consisted in the partnership
❖ Where there is presumption of general partnership: a partner transacting
is a prima facie general partnership because
➢ (1) limited partnership requires statutory compliance
➢ (2) failure to extend term of limited partnership and register it as new
with SEC divests the privilege of a limited partner to limited liability
and thus considered as a general partnership
● The wording states “Subscribed and sworn to before me…” – subscribed
meaning “signed” and sworn meaning that an oral oath or affirmation was
given. “Before me” means that both were done in the presence of the notary
public.
4. Must the certificate of limited partnership contain all the requisites enumerated
above?
❖ Strict legal compliance is not necessary, as long as there is substantial
compliance. If not, third persons assume general liability
➢ substantial compliance - with good faith
5. What is the effect of non-compliance with the statutory provisions governing
the formation of a limited partnership?
❖ It becomes general partnership in which case all members become liable as
general partners
➢ Thus, a limited partner treated as a general partner as far as third
persons are concerned is entitled to reimbursement from the general
partner or partners for whatever obligations he might have paid to
partnership creditors beyond his capital contribution.
6. What may be the contribution of a limited partner?
❖ money or property but not services
7. Why is it that a limited partner cannot contribute service?
❖ (1) If he contributes service, he thus become a general and industrial partner
which will not exempt him from personal liability
❖ (2) Time - paid before the formation of the limited partnership.
● Note: The law is not satisfied with promissory notes, checks, but a certified or
manager’s check satisfies the law provided that this gives the general partner
absolute and final control of the amount.
8. Can an industrial partner be at the same time a limited partner?
❖ A partner can be both general and limited in the same partnership provided
that it is recorded in the certificate.
● Rights are those of general partner
● Liabilities are those of general partner, but he is limited as to his contribution
9. Must a surname of a limited partner appear in the partnership name?
❖ GN: No, a limited partner's surname must not appear in the partnership's
name. (Art. 1846)
➢ Violation of such will held lp personally liable as a general rule to
creditors without however the rights of a general partner
➢ If such third person has actual knowledge of limited partnership, then
he is liable as a limited partner only
10.Under what cases shall a limited partner be not liable as a general partner
although his surname appears in the partnership name?
❖ XPNs:
➢ (1) It is also the surname of GP.
➢ (2) Prior to when the limited partner became such, the business had
been carried on under the name of which surname appeared.
● Note: Failure to comply will make the limited partner a general partner as to
liabilities, but not as to rights.
● XPN: when a third person has actual knowledge, he is only a limited partner, thus,
not personally liable.
11.What is the basis of the liability of a partner for false statement in the
certificate?
❖ According to Art. 1847
❖ Any partner is liable provided that:
➢ Requisites:
(1) False statement - He knew the statement to be false at the
time he signed the certificate or subsequently, but having
sufficient time to cancel or amend it or file a petition but failed
to do so
(2) Relied - The person seeking to enforce liability has relied upon
the false statement in transacting business w/ partnership
(3) Loss - The person suffered loss upon reliance.
● Note: This shall not make a limited partner a general partner.
12.When shall a limited partner be held liable as a general partner?
❖ According to Art. 1848
❖ If he involved himself in the management such that he takes part in the
control of the business (active participation)
➢ Note: Unless he settles its affairs after dissolution
13.May additional limited partners be admitted after the formation of the limited
partnership?
❖ Yes, According to Art. 1849
❖ Requirements of Art. 1865:
(1) Amendment be in writing
(2) Signed and sworn by all members including new ones
(3) Must be filed for record in SEC
14.What are the rights and liabilities of a general partner in a limited partnership?
❖ According to Art. 1850, A general partner shall have all the rights and
powers and be subject to all restrictions and liabilities of a partnership without
limited partners.
15.Why is it that for the above acts the consent of all the general and limited
partners is necessary to be binding upon the partnership?
❖ However, without written consent or ratification of the specific act by all the
limited partners, a general partner or all of the general partners have no
authority to:
(1) Do any act in contravention of the certificate
(2) Do any act which would make it impossible to carry on the ordinary
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 retirement,
insanity, death, insolvency, or civil interdiction (RIDIC) of a general
partner, unless the right to do is given in the certificate
● (1) contravention to the agreement in the certificate
● (2) (3) (4) prejudicial to the interest of the limited partners
● (5) (6) fiduciary nature
● (7) 1860 dissolution
16.What are the rights of a purely limited partner in a limited partnership?
❖ According to Art. 1851, A limited partner shall have the same rights as a
general partner to:
(1) Have the partnership books kept at the principal place of the
business of the partnership
(2) Inspect and copy any of them at reasonable hour
(3) Demand true and full information of all things affecting the
partnership
(4) Demand a formal account of partnership affairs whenever
circumstances render it just and reasonable
(5) Ask fo dissolution and winding up by decree of court
(6) Receive share of profit or other compensation by way of income
(7) Receive the return of his contribution provided that partnership
assets are in excess of all its liabilities
● Note: He cannot take part in the control of the business which is left to the general
partners
● Art. 1852. If the law is not complied with, the attempt to limit the liability of the limited
partners will be ineffective, at least as to creditors who have not recognized or dealt
with the firm as a limited partnership
17.What is the status of a person who contributed to the capital of the
partnership, erroneously believing himself a limited partner? (Art. 1852 cont.)
❖ Creditor of the partnership He is still a limited partner and not liable as a
general partner by reason of his exercise of the rights as a limited partner
provided:
(1) On ascertaining the mistake, he promptly renounces his interest in
the profits of the business or other compensation by way of
income
(2) His surname does not appear in the partnership name
(3) He does not participate in the management of the business
● partnership creditors here are prejudiced
18.Can a person be a general and limited partner in the same partnership at the
same time?
❖ According to Art. 1853, Yes, provided that this fact was stated and signed in
the certificate, sworn to and recorded in the Office of SEC
19.What are the rights and liabilities of a person who is both a general and limited
partner in the same partnership?
❖ A person who is a general partner and a limited partner at the same time shall
have all the rights and powers and be subject to all restrictions of a general
partner except that in respect to his contribution, he shall have the rights
against other members which he would have had if he were not also a
general partner.
● Rights are those of general partner
● Liabilities are those of a general partner, but he is limited as to his contribution (so
bawal industry).
● Generally, he is liable to third persons in his separate properties. In his contribution
as a limited partner, he would have the right of a limited partner
● in Dissolution siya ang mauna
20.Can a limited partner loan money or transact other business with the
partnership?
❖ According to Art. 1854, Yes, a limited partner may loan, unless he is also a
general partner
➢ Allowable transactions:
(1) Granting loans to the partnership
(2) Transacting business with it
(3) Receiving a pro rata share of the partnership assets with
general creditors if he is also not a general partner
➢ Prohibited transactions:
(1) Receiving or holding as collateral security any partnership
property
(2) Receiving any payment, conveyance, or release from liability if
it will prejudice the right of third persons
● violation of prohibition will give rise to the presumption that it has been made to
defraud partnership creditors
● Preferential rights of third persons is enjoyed insofar as partnership assets are
concerned
21.Among several limited partners, who among them shall be preferred as to the
return of their contribution and as to compensation by way of income, or as to
any other matter?
❖ Art. 1855.Those given preference by the certificates, By an agreement of all
the members (general and limited partners) stated in the certificate,
preference may be given to some limited partners over other limited partners
as to the:
(1) return of their contribution
(2) their compensation by way of income (profit per agreement?)
(3) any other matter
❖ This agreement needs to be in the certificate. If there's no such agreement,
then all limited partners are treated the same.
22.Under what circumstances may a limited partner receive from the partnership
his share of the profits or the compensation by way of income stipulated for in
the certificate?
❖ Partnership assets will still exceed liabilities after payment to partnership
creditors
➢ Partnership liabilities exclude liabilities to general partners and to
limited partners
23.What are the requisites to be followed before a limited partner can have the
return of his contribution?
(1) All liabilities to third persons have been paid or there remains property of the
partnership sufficient to pay them
(2) Consent of all members (except when it is rightfully demanded) and
(3) Certificate is canceled or so amended as to set forth the withdrawal or
reduction
❖ When to rightfully demand in the return of contribution
(1) On dissolution of partnership
(2) When date specified in the certificate for return has arrived
(3) After he has given six months’ notice in writing to all other members if no
time is specified in the certificate, either for dissolution (1) or return of
contribution (2) other liabilities of the partnership have not been paid or the
partnership property is insufficient
24.In what form shall the return of the contribution to a limited partner be made?
❖ (1) Certificate (stipulation) to receive return other than cash
❖ (2) Consent of all partners to receive return other than cash
❖ (3) In the absence of (1) and (2), limited partner has only the right to demand
and receive cash in return for his contribution
25.What are the causes by which a limited partner may ask for the dissolution of
the partnership?
❖ (1) Dissolution by judicial decree
(a) He rightfully but unsuccessfully demands the return of his
contribution
(b) The other liabilities have not been paid or partnership property is
insufficient (1st requisite for the return of his capital is not met, limited
partner would otherwise be entitled to the return of his contribution)
❖ (2) Dissolution by partners - limited partner MUST FIRST ASK THE OTHER
PARTNERS TO HAVE PARTNERSHIP DISSOLVED, if they refuse, seek
judicial decree
26.What are the liabilities of a limited partner to the partnership?
❖ (1) For the difference between his contribution as actually made and stated in
the certificate as having been made (balance); and
❖ (2) For any unpaid contribution which he agrees to in the certificate to make in
the future at the time and on the conditions stated in the certificate.
❖ (3) As a trustee for partnership property
27.When is a limited partner considered a trustee of certain property for the
partnership?
❖ (1) Specific property stated in the certificate as contributed by him, but which
was not contributed or which has been wrongfully returned.
❖ (2) Money or property wrongfully paid or conveyed to him on account of his
contribution.
28.May these liabilities of a limited partner be waived or compromised?
❖ Yes, only by the consent of all members and waiver shall not affect right of
creditor who extended credit or whose claim arose after the filing and before a
cancellation or amendment of certificate, to enforce such liabilities
29.Will the rightful return of the capital a limited partner has contributed discharge
the partner from his liabilities to the partnership?
❖ No, contributor who rightfully received the return in whole or part is
nevertheless liable to partnership for any sum, not in excess for such return
with interest, necessary to discharge its liabilities to all creditors who
extended credit or whose claims arose before such return
30.Is a limited partner’s interest in the partnership assignable without the consent
of the other partners?
❖ Yes. It is his personal property.
31.Distinguish a substituted limited partner from an assignee.
❖ (1) Substitute Limited Partner – an assignee who becomes part of the
partnership as a partner; acquires all the rights of the partner (assignor)
❖ (2) Assignee – only has the right to receive partner’s (assignor) interest and
nothing else
● In the context of limited partnership
(1) Substituted limited partner - person admitted to all rights of a limited partner
who has died or assigned his interest in the partnership
➢ has all rights and powers subject to all restrictions and liabilities of his
assignor, except those liabilities which he was ignorant of at the time
he became a limited partner and which could not be ascertained from
the certificate (why? nature of limited liability)
(2) Assignee - does not become substituted partner and has no right to have the
books kept at principal place of business, inspect and have a copy on them,
demand true and full information affecting partnership affairs, demand formal
account
➢ his right is to receive share of the profits or other compensation by
way of income or return of assignor's contribution
➢ only becomes a substituted partner if (1) consented by all partners (2)
empowered by the certificate and properly amended (3) recorded to
SEC
➢ assignment does not release assignor from liability to partnership;
false statement and to those claim arose before substitution
32.How can an assignee become a substituted limited partner?
❖ only becomes a substituted partner if (1) consented by all partners (2)
empowered by the certificate and properly amended (3) recorded to SEC
33.What are the rights and liabilities of a substituted limited partner?
❖ The substituted limited partner has all the rights and powers, and is subject to
all the restrictions and liabilities of his assignor.
34.Will the substitution of an assignee as a limited partner release the assignor
from his liability to the partnership?
❖ The substitution of an assignee as a limited partner does not release the
assignor from his liability to persons who suffered damage by reliance on
false statements in the certificate and to creditors who extended credit or
whose claims arose before the substitution.
35.What are the causes for the dissolution of a limited partnership?
(1) Retirement
(2) Insolvency
(3) Death
(4) Insanity
(5) Civil Interdiction of a general partner
➢ UNLESS the business is continued by the remaining general partners:
I. Under a right to do so, stated in the certificate
II. Consent of ALL members
➢ such requires amendment
36.Does death of a limited partner dissolved the partnership?
❖ No, he is only a limited partner. It will not dissolve if there are many limited
partner left.
37.If death of a limited partner does not dissolve the partnership, what is the
effect of such death upon the partnership?
❖ His executor or administrator shall acquire all the rights for the purpose of
settling the affairs of limited partner and the right to constitute the deceased’s
assignee as substituted limited partner
➢ this right constitute only if the deceased partner was empowered to do
so in the certificate
❖ Estate of deceased partner shall be liable for all his liabilities contracted by
the partnership while he was a limited partner
38.Is the interest of a limited partner in the partnership subject to attachment by a
personal creditor of the limited partner?
❖ Yes
➢ (1) due application to a court of competent jurisdiction by any creditor
of a limited partner, the court may
➢ (2) charge the interest of the indebted limited partner with payment of
the unsatisfied amount of such claim
➢ (3) may appoint a receiver and make all orders, directions, inquiries
39.In the event the interest of the limited partner is ordered sold, may it be
redeemed?
❖ Yes, it may be redeemed by a separate property of any general partner, but
may not be redeemed by partnership property
40.How shall the assets of the limited partnership be distributed after dissolution?
❖ (1) Outside Partnership creditors including limited partners (Art 1854)
❖ (2) Limited partners in respect to their share of the profits and other
compensation by way of income on their contribution
❖ (3) Limited partners in the capital of their contributions
❖ (4) General partners as creditors, other than for capital and profits
❖ (5) General partner for their profits
❖ (6) General partner for their capital
41.In the event the partnership assets are insufficient to pay the claims of the
limited partners for capital and profits how shall the share of the limited
partners in respect to such claims be determined?
❖ Limited partners share in the partnership assets in respect to their claims for
capital, and in respect to the limited partners’ claims for profit or for
compensation by way of income on their contribution respectively, in
proportion to the respective amounts of such claims
42.When shall the certificate of limited partnership be canceled?
❖ Canceled, not merely amended
❖ (1) When the partnership is dissolved other than by expiration of term or
❖ (2) When all limited partners cease to be limited partners
43.When shall the certificate be amended?
(1) There is a change in the name of the partnership or 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 dies, retires, insane, insolvent, or sentenced to civil
interdiction and business is continued
(6) There is a change in the character of the business of the partnership
(7) There is false or erroneous statement in the certificate
(8) There is a change in the time as stated in the certificate for the dissolution of
the partnership or for their return of contribution
(9) A time is fixed for dissolution of the partnership or the return of a contribution,
no time having been specified in the certificate
(10) Members desire to make change in any other statement in the certificate
in order that it shall accurately represent the agreement among them
44.What are the requisites for the amendment of the certificate?
(1) Must be in writing and conform the necessary requirements of Article 1844
(katong taas) as far as necessary to set forth clearly the change in the
certificate which it is desired to make
(2) Signed and sworn by all the members including new members and the
assigning partner in case of substitution or addition of limited partner
(3) Must be filed for record in SEC
45.In case of cancellation of the certificate who shall sign such?
❖ All members including new ones
➢ Approval by SEC for cancellation or amendment is not required
46.Who shall execute the writing to either amend or cancel the certificate?
❖ person designated in the certificate
47.What is the procedure to be taken by a partner who desires the cancellation or
amendment of a certificate in the event the partner designated in the
partnership to execute the writing refuses to do so?
❖ A person desiring the cancellation or amendment of a certificate, if any
person designated in the certificate refuses to do so, may petition the court to
order a cancellation or amendment thereof
❖ If court finds that petitioner has the right to have writing executed by a person
who refuses to do so, it shall order the Office of SEC to record cancellation or
amendment and when it is amended, the court shall also cause to be filed for
record in the said office certified true copy of its decree/order setting forth the
amendment
48.When shall the certificate be considered amended or canceled?
❖ A certificate is amended or canceled when there is filed for record in the SEC
where the certificate is recorded
(1) in writing
(2) a certified true copy of the order of the court
(3) amended certificate shall thereafter be for all purposes the certificate
provided
49.Who is considered a contributor in a limited partnership?
❖ limited partners as his liability is limited to his interest in the firm without any
right and power to participate in the management and control of the business
50.Is a limited partner a proper party to be sued by or against the partnership?
❖ No, because he is not in active management, no name in the firm name, not
principals in partnership transactions
❖ GN: Liability is to the partnership not to creditors of partnership so no right of
action
❖ XPNs: unless he is a general partner or he becomes liable as a general
partner
51.How are limited partnerships formed prior to the effectivity of the New Civil
Code (Aug. 1, 1950) governed?
❖ Shall continue to be governed by the provisions of the Old Law.
52.When shall such partnership be governed by the provisions of the New Civil
Code?
❖ complying with the following in addition to Art. 1844 requirements:
(1) Amount of original contribution of each limited partner and the time
when the contribution was made and
(2) Property of partnership exceeds the amount sufficient to discharge its
liabilities to persons not claiming as general or limited partners by an
amount greater than sum of the contributions as limited partners
● If such limited partnership formed prior to the New Civil Code, then the old law will be
followed
