Contract of Partnership

Contract of Partnership

A contract of partnership exists when two or more persons contribute money, property, or industry to a common fund, with the intention to divide profits or exercise a profession, and with a lawful purpose.

In determining the existence of a partnership, the general rule is that sharing of profits indicates a partnership. Sharing of gross returns or revenue, co-possession or co-ownership, and being non-partners to each other do not by themselves establish a partnership. Under Article one thousand seven hundred sixty-nine, profit received as payment of debt, wages or rent, an annuity to a widow, or interest from a loan does not establish a partnership.

As a general rule, a partnership is consensual and is perfected by mere consent, whether written or oral. Exceptions in the source involve immovables and capital exceeding three thousand pesos. Where immovables are contributed, the contribution must be inventoried and signed in a public instrument; otherwise the partnership is void. For capital exceeding three thousand pesos, a public instrument and SEC registration are required; otherwise the partnership remains valid, with registration intended to affect third persons.

Two principles are Affectio Societatis, meaning mutual confidence and trust, and Delectus Personae, meaning personal choice.

Kinds of Partnership

As to object, a partnership may be universal or particular. A universal partnership may be a universal partnership of all present property or of all profits. In all present property, present property and its fruits form part of the common fund; subsequent properties are included only if stipulated, subject to the source limitation on properties subsequently acquired through inheritance, legacy, or donation. In a universal partnership of all profits, fruits acquired by work and industry form part of the common fund; present property itself is generally only subject to usufruct if the agreement is silent. A particular partnership is for specific undertakings.

As to liability to third persons, there may be a general partnership or a limited partnership. In a general partnership, all partners are general partners. In a limited partnership, there must be at least one general partner and one limited partner.

The source lists persons not allowed to form a universal partnership: husband and wife; persons guilty of adultery and concubinage; and persons guilty of the criminal offense referred to in the notes.