IRS CPA REVIEW

Iloilo City and Leganes, Iloilo

REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

LAW ON PARTNERSHIP

LIMITED PARTNERSHIP

1. Definition of limited partnership

A limited partnership is one formed by two or more persons under the

provisions of the Civil Code, having as members one or more general
partners and one or more limited partners. The limited partners as such shall
not be bound by the obligations of the partnership.

The provision stated above which says that the limited partners as such shall
not be bound by the obligations of the partnership, means that the limited
partners are not liable beyond their contributions.

2. Characteristics of a limited partnership

The following are the characteristics of a limited partnership:

a. The partnership must be organized in compliance with the requirements

of the law.
b. There must be one or more general partners.
c. There must be one or more limited partners contributing capital and
sharing in the profits.
d. The limited partners do not participate in the control of the business of the
partnership.
e. The limited partners are not bound by the obligation of the partnership.

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3. Requisites in the formation of a limited partnership

The following are the requisites in the formation of a limited partnership:

a. The certificate must be signed and sworn to by all the partners.

b. The certificate must be registered with the Securities and Exchange
Commission.

If the above requisites are not complied with, the partners therein are liable as
general partners.

4. A limited partner liable as general partner

A limited partner is liable as general partner:

a. When there is non-compliance with the requisites of formation;

b. When the word “limited” or “ltd” is omitted in the firm name;
c. When the surname of a limited partner appears in the partnership name;
d. When the limited partner takes part in the control of the business;
e. When a limited partner contributes services.

5. When there is non-compliance with the requisites of formation

When there is no certificate of limited partnership or when the certificate of

limited partnership is not registered with the Securities and Exchange
Commission, there still is a partnership, but it is treated as a general
partnership. The limited partners in this case are liable as general partners.

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6. When the word “limited” or “ltd” is omitted in the firm name

Two or more persons desiring to form a limited partnership shall sign and
swear to a certificate, which shall state the name of the partnership, adding
thereto the word “Limited”. When the word “limited” or “ltd” is omitted in the
firm name, the limited partner is liable as a general partner.

7. When the surname of a limited partner appears in the partnership name

A limited partner whose surname appears in a partnership name is liable as a

general partner to partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner.

A limited partner whose surname appears in partnership name is not liable as a

general partner in the following instances:

a. When the surname of the limited partner is the same as the surname of a
general partner;
b. When before the limited partner became as such, the business had been
carried on under a name in which his surname appeared;
c. When the person extended credit to the partnership with the knowledge
that he is a limited partner.

8. When the limited partner takes part in the control of the business

A limited partner shall not become liable as a general partner unless, in

addition to the exercise of his rights and powers as a limited partner, he takes
part in the control of the business.

9. When a limited partner contributes services

The contributions of a limited partner may be cash or other property, but not
services. If he contributes services, he becomes liable as a general partner.

10. Rights of a general partner in a limited partnership

A general partner in a limited partnership can perform all acts of administration

as in the case of a general partnership. But if a general partner wants to
perform an act of strict dominion, he must secure the consent of all the
partners, including the limited partners.

A general partner or all of the general partners have no authority to continue

the business with partnership property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner, unless:

a. the right so to do is given in the certificate; or

b. the limited partners gives written consent or ratifies the act.

11. Rights of a limited partner

The following are the rights of a limited partner:

a. To require that the partnership books be kept at the principal place of

business of the partnership, and to inspect and to copy any of them at any
reasonable hour on business day;
b. To demand true and full information of all things affecting the partnership;
c. To demand formal accounting of the affairs of the partnership whenever it
is just and reasonable;
d. To ask for dissolution and winding up by court decree;
e. To receive a share of the profits or other compensation by way of income;
f. To ask for the return of his capital contribution.

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 A limited partner may demand as a matter of right the return of the capital
contribution:

a. On dissolution of the partnership;

b. Upon arrival of the date specified in the certificate of its return;
c. If no time is fixed, after six months notice in writing is given to all other
partners.

12. Rights and liabilities of a general-limited partner

A general-limited partner has all the rights and powers and is subject to all the
liabilities of a general partner. He has the right to participate in the
management of the business of the partnership, his separate properties are
liable for the payment of partnership debts. With respect to his contribution, like
the right to have it returned on the proper occasion, he is considered as a
limited partner.

13. Assignee of limited partner’s interest

A limited partner’s interest is assignable.

An assignee of a limited partner’s interest may or may not become a

substituted limited partner.

A substituted limited partner is a person admitted to all the rights of a limited

partner who has died or has assigned his interest in a partnership.

14. Assignee of a limited partner who does not become a substituted limited
partner

An assignee, who does not become a substituted limited partner, has no right
to require any information or account of the partnership transactions or to
inspect the partnership books; he is only entitled to receive the share of the
profits or other compensation by way of income, or the return of his
contribution, to which his assignor would otherwise be entitled.

15. Assignee of a limited partner who becomes a substituted limited partner

An assignee shall have the right to become a substituted limited partner if all
the members consent thereto or if the assignor, being thereunto empowered by
the certificate, gives the assignee that right.

An assignee becomes a substituted limited partner when the certificate is

appropriately amended.

The substituted limited partner has all the rights and powers, and is subject to
all the restrictions and liabilities of his assignor, except those liabilities of which
he was ignorant at the time he became a limited partner and which could not
be ascertained from the certificate.

Requisites of substitution:

a. With the consent of all the partners;

b. Certificate of amendment must be signed and sworn to by all the partners
including the substituted limited partner;
c. Amended certificate must be filed with the Securities and Exchange
Commission.

The substitution of the assignee as a limited partner does not release the
assignor from liability to the partnership.

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16. Limited partnership is not dissolved on the death of a limited partner

The death of a limited partner will not dissolve the partnership, Upon the death
of a limited partner, his executor or administrator shall be admitted as a limited
partner for the purpose of settling his estate and shall have such power as the
deceased had to constitute his assignee a substituted limited partner.

17. Limited partnership is dissolved on the retirement, death, insolvency, insanity

or civil interdiction of a general partner

The retirement, death, insolvency, insanity or civil interdiction of a general

partner dissolves the partnership, unless the business is continued by the
remaining general partners:

a. Under a right so to do stated in the certificate, or

b. With the consent of all members.

18. Order of preference in case of limited partnership liquidation

The order of preference in the case of liquidation of limited partnership is as

follows:

a. Outside creditors and limited partners unless the partnership is insolvent;

b. Limited partner’s share in the profit;
c. Limited partner’s return of capital contribution;
d. General partners aside from profits and capital;
e. General partner’s profit;
f. General partner’s return of capital contribution

19. Cancellation of certificate of limited partnership

The certificate shall be cancelled when the partnership is dissolved or all

limited partners cease to be such.

20. Amendment of certificate of limited partnership

A certificate shall be amended when:

a. There is a charge in the name of the partnership or in the amount or

character of the contribution of any limited partner;
b. A person is substituted as a limited partner;
c. An additional limited partner is admitted;
d. A person is admitted as a general partner;
e. A general partner retires, dies, becomes insolvent or insane, or is
sentenced to civil interdiction and the business is continued after the
retirement, death, insolvency, insanity or civil interdiction of a general
partner;
f. There is a change in the character of the business of the partnership;
g. There is a false or erroneous statement in the certificate;
h. There is a change in the time as stated in the certificate for the dissolution
of the partnership or for the return of a contribution;
i. A time is fixed for the dissolution of the partnership, or the return of a
contribution, no time having been specified in the certificate, or
j. The members desire to make a change in any other statement in the
certificate in order that it shall accurately represent the agreement among
them.

End