BUSINESS LAWS AND

REGULATIONS
u Coverage
u Partnerships
u Corporations
u Insurance
u Cooperatives
The Most Common Types of Business
Organizations in the Philippines

u Sole proprietorship
u Partnerships
u Corporations
Sole Proprietorship

u A Sole Proprietorship is a business structure owned

by an individual who generally has full control and
authority over the business.

u The business owner is referred to as the “sole

proprietor” and exclusively owns all assets and
profits of the business. He or she is also personally
liable for all the debts and losses that the business
might incur.
The Law on
Partnerships
Legal Basis

u Article 1767 up to Article 1867, Civil Code

u Republic Act No. 386 – Civil Code of the

Philippines

u RA 386 took effect on August 30, 1950

Chapter 1 – GENERAL
PROVISIONS
(Art. 1767 – 1783,
u Concept of Partnership
Civil Code)
u “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 profits among themselves.
u Two or more persons may also form a partnership for
the exercise of a profession.”
Partnership for the
exercise of a profession
u A profession is a calling in the preparation for or
practice of which academic learning is required
and which has for its prime purpose the rendering
of public service.

u Definition – “a group of men pursuing a learned

art as a common calling in the spirit of public
service – no less a public service because it may
incidentally be a means of livelihood” (In the
matter of the Petition for Authority to continue use
of firm name “Ozaeta, Romulo, etc.,” 92 SCRA 1.)
Partnership for the
exercise of a profession
u Regulatory Board
u Professional Regulation Commission (PRC)
u Mandate: to regulate and supervise the practice of
the professionals (except lawyers, who are handled
by the Supreme Court of the Philippines) who
constitute the highly skilled manpower of the
country
Characteristic elements of
partnership
u The contract of partnership is:
u Consensual
u Nominate
u Bilateral
u Onerous
u Commutative
u Principal
u Preparatory
Partnership relation is
fiduciary in nature
u Fiduciary – involves trust and confidence
between partners

u A partnership is a form of voluntary association

entered into by the associates.

u It is a personal relation in which the element of

‘delectus personarum’ exists
Essential features of
partnership
u 1) There must be a valid contract;

u 2) The parties must have legal capacity to enter into

the contract;

u 3) There must be a mutual contribution of money,

property or industry to a common fund;

u 4) The object must be lawful; and

u 5) The purpose or primary purpose must be to obtain

profits and to divide the same among the parties.
Essential features of
partnership
u 1. Existence of a valid contract

u A partnership may be informally created and its

existence proved by the conduct or acts of the
parties

u Usually embodied in a written document known as

‘Articles of Partnership’

u Element of ‘delectus personarum’: no one can

become a member of the partnership association
without the consent of all other associates or
partners due to it being fiduciary in nature
Essential features of
partnership
u 2. Legal capacity of parties to enter into the contract

u General Rule: Any person may be a partner who is

capable under the law of entering into contractual
relations

u Exceptions:
u Unemancipated Minors;
u Insane or demented persons;
u Deaf-mutes who do not know how to write;
u Persons suffering from civil interdiction;
u Incompetents under guardianship
u Persons who are prohibited from giving each other any
donation or advantage (Art. 1782)
Essential features of
partnership
u 3. Mutual contribution to a common fund

u The partners must have a proprietary or financial

interest in the business

u The partners must contribute either money,

property, and/or industry or services to the business
Essential features of
partnership
u 4. Legality of object

u The object is unlawful when it is contrary to law,

morals, good customs, public order, or public policy

u No partnership can arise if the object is unlawful as

the contract is void ‘ab initio’
Essential features of
partnership
u 5. Intention to realize and divide profits

u Very reason for existence of partnership

u Realization of pecuniary profit need not be the

exclusive aim of a partnership. It is sufficient that it is the
principal purpose even if there are other incidentally,
moral, social, or spiritual ends

u Division of profit among the members may not be

necessarily in equal shares

u A person who has no right to participate in the profits

cannot be deemed a partner
Partnership as a juridical
person
(Art. 1768)
u A partnership duly formed under the law is a
juridical person to which the law grants a juridical
personality separate and distinct from that of
each partners.

u As a juridical person, it may acquire and possess

property of all kinds, as well as incur obligations
and bring civil or criminal actions in conformity
with the laws and regulations of its organizations.
Rules to determine existence
of partnership (Art. 1769)

u General Rule: To establish the existence of a

partnership, all of its essential features or
characteristics must be shown as being present. In
case of doubt, Article 1769 shall apply.
Rules to determine existence
of partnership (Art. 1769)
u 1. Persons not partners as to each other

u Persons who are partners as between themselves

are partners as to third persons. Hence, if they are
not partners as between themselves, they cannot
be partners as to third persons.

u Partnership is a matter of intention where each

party gives his consent to become a partner.
(delectus personarum) Where however, a
partnership exists, it is immaterial whether or not the
parties call or believe their relationship a
partnership. (separate juridical personality)
Rules to determine existence
of partnership (Art. 1769)
u Partnership be estoppel

u Generally, a partnership does not exist as to third

persons if no contract of partnership, express or
implied, has been entered between the parties
themselves.

u Exception: partnership by estoppel

u If a person by his acts, consent, or representations
have misled third persons or parties into believing that
the former are partners in a non-existing partnership,
such persons become subject to liabilities of partners
to all who, in good faith, deal with them in their
apparent relations.
Rules to determine existence
of partnership (Art. 1769)
u 2. Co-ownership or co-possession

u There is co-ownership or co-possession whenever

the ownership or possession of an undivided thing or
right belongs to different persons

u Co-ownership of property does not of itself establish

existence of a partnership
Rules to determine existence
of partnership (Art. 1769)
u 3. Sharing of gross returns

u The mere sharing of gross returns alone does not indicate a

partnership, since in a partnership, the partners share profits
after satisfying all of the partnership’s liabilities

u A person who takes a share of the profits as payment of a

debt cannot be considered a partner

u Test to determine existence of partnership:

u whether or not the recipient of a share of the profits have an
equal voice as proprietor in the conduct and control of the
business
u Whether or not he owns a share of the profits as a proprietor of
the business producing them
Rules to determine existence
of partnership (Art. 1769)
u 4. Receipt of share in the profits

u An agreement to share both profits and losses tends

strongly to establish the existence of a partnership.

u However, mere fact of a right under the contract to

participate in both profits and losses does not in
itself have the effect of establishing a partnership
between those engaged therein.
Partnership vs co-
ownership
Partnership
Creation Created by a contract, express or implied
Co-ownership
Generally created by law, may
exist even without a contract

Juridical Personality Has juridical personality separate and distinct none

from that of each partner

Purpose Realization of profits Common enjoyment of a thing or

right

Duration No limitation under the law, upon the duration An agreement to keep the thing
of a partnership undivided for more than 10 years
is not allowed

Disposal of Interests A partner may not dispose of his individual A co-owner may freely dispose his
interest in the partnership individual interest

Power to act with A partner may bind the partnership A co-owner cannot represent the
third persons co-ownership

Effect of death Death of a partner results in the dissolution of Death of a co-owner does not
the partnership necessarily dissolve the co-
ownership
Partnership vs
conjugal partnership of gains
Partnership Conjugal Partnership of
Gains
Parties By voluntary agreement of two or Arises in case the future
more partners of either sex spouses – a man and a
woman - agree
Laws which By stipulation of the parties law
govern
Juridical separate and distinct from that of none
personality each partner
Commenceme From the moment of execution of On the date of the
nt the contract, unless stipulated marriage, any stipulation
otherwise to the contrary is void
Purpose To obtain profits To regulate the property
relations of husband &
wife during marriage
Distribution of By agreement of partners or in Divided equally between
profits proportion to their respective husband & wife
capital contributions
Management Shared by all, unless one is Both spouses jointly,
appointed in the Articles husband’s decision
Partnership vs voluntary
associations
Partnership Voluntary
associations
Juridical Has juridical none
personality personality
Purpose Organized for No such objective
pecuniary profit
Contribution of There is a No contribution of
members contribution of capital, only fees
capital are usually
collected
Liability of The partnership, as Members are
members a rule, is the one individually liable
liable for debts of
the firm
Object or purpose of
partnership (Art. 1770)

u Reiterated two essential elements of a contract of

partnership: 1) legality of the object, and 2)
community of benefit or interest of the partners

u Object must be lawful and for the common

benefit of the members

u Basis: general principles of morality and justice

Effects of an unlawful
partnership
u Consequences:
u Contract is void ab initio and the partnership never
existed in the eyes of the law
u Profits shall be confiscated in favor of the government
u Instruments or tools and proceeds of the crime shall be
forfeited in favor of the government
u Contributions of the partners shall not be confiscated
unless they are proceeds of the crime

u Dissolution:
u A judicial decree is not necessary to dissolve an
unlawful partnership.
Form of partnership
contract (Art. 1771)
u General Rule:
u No special form required for the validity or existence of
the contract of partnership

u May be orally made or in writing

u Must be in writing if immovable property or real rights

are contributed (executed in a public instrument)

u To affect third persons, the transfer of real property to

the partnership must be duly registered in the Registry
of Property of the province or city where the property is
located
Partnership with capital of
P3,000 or more
u Requirements:
u Must appear in a public instrument
u Must be recorded or registered with the Securities
and Exchange Commission

u Failure to comply does not prevent the formation

of the partnership or affect its liability

u Registration is necessary as a condition for the

issuance of licenses to engage in business or
trade
Secret partnerships without
juridical personality (Art.
1775)
u Has no juridical personality

u Governed by the provisions relating to co-ownership

u Basis:
u Partnership is created only by voluntary agreement of
partners
u A partner is considered the agent of his co-partners
and of the partnership
u A partnership must have a firm name under which it
shall conduct its business and to distinguish it from the
partners and other partnerships
Classification of
partnerships
u As to the extent of its subject matter:
u 1) Universal partnership
u Universal partnership of all present property
u Universal partnership of all profits
u 2) Particular partnership

u As to liability of partners
u 1) General Partnership
u 2) Limited Partnership

u As to its duration
u 1) Partnership at will
u 2) Partnership with a fixed term
Classification of
partnerships
u As to the legality of its existence
u 1) De jure partnership
u 2) De facto partnership

u As to representation to others
u 1) Ordinary or real partnership
u 2) Ostensible partnership or partnership by estoppel

u As to publicity
u 1) Secret partnership
u 2) Open or notorious partnership

u As to purpose
u 1) Commercial or trading partnership
u 2) Professional or non-trading partnership
Kinds of partners

Under the Civil Code Other Classifications

Capitalist partner Ostensible partner
Industrial partner Secret partner
General partner Silent partner
Limited partner Dormant partner
Managing partner Original partner
Liquidating partner Incoming partner
Partner by estoppel Retiring partner
Continuing partner
Surviving partner
Subpartner
Universal partnership of all
present property
u One in which the partners contribute all the
properties which actually belong to each of them
at the time of the constitution of the partnership
to a common fund, with the intention of dividing
the same among themselves as well as the profits
which they may acquire therewith.

u Contribution consists of:

u All properties actually belonging to the partners
u Profits acquired with said properties
Contribution of future
property
u General rule: Future properties (by inheritance,
legacy, donation) cannot be contributed

u Basis: very essence of the contract of partnership

that the properties contributed requires the
contribution of things to be determinate.
Universal partnership of
profits
u One which comprises all that the partners may
acquire by their industry or work during the
existence of the partnership and the usufruct
(right to enjoy) of movable or immovable
property which each of the partners may possess
at the time of the celebration of the contract

u Profits acquired by chance are not included

u Fruits of property subsequently acquired by the

partners do not belong to the partnership unless
by express stipulation
Presumption in favor of
universal partnership of
profits
u General rule: in case of doubt, where the articles
of partnership do not specify its nature, it will be
presumed that the parties intended merely a
partnership of profits.

u Reason: universal partnership of profits imposes

less obligations on the partners since they retain
ownership of their separate property

u Only applicable when a universal partnership has

been organized
Limitations upon the right to
form a universal partnership
u Persons prohibited by law to give donations cannot
enter into a universal partnership for the reason that
each of the partners virtually make a donation

u Reason: what the law expressly prohibits, it cannot

indirectly permit

u A partnership in violation of this rule is null and void

and bears no legal personality

u Husband and wife may, however, enter into a

particular partnership or be members thereof
Persons who cannot form
a universal partnership
u Husband and wife – as a rule

u Those guilty of adultery or concubinage

u Those guilty of the same criminal offense, if the

partnership was entered into in consideration of
the same
Particular partnership

u Definition: “Art. 1783. A particular partnership has for

its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession
or vocation.”

u Husband and wife may enter into a particular

partnership

u General professional partnership – formed by

persons for the sole purpose of exercising their
common profession, no part of the income of which
is derived from engaging in any trade (Sec. 22[b],
NIRC)