Report on Partnership (General Discussion)

General Provisions of Partnership

By: Marian Jane AlumbroNilda Vicente

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Contract of Partnership SECValid contract juridical personArticles of Partnership immovable propertyLegal capacity secret partnershipsLawful object universal partnershipCapital particular partnershipProperty common fundMoney sharing of profitsIndustry sharing of lossesPublic Instrument intention to divide profits

Mechanics1. The class will be divided into two groups.2. Each group will choose a representative.3. The representative will act out the word. (no mouthing)4. The group will guess the right term/s. 5. Each group will be given one (1) minute to guess the right

term/s.6. After one minute and the group did not able to guess the

right term, the representative will reveal the term. Thereafter, the representative will choose one member of the group to say something of substance about the term/s.However, if the group is able to guess the right term/s, it will choose a member from the other group to say something of substance about the term/s.

Nature of Partnership• Within the context of Philippine law,

a "partnership" is treated as an artificial being created by operation of law with a legal personality separate and distinct from the partners thereof.

• Philippine partnerships operate under the concept of unlimited liability and unless otherwise agreed upon by the partners, each one of them acts as manager and agent of the partnership and consequently, their acts bind the partnership.

Partnership Governing Law

Unlike corporations whose governing law is a special law - the Corporation Code of the Philippines, partnerships in the Philippines are governed by and covered under Articles 1767 to 1867 of the Civil Code of the Philippines [circa 1950]. These are the provisions of law which govern all aspects of partnerships - from their creation, formation, existence, operation and management to their dissolution and liquidation, including the obligations of the partners to one another, to the public or third persons and to the government.

Definition by law

Art. 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.

Two or more persons may also form a partnership for the exercise of a profession.

Essential Features/Charactersitic Elements of Partnership(De leon/Agbayani)

1) There must be a contract2) The partners must have legal capacity to enter

into a contract.3) There must be mutual contribution of money,

property or industry to a common fund.4) The purpose must be to obtain pecuniary profits

and to share the same.5) The purpose must be lawful, and6) The articles of co-partnership must not be kept

secret.

1) There must be a ContractThe three essential requisites of a contract must be

complied with: consent, object and cause.

As in other cases of contracts, in order to make an agreement for partnership valid, there must be a valid consideration existing between the partners. Each partner must surrender to the partnership an interest in his property, labor, skill, or energy, in accordance with the express or implied stipulations of their mutual agreement.

The contract can be entered into orally or written.

Fiduciary in Nature

Partnership is a form of voluntary association entered into by the association. It is a personal relation in which the element of delectus personae exists.

What does Delectus personae mean?It involves trust and confidence between

partners.

Cases

• In Ortega v. Ca G.R. No. 109248 July 3, 1995, a partnership that does not fix its term is a partnership at will.

• The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence dependent on the constancy of the mutual resolve, along with each partners capability to give it, and the absence of a cause for dissolution provided by the law itself.

2) The parties must have legal capacity

Only those person with legal capacity to give consent may enter into a contract of partnership.

Trivia Question: Who cannot give consent to a contract of partnership?

They are: 1)Unemancipated Minors 2)Insane or demented persons 3)Deaf mutes who do not know how to write 4)persons who are suffering from civil interdiction 5)incompetents who are under guardianship (Art. 1327, 1329 of the NCC)

Trivia Question: May a juridical person enter into a contract of partnership?

Answer:

Yes, in Mervyn v. Bieber, (184 CA 637) corporations which are expressly authorized by statute, or there is an express grant of such authority in the charter, a corporation has authority to enter into a contract of partnership.

Also, there is no prohibition against a partnership being a partner in another partnership. When two or more partnerships combine with each (or with natural person or persons) other creating a distinct partnership.

3) There must be mutual Contribution of money, property or industry

Both real and personal property can be contributed.

Money-Legal Tender of the Philippines not checks, drafts or other representatives of money.(they must be cashed first)

Property-License to construct and operate a cock pit may be given as a contribution to a partnership.

Industry-active cooperation, the work of the party associated, which may be either personal, manual efforts or intellectual, and for which he receives share in the profits of the business, not just salary.

4) The purpose must be to obtain profits etc.

The purpose must be to obtain profits and to divide the same among the partners and that it is necessary that such profits or benefits shall be common to all partners.

Sharing of profits

• Sharing of gross profits is not partnership when the agreement is to divide the gross earning or receipts of a venture, will not for itself constitute a partnership as to third persons. It does not amount to an agreement to share profits and losses.

• Sharing of profits is a prima facie evidence of partnership because it is an essential element of the relationship.

When sharing profits not prima facie evidence of partnership?

• One who merely makes a loan or money or credit to the owner of a business in consideration of a share of its profits in repayment of such loan or in lieu of, or in addition to interest for its use does not thereby become a partner in the business.

• Where an employee receives 35% of the net profits, instead, of a salary, there is no partnership in the absence of any contract showing the same.

• In Navarro v. CA, 222 SCRA 675-679 (1993), a cursory examination of the evidence presented no proof that a partnership, whether oral or written had been constituted at the inception of this transaction. While there may have been co-ownership or co-possession of some items and/or sharing of proceeds by way of advances received by both plaintiff and the defendant, there is no indicative and supportive of the existence of partnership between them.

• The court held in Muńasque v.CA, 139 SCRA 533 (1985), even if there was a falling out or misunderstanding between the partners such does not convert it into a sham organization.

5) The purpose must be lawful

A partnership cannot be formed for an illegal purpose and where the thing to be done is illegal, the contract of partnership for the purpose of doing such is equally illegal.

Art. 1770 of the New Civil Code states, “When an unlawful partnership is dissolved by judicial decree, the profits shall be confiscated in favor of the State.”

Effect of unlawful purpose of partnership

• The Court will refuse to recognize its existance and will not lend their aid to assist either of the parties thereto in an action against the other.

• The profits shall be confiscated in favor of the State.

• The instruments and effects of the crime, if the purpose is a criminal act, may be confiscated under the provisions of the RPC.

• The contributions of the partners shall not be confiscated.

6) The Articles of Partnership must not be kept secret

Art. 1775 provides that, “associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership.

De Leon: What are the characteristic elements of partnership? Explain.

• Consensual• Nominate• Bilateral• Onerous• Commutative• Principal• Preparatory

Juridicial Personality of Partnerships

Art. 1768. The partnership has a judicial personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph.

Trivia Question: If A and B decide to form a partnership. How many persons are involved?

3. A, B and the Partnership of A and B.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

What is referred to in Art. 1772?

What is referred to here is that registration in SEC is not necessary for the acquisition of juridical personality.

The contract of partnership is a consensual contract. Hence it is perfected from the moment of consent, and its juridical personality begins therefrom.

Partnerships like corporations are subject to absolute jurisdiction, supervision and control of the SEC

Art. 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise;(b) As wages of an employee or rent to a landlord;(c) As an annuity to a widow or representative of a deceased partner;(d) As interest on a loan, though the amount of payment vary with the profits of the business;(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (n)

Trivia Question

If Juan and Pedro are merely co-owners but Juan represents to Padring that he and Pedro are partners, can they be partners as to Padring, a third person?

Answer

The general rule is, no, they cannot be partners as to Padring, who is a third person if they are not partners as to eachother.

The exception is, where there is estoppel in Art. 1825 of the Code. So, as to Padring, Juan and Pedro are partners even if they are not real partners.

Trivia Question:

Juan and Pedro agree to buy a piece of land under the condition that each should pay one-half of the price thereof, and that the property should be divided between them. Is there partnership in the case? (Gallemit v. Tagbiliran, 20 Phil 241)

No.

Partnership v. Co-ownership

As a general rule, an agreement between joint-owners of property to carry common trade or business and to share the profits and losses thereof will constitute a partnership.

A mere community if interest, such as exists between tenants in common or joint tenants of real or personal property, does not make such owners partners or raise a presumption that partnership exists.

• Partnership, once established, has juridical personality, while a co-ownership as none.

• A Partnership is created always by contract, while co-ownership may exist by operation of law.

• A co-owner may dispose of his individual interest in the common property as an incident inherent in ownership, a partner has no such power.

• The object of partnership is gain, a co-ownership does not necessarily exist for profit.

• The right of a co-owner descent to his heir; those of a partner (as partner in partnership) do not, unless expressly stipulated in the contract of partnership.

Trivia CaseJuana died leaving heirs, her husband Pedro and her children. After the

partition, the properties were not distributed to Pedro and the other heirs. Instead Pedro, as administrator, used such properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. Every Year the heirs returned from income tax purposes their shares in the net income derived from the properties and investments, and paid the corresponding income taxes. However, the heirs did not actually receive their shares which were left in the hands of Pedro, the administrator. The BIR decided that the heirs had formed an unregistered partnership and therefore subject to the corporate income tax pursuant to Section 24 and 84 (b) of the Tax Code.

Question 1: Is the BIR correct in contending that the heirs had formed an unregistered partnership? When

did the unregistered partnership begin?Yes, the BIR is correct in contending that the heirs had formed an

unregistered partnership from the partition of the properties of the deceased Juana was approved by the court. From the moment the petitioners allowed not only the incomes from their respective shares from the inheritance but even inherited properties themselves to be used by Pedro as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such income to a common fund, and in effect, they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the Tax Code.

However, up until the time the partition was approved by the court, the heirs are not considered to have formed an unregistered partnership. Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners.

Question 2: Are the heirs, as unregistered partnership liable to pay

corporate income tax?Yes, the heirs, as constituting an unregistered

partnership, are liable to the corporate income tax. The Court differentiated the concept of partnership under the civil code from that of unregistered partnership and held that, “such unregistered partnership are considered as ‘corporations’ under Sec. 24 and 84 (b) of the NIRC.

For purpose of tax on corporations, our NIRC, includes these partnerships- with the exception only for duly registered general co-partnership-within the purview of the term “corporation”.

Question 3: May the heirs deduct from the income tax due their unregistered partnership the income tax they paid on their

individual incomes of which the share in the net profit of their unregistered partnership is a part?

No, the heirs may not deduct the individual income taxes they paid from the income tax due their unregistered partnership. The partnership profits distributable to the partners should be deduced by the amounts of income tax assessed against the partnership.

For more details. Read the case: Ońa v. CIR, May 25, 1972, 45 SCRA 74, 81-82.

Partnership V. Joint VentureJoint account exists when one person (called silent partner)

contributes capital to another who is in business (called ostensible partner) who acts in his own name.

1) A partnership has a firm name, while a joint account has none and it is conducted in the name of the ostensible partner;

2) A partnership has a juridical personality. While a joint account has no juridical personality, and that action must be brought against the ostensible partner only;

3) A partnership is a common fund, while a joint account has no common fund;

4) Liquidation of a partnership may be entrusted to other persons, the ostensible partner always liquidates the joint account.

Partnership V. Conjugal Partnership

1) An ordinary partnership is created by the will of the parties whereas a conjugal partnership arises from the mere celebration of marriage, that is, by operation of law;

2) In an ordinary partnership, it is the agreement of the parties that determines its object, duration, etc. whereas in a conjugal partnership, it is the law that regulates such matters.

3) In an ordinary partnership, the profits are distributed in accordance with the agreement of the the parties, and in the absence thereof, in accordance with the provisions of law, whereas in a conjugal partnership, the profits are always divided equally between the spouses.

4) In an ordinary partnership, all partners are, in the absence of an express agreement vested with the rights of management, whereas in a conjugal partnership it is almost always the husband who manages the same.

Joint Venture, A form of Partnership

The legal concept of a join venture is of common law origin. It is no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose.

The main distinction cited by most opinions in common law jurisdications is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and thus of a temporary nature.

A corporation though cannot enter into a partnership contract, may enter into a joint venture with others.

Example of Joint VentureHypor Partnership Strong in Philippines

NETHERLANDS - Just two and a half years ago, what began as a development project, is now a prime example of how business to business co-operation can lead to long-term sustainable development - with additional benefits to environmental initiatives and animal welfare.

Hypig was formed through the signing of a joint venture agreement in June 2005 between Hypor B.V. (a Hendrix Genetics company, Holland) and Holly Farms Inc. (Bounty Fresh Food group, the Philippines).

This joint venture was precipitated by a contract Hypor signed in late 2004 with the International Business and Cooperation Agency of the Dutch government (EVD) to set up a Bio-Hypor breeding farm on Mindanao. The agreement was made through the agency's Programme for Cooperation with Emerging Markets (PSOM). A piece of land complying with the Hypor's bio-security requirements was found in barrio Lantapan, Malaybalay, Bukidnon province.

The Kelsey farm lies amid banana and pineapple plantations, with no other animal farms in the vicinity. The barns were constructed by December 2005, and 270 nucleus sows and boars from Hypor Canada arrived in February 2006. By this time Hypig felt the demand was greater than originally forecast and another shipment of pure line Hypor pigs was delivered.

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (1667a)

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n)

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a)

Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. (n)

Art. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership.

• The requirement of a public instrument were immovable property or real rights are contributed is only in order that the contract of partnership may be effective with respect to third persons, but as far as the partners themselves are concerned, said contract is valid and effective, not only could they compel each other to reciprocally comply with the required formalities from the moment the contract is entered into, but the partners can also mutually require each other to fulfill all the obligations they have incurred.

• Art. 1773 complements the provisions of Art. 1771, because the execution of public instrument would serve no purpose if the inventory of the real property contributed is omitted. With out said inventory, the contract could not be registered in the register of property, and such contributions to the partnerships would no way prejudice third persons who, moreover, might evidently defrauded in their transactions with the partnership, because of their belief in the efficacy of the guaranty which said property might constitute. It will be noted that where the inventory is not made or signed by the parties and attached to the public instrument the contract of partnership is void.

“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”

Milton Friedman

CLASSIFICATIONS OF PARTNERSHIP

As to extent of its SUBJECT MATTERa. UNIVERSAL PARTNERSHIP

i. UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY - comprises the following:

a) Property which belonged to each of the partners at the time of the constitution of the partnership

b) Profits which they may acquire from all property contributed

ii. UNIVERSAL PARTNERSHIP OF PROFITS - comprises all that the partners may acquire by their industry or work during the existence of the partnership

Note: Persons who are prohibited from giving donations or advantage to each other cannot enter into a universal partnership (Art. 1782).

Commissioner of Internal Revenue v. Suter

Facts:

A, B and C formed a limited partnership to engage in the importation, marketing and operation of radios, television sets and amusement machines, their parts and accessories, with B and C as limited partners. Subsequently, A and B got married and thereafter, C sold his share to A and B. So, A and B filed a separate income return for the limited partnership and a consolidated return for them as spouses.

Issue

Whether or not the partnership was dissolved after the marriage of A and B and the subsequent sale to them by C of the latter’s share.

RulingThe firm was not a universal partnership, but a particular one. It follows that the partnership was not one that A and B were forbidden to enter under Art. 1782. Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose by law.

Note: Article 1782 – “Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership.”

b. PARTICULAR PARTNERSHIP - has for its objects:

i. Determinate thingsii. Their use or fruitsiii. Specific undertakingiv. Exercise of profession or vocation

As to LIABILITY OF PARTNERS

a. GENERAL PARTNERSHIP - consists of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts.

b. LIMITED PARTNERSHIP - one formed by 2 or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership.

As to DURATIONa. PARTNERSHIP AT WILL - one in which no time

is specified and is not formed for a particular undertaking or venture which may be terminated anytime by mutual agreement.

b. PARTNERSHIP WITH A FIXED TERM - the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking.

As to LEGALITY OF EXISTENCE

a. DE JURE PARTNERSHIP - one which has complied with all the legal requirements for its establishment.

b. DE FACTO - one which has failed to comply with all the legal requirements for its establishment.

As to REPRESENTATION TO OTHERS

a. ORDINARY OR REAL PARTNERSHIP - one which actually exists among the partners and also as to 3rd persons.

b. PARTNERSHIP BY ESTOPPEL - one which in reality is not a partnership but is considered a partnership only in relation to those who, by their conduct or omission, are precluded to deny or disprove its existence.

As to PUBLICITY

a. SECRET PARTNERSHIP - one wherein the existence of certain persons as partners is not avowed or made known to the public by any of the partners.

b. OPEN OR NOTORIOUS PARTNERSHIP - one whose existence is avowed or made known to the public by the members of the firm.

As to PURPOSE

a. COMMERCIAL OR TRADING PARTNERSHIP - one formed for the transaction of business.

b. PROFESSIONAL OR NON TRADING PARTNERSHIP - one formed for the exercise of a profession.

BUSINESS PARTNERSHIPS

Edison Electric Light Co.

• Thomas Edison and J.P. Morgan and the Vanderbilts• Founded in 1880• The electric light bulb catapulted Thomas Edison to fame and

fortune. But Edison, like many entrepreneurs with more ideas than capital, needed financial partners to fund his inventions. Throughout the 1870s and 1880s, Edison received funding from a group of wealthy investors, including J.P. Morgan and the Vanderbilt family, helping lay the groundwork for what eventually became the Edison Electric Light Co. In 1879, Edison demonstrated the incandescent electric light bulb to his backers and launched it publicly shortly thereafter. Three years later, Edison watched as the first commercial central power system was installed in Manhattan. By 1887, 121 Edison central power stations spanned the country.

Thomas Edison and J.P. Morgan and the Vanderbilts

Warner Brothers• Sam, Jack, Albert, and Harry Warner• Founded in 1923• The sons of Polish-born Jewish immigrants, Sam, Jack, Albert,

and Harry Warner co-founded what would become Warner Bros. Studios. They got their start in the early 1900s working in film production and distribution. They ran a traveling movie business, established their own movie house, and began producing their own films when the cost of rentals became too steep. Sam Warner is credited with ending the silent film era after he obtained the technology that allowed his studio to produce the first feature-length talkie, The Jazz Singer, which the studio released in 1927. The blockbuster film (which grossed some $3 million) established Warner Bros. as a major player and revolutionized the film industry.

McDonald’s (MCD)• Richard and Maurice McDonald • Founded in 1948• The New Hampshire-born brothers moved to

southern California in the late 1920s with the goal of opening their own business and earning $1 million before they hit 50. After an unsuccessful attempt to break into the movie business, they opened and ran a hot dog stand and a barbecue restaurant, gaining experience they would later use to pioneer the fast-food industry. In 1948, the brothers reinvented their McDonald's Famous BBQ, firing their car hops, slashing the number of items on the menu, getting rid of utensils and plates, and turning the kitchen into a mechanized assembly line.

Hewlett-Packard (HP)• Bill Hewlett and David Packard• Founded in 1939• After graduating with degrees in electrical engineering from Stanford in

1934, Bill Hewlett and David Packard forged a friendship during a two-week camping and fishing trip in Colorado. Four years later, the pair began working part-time on a product based on Hewlett's study of negative feedback in a rented Palo Alto garage with $538 in cash and a used drill press. The result was the HP200A, an audio oscillator designed to test sound equipment. One of their first customers was Walt Disney Studios (DIS), which purchased eight of the devices to test a new sound system for the movie Fantasia.

• In 1939, the men formalized their partnership, flipping a coin to decide their startup's name. Hewlett-Packard continued to create innovative technology products throughout the 1940s. It also become known for its equally innovative open corporate culture and management style. By 1942, HP had eight employees and $522,803 in yearly revenue. In 1961, the company was earning $87.9 million and was listed on the New York Stock Exchange. Today, the company that introduced laser jet printers, touch screens, and personal computers is a global behemoth with $104.3 billion in annual sales.

Hewlett-Packard (HP)

Microsoft (MSFT)• Bill Gates and Paul Allen• Founded in 1975• Back in 1968, a computer club meeting about BASIC

programming at Seattle's private Lakeside School brought Gates and Allen together. The two students soon became obsessed with programming a mainframe of a local computer and quickly saw the future of micro-processing. However, it was an article in Popular Mechanics about personal computers that triggered their realization that writing and selling software was the new frontier. Fast forward to the early 1970s. Allen, who was three years older than Gates, went to work for Honeywell (HON) in Boston, and Gates enrolled at Harvard. In 1974, the pair devised a BASIC platform for the Altair 8800 in Gates' dorm room and sold it, earning Gates disciplinary charges from the university for running a business in his dorm. A year later, Gates (who dropped out of Harvard) and Allen formed Microsoft, which today is the world's largest software company.

Bill Gates and Paul Allen

Apple (AAPL)• Steve Jobs and Steve Wozniak• Founded in 1976• College dropouts, Steve Jobs and Steve Wozniak met in the early

1970s when Jobs was attending lectures at Hewlett-Packard, where Wozniak worked. The two were also involved in the Homebrew Computer Club in Silicon Valley, where they experimented with hardware and software. Soon they developed an idea for a new kind of personal computer. To raise money for their new venture, they sold off some of their belongings, including a Volkswagen minibus and programmable HP calculator.

• The pair blended Wozniak's computer and software prowess and Jobs' marketing genius to build the first Apple computer in Jobs' family garage in 1976. The first single-board computer with onboard ROM and a video interface, revolutionized computer functionality, and design. They sold their first 50 computers to the Byte Shop in Mountain View, Calif. In 1980, the company went public, making both multimillionaires. Today, Apple is a $32.4 billion company known for its innovative products, ranging from the Macintosh to the iPod to the iPhone.

Steve Jobs and Steve Wozniak

Google (GOOG)• Larry Page and Sergey Brin• Founded in 1998• Page and Brin (both the sons of academics, economists, and

mathematicians) met working on their doctorates in computer science at Stanford University in 1995. Together, they created a proprietary algorithm for a search engine, with the goal of organizing the vast amount of information available on the Net. Initially called BackRub, the software catalogued search results according to the popularity of pages. Fairly quickly it became apparent that in most cases the most popular results were also the most useful. Presto, another game changer was born.

• In 1998, the pair dropped out of Stanford, changed their startup’s name to Google, set up shop in a friend's garage, and raised about $1 million in capital from friends, family, and other investors. Initially, Google received 10,000 queries a day (today that number is estimated at 235 million) and in 1999 the pair received $25 million in venture-capital funding. Five years later, Google went public, opening at $85 a share. Arguably the world's No. 1 Internet search engine, last year the company earned $16.5 billion in sales—most of which was generated through ad sales.

Larry Page and Sergey Brin

Is a Business Partnershipthe Right Choice for You?

“Starting a business with a partner offers many benefits, not the least of which is having someone to share the many responsibilities of running a business. But partnerships can quickly go bad if you don't give it ample forethought and planning.”

Patricia Schaefer

The Sam-Rachel Partnership Story

Ten years ago, Samantha was sitting in her best friend Rachel's kitchen, and an idea was born for them to start a business together. Their only consideration was the excitement they felt. They soon had their first client, and agreed they would each work an equal amount of hours and split their profits 50/50. Within a year, their client base increased to the point that it allowed them to each work their goal of 30 hours per week.

After a few years, Rachel's time on the job and quality of work suffered. For every hour of work Rachel performed, Samantha was putting in two. Clients commented to Samantha about their dissatisfaction with Rachel's job performance. Rachel was sensitive by nature and exploded in teary screams when Samantha tried to gently tell her that the quality of her work had deteriorated.

Instead of performing client services together, Samantha slowly transitioned the business whereby each was independently attending to client needs. A few years later, Rachel was down to one client while Samantha's client base was teeming. Their partnership soon dissolved, and so did their friendship.

Thought to Ponder• This real-life scenario is just one testament to

the fact that a business partnership formed without necessary forethought is likely to be doomed to failure. With the proper planning and consideration, though, a partnership can be an unequivocal success. It is the simplest and least expensive co-owned business arrangement.

Some possible pros:

• Shared cost of start-up.• Shared responsibilities and work.• Shared business risks and expenses.• Complementary skills and additional contacts

of each partner can lead to the achievement of greater financial results together than would be possible apart.

• Mutual support and motivation.

Some possible cons:• Partners in a general partnership are jointly and individually liable

for the business activities of the other. If your partner skips town, you'll be liable for all the debts, not just half of them.

• Shared profits.• You do not have total control over the business. Decisions are

shared, and differences of opinion can lead to disagreements, a "falling out," or even one partner buying out the other.

• A friendship may not survive a partnership. Keep in mind John D. Rockefeller's famous words: "A friendship founded on business is a good deal better than a business founded on friendship."

Are you the business partner type?

• A business match is much like a marriage, and just as one would normally take great care, time and consideration in the selection of a mate, so it should be in the selection of a business partner.

Dating Period• Do we have the same motivation, values and similar

work habits?• Do we have a similar vision, ideas and objectives

about how to run the business?• Is each of our strong points and skills complementary

to one another?• Are we both able to communicate well with one

another in a pleasant, respectful and comfortable manner?

• Do you trust this individual?

“It is rare to find a business partner who is selfless. If you are lucky it happens once in a lifetime.”

Michael Eisner

Cons• All owners are subject to unlimited personal

liability for the debts, losses and liabilities of the business (except in cases of limited partnerships and limited liablity partnerships).

• Individual partners bear responsibility for the actions of other partners.

• Poorly organized partnerships and oral partnerships can lead to disputes among owners.

How to register a PARTNERSHIP with the Philippine SEC

1. Verify and reserve the proposed partnership name. You could do this the hard way, at the SEC Verification Unit, located at the SEC Building, EDSA, Greenhills, Mandaluyong City (right across the Philippine Overseas Employment Administration [POEA] and the EDSA Shrine). If you want to make your life a bit easier, you could do the verification and registration online, through the SEC-iRegister, a 24-7 portal. After paying the reservation fee, you will get a Name Verification Slip, which is submitted together with the other requirements.

2. Prepare the Articles of Partnership. This is equivalent to the Articles of Incorporation, which is one of the required documents for corporations.

3. Prepare the: (i) Written Undertaking to Change Partnership Name by any Partner; and (ii) Registration Data Sheet. There are additional requirements for certain partnerships, like customs brokerages, which are required to submit the customs broker licenses and professional tax receipts (PTR) of at least two partners.

4. File the complete documents with the SEC, upon payment of the requisite filing fees. The SEC website, http://www.sec.gov.ph/, offers an on-line calculator for your estimated registration fees to pay.

Should need a more detailed process you can always check out the Securities and Exchange Commission.

Articles of Partnership

While the partnership relation may be informally created and its existence proved by the manifestation of the parties, it is customary to embody the terms of the association in a written document. The Articles of Partnership states the name, nature or purpose and location of the firm, and defining, among others, the powers, rights, duties, and liabilities of the partners among themselves, their contributions, the manner by which the profits and losses are to be shared, and the procedure for dissolving the partnership.

Video Conference from Atty. Zachery Mc Nathan Alvarado

Activity• Look for your report partner• Get a bondpaper from the reporter• You want to make form a business partnership and establish the following

establishment: (choose)-Ukay2x-Bakeshop-Fishball Vendor-Balot Business-Sarisari Store-Internet Café-Load Station-Barbeque Station-Ice Cream Shop-CarenderiaMake your own Articles of Partnership and present your business and AOP to

the class. Use your imagination. Act as if you are truly making a business to make it more realistic. (Sample is in .PDF form)