BUSINESS LAWS AND ORGANIZATIONS

BASIC TYPE OF BUSINESS ORGANIZATIONS:

1. Sole Proprietorship
2. Partnership
3. Joint Account
4. Business Trust
5. Joint Venture
6. Cooperative
7. Corporation

INDIVDUAL OR SOLE PROPRIETORSHIP

A person who personally conducts business under his name or a business name. The business is an organization
composed of the proprietor himself and employees but it has no personality separate and distinct from the proprietor.
Does not possess a juridical personality and has no legal personality to file or defend an action in court.

JURIDICAL PERSONALITY
Article 44. The following are juridical persons:
1. The state and its political subdivisions;
2. Other corporations, institutions and entities for public interest or purpose, created by law; their
personality begins as soon as they have been constituted according to law;
3. Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member.
“Article 46. Juridical persons may acquire and possess property of all kinds, as well as incur obligations and
bring civil or criminal actions, inconformity with the laws and regulations of their organization.”

JURIDICAL CAPACITY
“Article 37. Juridical capacity, which is the fitness to be the subject of legal relations, is inherent in every
natural person and is lost only through death. Capacity to act, which is the power to do acts with legal effect,
is acquired and may be lost.”

BUSINESS NAME
Refers to any name that is different from the true name of an individual which is used or signed in connection
with her/his business.

REQUIREMENT
Proprietor is required to register the business name other than his true name.
If not registered:
 he cannot use or sign the business name in connection with his business on any written or printed
receipts on any evidence of agreement or other documents
 he cannot exhibit the business name or sign thereof in plain view

PROHIBITED BUSINESS NAME

1. The name or the nature of business is illegal, offensive, scandalous, or contrary to propriety
2. Names which are identical or resemble a business name already registered to any government office
authorized by law to Register names, as likely to cause confusion or mistake in the minds of the public taking
into consideration the following:
 Nature of the business
 Product/service handled
 Location/place of business
 Dominant word
 Use of descriptive words
 Spelling, sound and/or meaning
3. Names composed of purely generic or geographic words
4. Names which by law or regulation cannot be appropriated
5. Names, words, or terms or expressions used to designate or distinguish or suggestive of quality of any class of
goods, articles, merchandise or service
6. The names or abbreviation of names used by the government in its governmental functions
7. The name or abbreviation of names of any national, inter-governmental or international organization
8. Names which are deceptive, misleading or which misrepresent the nature of the business
PARTNERSHIPS
“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.”

“Article 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.

JOINT ACCOUNTS (CUENTAS EN PARTICIPACION)

This is commonly called an accidental partnership. An arrangement whereby merchants may interest themselves in
the transaction of other merchants, contributing thereto the amount of capital they may agree upon, and participating in the
favorable and unfavorable results thereof in the proportion they may determine.

JOINT ACCOUNTS DISTINGUISHED FROM PARTNERSHIP

As to juridical personality. A joint account has no juridical personality while a partnership has a personality separate and
distinct from the partners.

As to business name. No commercial name common to all participants can be adopted in joint accounts. A partnership can
adopt a partnership name.

As to management. The general partners are all managers in the partnership while only the ostensible partner manages and
transacts business in his own name and under his individual liability.

BUSINESS TRUSTS
It is a legal relation whereby one person, called the trustor, conveys a property to another for the benefit of a person
called the beneficiary. The person in whom confidence is reposed as regards the property is called the trustee

JOINT VENTURE
An association of persons or companies jointly undertaking some commercial enterprise; Generally, all contribute
assets and share risks. It requires a community interest in the performance of the subject. A right to direct and govern the
policy connected therewith, and duty, which may be altered by agreement to share both in profit and losses.
a) a joint venture is actually a form of partnership and should be governed by the laws of partnership
b) corporations can enter into joint venture agreement
c) joint venture may result in a formation of joint venture corporation

COOPERATIVES
Is an autonomous and duly registered association of persons with a common bond of interest, who have voluntarily
joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the
capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking
in accordance with universally accepted cooperative principles.

CORPORATION
Revised corporation code of the Philippines.
Sec. 2. Corporation defined. - a corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident to its existence.
 BUSINESS LAWS AND ORGANIZATIONS

CLASSIFICATION OF PARTNERSHIP
ART. 1776. As to its object, a partnership is either universal or particular.
As regards the liability of the partners, a partnership may be general or limited.

SUBJECT MATTER/OBJECT:
1. Universal Partnership, partnership that encompass either:
a. Of all present property – the partners contribute even their personal property to a common fund and
with the intention of dividing the profits amongst themselves, and future money and properties
cannot be contributed for it is not determinate.
b. Of profits – the use of the asset if the only thing contributed; or the industry is only contributed no
the whole asset itself
*if it is not stated that a universal partnership is either of all present property or of profits, automatically it is of profits,
because of profits has less obligations to partners since ownership of an asset is preserved.*
2. Particular Partnership, exercise of a profession of vocation; accounting or law firm is an example, specifically
called as General Professional Partnership

AS TO LIABILITY OF THE PARTNERS:

1. General – all the partners are liable pro rata (proportionately) beyond the partnership asset for all the
contracts entered into the partnership
2. Limited – one or more general partners whose liability is unlimited, and one or more partners, called limited
partners, whose liability is limited according to their contribution

AS TO DURATION:
1. Partnership at will – no fixed term or no specific undertaking on the life of the partnership; birth and life of
partnership depends on the mutual desire or decision of the partners; dissolution can happen anytime but
must be done in good faith; if a partner dissolved the company at bad faith then he/she is the only one liable
for the damage
2. Partnership with a fixed term – or for a particular undertaking; has a definite period or term of existence

AS TO LEGALITY OF EXISTENCE:
1. De jure – partnership that comply with all the legal requirement
2. De facto – partnership that doesn’t comply with all the legal requirement to create a partnership

AS TO REPRESENTATION TO OTHERS:
1. Ordinary or real – existing partnership and represents itself as a partnership; a normal ordinary kind of
partnership
2. Ostensible or partnership by estoppel – a person who is not a partner may become or treated as a partner
because of the concept of estoppel for the purpose of him being liable being a third person; a true partnership
is not created between the alleged partners, a contract is necessary to have a true partnership.

AS TO PUBLICITY:
1. Secret
2. Open or notorious

AS TO PURPOSE:
1. Commercial or trading – made for a transaction of business
2. Professional or non-trading – made for the practice of a profession

UNIVERSAL PARTNERSHIP
ART. 1777. A universal partnership may refer to all the present property or to all the profits.

ART. 1778. A partnership of all present property is that in which the partners contribute all the property which
actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all
the profits they may acquire therewith. (1673)

ART. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at
the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the
profits which they may acquire therewith.
 A stipulation for the common enjoyment of any other profits may also be made; but the property which the
partners may acquire subsequently by inheritance, legacy or donation cannot be included in such stipulation, except
the fruits thereof.

ART. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work
during the existence of the partnership.
Movable or immovable property which each of the partners may possess at the time of the celebration of the
contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership.

GENERAL RULES:
ART. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a
universal partnership of profits.
ART. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into a
universal partnership.

PARTICULAR PARTNERSHIP
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.

KINDS OF PARTNERS
a. Capitalist partner – contributes money or property
b. Industrial partner – contributes industry or personal service; has to devote his full time to the partnership
c. General partner – his liability extends up to his own property
d. Limited partner – liability is only limited to his capital contribution
e. Managing partner – manages the business of affairs of partnership
f. Liquidating partner – takes charge of the winding up of a partnership upon the dissolution
g. Partner by estoppel – quasi-partner; is not really a partner but is being represented to be a partner by people
who are actually not partners; someone who is pretending to be a partner or people pretended to consider
him as a partner; held liable as if he is a partner
h. Continuing partner – continuous the partnership business after a partnership dissolution
i. Surviving partner – remains alive after one partner has died; or the one who continuous the partnership
resulting from the death of a partner
j. Subpartner – one who is not a member of partnership; simply contracts with one of the partners with
reference to that partner’s share in the profits of partnership
k. Ostensible partner – apparent partner; take an active part in the business and is known to the public
l. Secret partner – takes a part in the business but is not known to be part of the partnership because he may
not be considered as a partner by the other partners
m. Silent partner – does not take an active part in the business still is known to be a partner
n. Dormant partner – almost the same as secret partner
o. Original partner – member of the partnership from the time of commencement
p. Incoming partner – becomes a member of partnership after the establishment of the partnership; about to be
admitted to the partnership with the consent of the partners
q. Retiring partner
r. Real partner – really contributing member of the existing partnership
s. Discontinuing partner – does not participate in the partnership business after dissolution
t. Majority partner – partner whose contribution control the majority of the interest
u. Nominal partner – his contribution represents only the minority interest
v. Deceased partner – the one who died while a member of partnership
w. Expelled partner – partner expelled by other partners for a valid cause
x. Expelling partner – the one who caused the expulsion of a partner for a valid cause

LEGAL CAPACITY TO BECOME A PARTNER

GENERAL RULE: Partnership is a contract; it is necessary that the partners must have required legal capacity to
contract.

PROHIBITIONS:
1. Art. 1782
2. Corporations

RIGHTS AND POWERS OF A PARTNER

ART. 1810. The property rights of a partner are:
 1. His rights in specific partnership property;
2. His interest in the partnership; and
3. His right to participate in the management.

ART. 1811. A partner is co-owner with his partners of specific partnership property. The incidents of this co-
ownership are such that:
1. A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal
right with his partners to possess specific partnership property for partnership purposes; but he has no right
to possess such property for any other purpose without the consent of his partners;
2. A partner’s right in specific partnership property is not assignable except in connection with the assignment
of rights of all the partners in the same property;
3. A partner’s right in specific partnership property is not subject to attachment or execution, except on a claim
against the partnership. When partnership property is attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner, cannot claim any right under the homestead or
exemption laws;
4. A partner’s right in specific partnership property is not subject to legal support under article 291.

ART. 1812. A partner’s interest in the partnership is his share of the profits and surplus.

CAN A PARTNER ASSIGN HIS INTEREST IN THE PARTNERSHIP?

ART. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or,
against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership business or affairs, or to require any information or account
of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance
with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an
account from the date only of the last account agreed to by all the partners.
RIGHTS OF ASSIGNEE OF PARTNER’S INTEREST:
1. To receive in accordance with his contract the profits accruing to the assigning partner;
2. To avail himself of the usual remedies provided by law in the event of fraud in the management;
3. To receive the assignor’s interest in case of dissolution; and
4. To require an account of partnership affairs, but only in case the partnership is dissolved, and such account shall cover
the period from the date only of the last account agreed to by all the partners.

RIGHT TO MANAGE THE PARTNERSHIP:

IN THE ABSENCE OF AN AGREEMENT
ART. 1803. When the manner of management has not been agreed upon, the following rules shall be
observed:
1. All the partners shall be considered agents and whatever any one of them may do alone shall
bind the partnership, without prejudice to the provisions of Article 1801.

ART. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of
administration despite the opposition of his partners, unless he should act in bad faith; and his power is
irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall
be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time.

IF TWO OR MORE PARTNERS WERE ENTRUSTED WITH MANAGEMENT

ART. 1801. If two or more partners have been entrusted with the management of the partnership without
specification of their respective duties, or without stipulation that one of them shall not act without the
consent of all the others, each one may separately execute all acts of administration, but if any of them should
oppose the acts of the others, the decision of the majority shall prevail. In case of tie, the matter shall be
decided by the partners owning the controlling interest.

STIPULATION THAT NONE OF THE MANAGING PARTNER SHALL ACT WITHOUT THE CONSENT OF THE OTHERS
ART. 1802. In case it should have been stipulated that none of the managing partners shall act without the
consent of the others, the concurrence of all shall be necessary for validity of the acts, and the absence or
disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury
to the partnership.
 Art. 1803 (2) None of the partners may, without the consent of the others, make any important alteration in
the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of
consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s
intervention may be sought.

RIGHTS TO PARTICIPATE IN PROFIT (AND OBLIGATION TO SHARE IN LOSSES)

When agreed upon by the parties:
ART. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of
each partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.

ART. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void.

IF ONLY SHARE IN THE PROFITS HAS BEEN AGREED UPON

ART. 1797. (Par2) In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As
for the profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in
proportion to his capital.

IN THE ABSENCE OF AGREEMENT

TO CAPITALIST PARTNER
“In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed”

AS TO INDUSTRIAL PARTNER
“The industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances.”
“If besides his services he has contributed capital, he shall also receive a share in the profits in
proportion to his capital.”

DESIGNATION ENTRUSTED TO THIRD PERSON

ART. 1798. If the partners have agreed to entrust to a third person the designation of the share of each one in the
profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner
who has begun to execute the decision of the third person, or who has not impugned the same within a period of three
months from the time he had knowledge thereof, complain of such decision. The designation of losses and profits
cannot be entrusted to one of the partners.

RULE: While the designation of losses and profits cannot be entrusted to one of the partners, such right, by
agreement of the partners, be entrusted to a third person.

EFFECT: Partners have agreed to entrust to a third person the designation of the share of each one in the
profits and losses, this designation cannot be impugned unless it is manifestly inequitable.

A partner cannot complain of the decision of the third person if:

1. He has begun to execute the decision of the third person; and
2. He did not impugned the same within a period of three months from the time he had knowledge
thereof.

OTHER RIGHTS OF PARTNER

RIGHT TO ACCESS AND INSPECT BOOKS:
ART. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the
principal place of business of the partnership, and every partner shall at any reasonable hour have access to
and may inspect and copy any of them.

RIGHT TO DEMAND INFORMATION:

ART. 1806. Partners shall render on demand true and full information of all things affecting the partnership
to any partner or the legal representative of any deceased partner or of any partner under legal disability.

RIGHT TO DEMAND FORMAL ACCOUNTING:

 GENERAL RULE: The right to an accounting arises between the partners only upon dissolution of the
partnership unless he brings an action for dissolution and accounting simultaneously.
EXCEPTIONS: ART. 1809. Any partner shall have the right to a formal account as to partnership affairs:
1. If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;
2. If the right exists under the terms of any agreement;
3. As provided by Article 1807;
4. Whenever other circumstances render it just and reasonable.

RIGHT TO DEMAND REIMBURSEMENTS FROM PARTNERSHIP:

ART. 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on
behalf of the partnership and for the corresponding interest, from the time the expenses are made; it shall
also answer to each partner for the obligations he may have contracted in good faith in the interest of the
partnership business, and for risks in consequence of its management.

RIGHT TO ENTER INTO SUB-PARTNERSHIP

Sub partner or one who, not being a member of the partnership, contracts with a partner with reference to
the latter’s share in the partnership.

ART. 1804. Every partner may associate another person with him in his share, but the associate shall not be
admitted into the partnership without the consent of all the other partners, even if the partner having an
associate should be a manager.