1. MIRIAM COLLEGE
College of Business, Entrepreneurship and Accountancy
College of Business, Entrepreneurship
and Accountancy
Business Administration Department
BSA – 102
Principles of Accounting Part 2
2nd Semester, SY 2012-2013

2. Partnership
College of Business, Entrepreneurship and Accountancy
PREVIEW OF THE CHAPTER
PARTNERSHIP
(Nature and Formation)
Nature of a Formation of a Partnership Accounting for
Partnership Partners’ Initial Investments
• Kinds of partnerships • Cash contributions
• Characteristics • Classes of partners • Non-cash asset
• Advantages • Articles of Co-Partnership contributions
• Disadvantages • Registration requirements • Contribution of industry

3. CHARACTERISTICS OF A PARTNERSHIP
College of Business, Entrepreneurship and Accountancy
1. Mutual agency
– Any partner may act as agent of the partnership in
conducting its affairs.
2. Unlimited liability
– The personal assets (assets not contributed to the
partnership) of any partner may be used to satisfy
the partnership creditors’ claims upon liquidation,
if partnership assets are not enough to settle the
liabilities to outsiders.

4. CHARACTERISTICS…Cont.
College of Business, Entrepreneurship and Accountancy
3. Limited life
– A partnership may be dissolved at any time by
action of the partners or by operation of law.
4. Mutual participation in profits.
– A partner has the right to share in partnership
profits.
5. Legal entity
– A partnership has legal personality separate and
distinct from that of each of the partners.

5. CHARACTERISTICS…Cont.
College of Business, Entrepreneurship and Accountancy
6. Co-ownership of contributed assets
– Property contributed to the partnership are owned
by the partnership by virtue of its separate legal
personality.
7. Income tax
– Partnerships, except general professional
partnerships (i.e., those organized for the exercise of
professions like CPAs, lawyers, engineers, etc.) are
subject to the 30% income tax.

6. ADVANTAGES OF A PARTNERSHIP
College of Business, Entrepreneurship and Accountancy
1. It is easy and inexpensive to organize, as it is formed by a simple
contract between two or more persons.
2. The unlimited liability of the partners makes it reliable from the
point of view of creditors.
3. The combined personal credit of the partners offers better
opportunity for obtaining additional capital than does a sole
proprietorship.
4. The participation in the business by more than one person makes
it possible for a closer supervision of all the partnership activities.
5. The direct gain to the partners is an incentive to give dose
attention to the business.
6. The personal element in the characters of the partners is
retained.

7. DISADVANTAGES OF A PARTNERSHIP
College of Business, Entrepreneurship and Accountancy
1. The personal liability of a partner for firm debts deters
many from investing capital in a partnership.
2. A partner may be subject to personal liabi1ity for the
wrongful acts or omissions of his/her associates.
3. It is less stable because it can easily be dissolved.
4. There is divided authority among the partners.
5. There is constant likelihood of dissension and
disagreement when each of the partners has the same
authority in the management of the firm.

8. KINDS OF PARTNERSHIPS
College of Business, Entrepreneurship and Accountancy
• As to activity
a. Trading partnership - one whose main activity is
the manufacture and sale or the purchase and sale
of goods.
b. Non-trading partnership - one which is organized
for the purpose of rendering services.

9. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
• As to object
a. Universal partnership
1. Universal partnership of all present property — one in
which the partners contribute, at the time of the
constitution of the partnership, all the properties which
actually belong to each of them into a common fund with
the intention of dividing the same among themselves as
well as the profits which they may acquire therewith.
All assets contributed to the partnership and subsequent
acquisitions become common partnership assets.

10. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
• As to object
2. Universal partnership of all profit — one which
comprises all that the partners may acquire by their
industry or work during the existence of the
partnership and the usufruct of movable or immovable
property which each of the partners may possess at
the time of the institution of the contract.
Partnership assets consist of assets acquired during the
life of the partnership and only the usufruct or use of
assets contributed at the time of partnership
formation. The original movable or immovable
property contributed do not become common
partnership assets.

11. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
b. Particular partnership — one which has for its
object determinate things,. their use or fruits, or a
specific undertaking or the exercise of a profession
or vocation.

12. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
• As to liability of partners
a. General co-partnership — one consisting of general
partners who are liable pro rata and sometimes
solidarily with their separate property for partnership
liabilities.
b. Limited partnership — one formed by two or more
persons having as members one or more general
partners and one or more limited partners, who as
such are not bound by the obligations of the
partnership. The word “LIMITED” or “LTD.” is added to
the name of the partnership to inform the public that it
is a limited partnership.

13. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
• As to duration
a. a. Partnership at will — one for which no term is
specified and is not formed for a particular
undertaking or venture and which may be terminated
any time by mutual agreement of the partners or the
will of one alone.
b. b. Partnership with a fixed term — one in which the
term or period for which the partnership is to exist is
agreed upon. It may also refer to a partnership formed
for a particular undertaking and upon the expiration of
that term or completion of the particular undertaking
the partnership is dissolved; unless continued by the
partners.

14. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
• As to representation to others
a. Ordinary partnership — one which actually exists
among the partners and also as to third persons.
b. Partnership by estoppel — one which in reality is
not a partnership but is considered as one only in
relation to those who, by their conduct or omission
are precluded to deny or disprove the partnership’s
existence.

15. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
• As to legality of existence
a. De jure partnership - one which has complied with
all the requirements for its establishment.
b. De facto partnership — one which failed to comply
with one ore more of the legal requirements for its
establishment.

16. KINDS OF PARTNERSHIPS cont.
College of Business, Entrepreneurship and Accountancy
• As to publicity
a. Secret partnership — one wherein the existence of
certain persons as partners is not made known to
the public by any of the partners.
b. Open partnership — one wherein the existence of
certain persons as partners is made known to the
public by the members of the firm.

17. CLASSES OF PARTNERS
College of Business, Entrepreneurship and Accountancy
• As to contribution
a. Capitalist partner — one who contributes capital in
cash (money) or property.
b. Industrial partner — one who contributes industry,
labor, skill, talent or service.
c. Capitalist-industrial partner — one who
contributes cash, property, and industry.

18. CLASSES OF PARTNERS cont.
College of Business, Entrepreneurship and Accountancy
• As to liability
a. General partner — one whose liability to third persons
extends to his separate (private) property.
b. Limited partner — one whose liability to third persons
is limited only to the extent of his capital contribution
to the partnership.
• As to management
a. Managing partner — one who manages actively the
business of the partnership.
b. Silent partner — one who does not participate in the
management of the partnership affairs.

19. CLASSES OF PARTNERS cont.
College of Business, Entrepreneurship and Accountancy
• Other classifications
a. Liquidating partner — one who takes charge of the winding up Of
partnership affairs upon dissolution
b. Nominal partner — one who is not really a partner, not being a
party to the partnership agreement, but i made liable as a
partner for the protection of innocent third persons.
c. Ostensible partner — one who takes active part in the
management of the firm and is known to the public as a partner
iii the business.
d. Secret partner — one who takes active part in the management
of the business but whose connection with the partnership is
concealed or unknown to the public.
e. Dormant partner — one who does not take active part in the
management of the business and is not known to the public as a
partner; he is both a silent and a secret partner.

20. PARTNERSHIP CONTRACT
College of Business, Entrepreneurship and Accountancy
• A partnership is created by an oral or a written
agreement.
• Since partnerships are required to be registered with the
Office of the Securities and Exchange Commissions, it is
necessary that the agreement be in writing.
• In this case, misunderstandings and disputes among the
partners relative to the nature and terms of the contract
may be avoided or minimized.
• The written agreement between or among the partners
governing the formation, operation and dissolution of
the partnership is referred to as the Articles of Co-
Partnership.

21. The Articles of Co-Partnership
College of Business, Entrepreneurship and Accountancy
1. The name of the partnership;
2. The names and addresses of the partners, classes of partners, stating
whether the partner is a general or a limited partner;
3. The effective date of the contract;
4. The purpose or purposes and principal office of the business;
5. The capital of the partnership stating the contributions of individual
partners, their description and agreed values;
6. The rights and duties of each partner;
7. The manner of dividing net income or loss among the
partners, including salary allowance and interest on capital;
8. The conditions under which the partners may withdraw money or
other assets for personal use;
9. The manner of keeping the books of accounts;
10. The causes for dissolution; and
11. The provision for arbitration in settling disputes.

22. ORGANIZING A PARTNERSHIP
College of Business, Entrepreneurship and Accountancy
• Before a partnership can operate legally, it has to
comply first with certain registration requirements
which are summarized below:
Place of Registration Requirements for Registration Certificates Issued
Securities and Exchange Articles of Co-Partnership Filled
SEC Certificate
Commission SEC registration form
Department of Trade and Articles of Co-Partnership SEC Certificate of Registration of
Industry Certificate Business Name (renewable
Mayor’s Permit and License to
City or Municipal Mayor’s Certificate of Registration of
Operate (renewable
Office Business Name
annually)
SSS Certificate of
Filled SSS Application form List
Social Security System Membership
of employees
SSS Employer ID Number

23. College of Business, Entrepreneurship and Accountancy
Place of Registration Requirements for Registration Certificates Issued
BIR Registration No.
Partnership’s Tax
SEC Registration Articles of Co-
Bureau of Internal Revenue Identification Number (TIN)
Partnership
Registration of books,
invoices, and official receipts
PhilHealth Employer Number
(PEN) and the Certificate of
SEC Registration Employer Data
Philippine Health Insurance Registration
Record or ERI Form Business
Corporation PhilFlealth Identification
Permit or License
Number (PIN) and Member
Data Record
PAG-IBIG Fund Certificate of
SEC Registration Articles of Co- Membership
PAG-IBIG Fund
Partnership PAG-IBIG Fund Employer ID
Number