Articles of Partnership (General Partnership)

What are the Articles of Partnership?

The Articles of Partnership is a document wherein the persons enter into an agreement or contract of partnership. A partnership is when two or more persons bind themselves to contribute money, property, or industry to a common fund for the purpose of conducting business and with the intention that the profits and losses will be divided among them.

This document is applicable to a general partnership. A general partnership is one where the partners are liable for the contracts and obligations of the partnership with their personal property. Generally, the partners' liability will be in proportion to the amount that they contributed to the partnership.

What are the different types of Articles of Partnership?

The following are the different types of partnerships and the applicable Articles of Partnership:

• Articles of Partnership (General Partnership). This is a document wherein the persons enter into an agreement or contract of partnership. A general partnership is one where the partners are liable for the contracts and obligations of the partnership with their personal property. Generally, the partners' liability will be in proportion to the amount that they contributed to the partnership. This is the document applicable to a general partnership.
• Articles of Partnership (Limited Partnership). This is a document wherein the persons enter into an agreement or contract of limited partnership. Limited partners have limited liability and are only liable for the amount of their investment in the partnership. Limited partners typically do not participate in the management of the business and are only passive investors.

On the other, hand for corporations, the following are the different types of Articles of Incorporation:

• Articles of Incorporation for Stock Corporations. This is a document that is needed to form a stock corporation. A stock corporation is a type of business organization where ownership is represented by stocks or shares of the company's capital stock.
• Articles of Incorporation for Non-Stock Corporations. This is a document that is a necessary document to form a non-stock corporation. A non-stock corporation is a type of business organization that does not issue stocks or shares of ownership.
• Articles of Incorporation (Non-Stock Educational Corporation). This is needed to form a corporation in the Philippines. This document is specifically designed for non-stock educational corporations.
• Articles of Incorporation (One Person Corporation). This is used to form a stock corporation where there is a single stockholder. The single stockholder can be a natural person, a trust, or an estate.

What is the rule on partnership names?

The partnership name should be distinct, meaning, it should not be exactly the same as other registered partnerships. And the partnership name may or may not include the surnames of the partners.

Note however that if the surname of a person who is not a partner is included in the partnership name, said person would be liable as if he is a partner in the partnership. The purpose of this is to avoid defrauding people or other third persons as to who are the real partners in the partnership.

What must the Articles of Partnership contain?

The Articles of Partnership must contain the following information:

• The name of the partnership,
• The purpose of the partnership,
• The duration of the partnership (or it will be indefinite),
• The place where the partnership will operate (principal office),
• The details of the partners,
• The contributions of the partners in the partnership, and
• The obligations of the partners in the partnership.

What are the prerequisites of the Articles of Partnership?

There must be at least one partner who should contribute money or property to the partnership for the general partnership to be formed. For example, if there are 3 partners, the first partner should contribute money or property and the other two partners can be industrial partners (i.e. render services only for the partnership).

Further, note that a certain percentage of the partnership's capital should be owned by Filipino citizens depending on the specific industry with which the partnership is engaged, to be legal and valid.

For example, if a partnership is an advertising agency, 70% of the capital thereof must be owned by Filipino Citizens and the remainder of 30% may be owned by foreign citizens. If the partnership is a private recruitment agency, engaged in defense-related structure construction, 60% of the capital thereof must be owned by Filipino Citizens, and 40% may be owned by foreign citizens. The Foreign Investment Negative List may be inspected to determine the Filipino ownership requirement for partnerships in a specific industry. If the requirement under the list mentioned is not complied with, any violating partnership may be meted with a fine or suspension, or its officers may be punished with imprisonment.

Who is involved in the Articles of Partnership?

The following are the parties and the signatories in the Articles of Partnership. They may be capital partners or industrial partners:

• Capital Partners. These are the partners who contribute money and/or property to the partnership. They are bound to make additional contributions in case of an imminent loss of the business of the partnership. They are also liable for the losses of the business of the partnership. Finally, they can engage in other businesses as long as the same does not compete with the business of the partnership.
• Industrial partners. These are the partners that will only render services to the partnership. An industrial partner cannot be compelled to give additional contributions to the partnership and is not liable for losses of the partnership venture. An industrial partner cannot engage in any other business as long as they are an industrial partner unless there is a stipulation allowing them to do so.

Note that the partners cannot agree that all of them will be industrial partners, there must be at least one capital partner among them.

Who cannot enter into the Articles of Partnership?

Foreigners are not allowed to be partners the business activity of the partnership is fully reserved for Filipino ownership.

Examples of business activities that are fully reserved for Filipino ownership are mass media (except recording), retail trade with paid-up capital of less than US$2,500,000.00, cooperatives, and private securities agencies.

What can be the duration of the Articles of Partnership?

The partnership can be for a definite term or at will:

• Definite term. The partners can agree that the duration or term of the partnership will only last for a specific period.
• Partnership-at-will. A partnership at will is one whose duration or term is indefinite and may be dissolved (or closed) at the will of any of the partners.

What has to be done once the Articles of Partnership is ready?

Once the document is completed, the partners must sign at least three original copies of the document.

The document also includes an Acknowledgment portion. Notarization of the document converts the document from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity. To notarize the document, the partners must go to a notary public to acknowledge that they have signed the Distribution Agreement freely and voluntarily. They should also present a valid I.D. issued by an official agency bearing their photograph and signature such as a driver's license or a passport, among others.

Once the document is notarized, one original copy will be kept by the partnership, one original copy will be kept by the notary public and the last original copy of the Articles of Partnership may be submitted to the Securities and Exchange Commission, together with the other requirements (e.g. cover sheet, name verification slip, and, if necessary, registration to, endorsement or clearances from other government agencies), to register the partnership.

Is it necessary to notarize the Articles of Partnership for it to be valid?

The Articles of Partnership is a document that should be submitted to the Securities and Exchange Commission for purposes of forming the partnership, the Securities and Exchange Commission requires the same to be notarized before it is registered.

Further, notarization of the Articles of Partnership converts the same from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity, meaning, the document will be presumed to be validly written and signed once it is shown to court in case a dispute is brought before it.

Is it necessary to register the Articles of Partnership?

Yes. After notarization, the Articles of Partnership must be registered before the Securities and Exchange Commission. Other requirements such as a cover sheet, name verification slip, and, if necessary, registration to, endorsement, or clearances from other government agencies should also be submitted. For a more complete list of requirements, the website of the Securities and Exchange Commission should be checked.

Once the requirements are complete, the Securities and Exchange Commission will issue a Certificate of Registration of the partnership signifying that the partnership is valid and exists under the law.

What are the costs involved in the finalization of the Articles of Partnership?

Some notaries public may charge based on the percentage of the amount of capital involved, which is usually ay 1%. Further, registration fees may also be paid for the registration to be made before the Securities and Exchange Commission.

Which laws are applicable to Articles of Partnership?

Partnerships in the Philippines are generally governed by the Civil Code of the Philippines, specifically Articles 1767 to 1867. However, other laws, such as the Tax Code, and memorandums and issuances from government organizations such as the Securities and Exchange Commission may also be applicable to partnerships and its conduct and business dealings. The Foreign Investment Negative List also provides a list of investments that are reserved for Philippine nationals and limits foreign participation.

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