 A contract of tow or more persons bind themselves to

contribute money, property, or industry to common fund,

with the intention of dividing the profit among themselves.
Two or more persons nay also form a partnership for the
exercise of a profession

 The partnership has a juridical personality separate and

distinct from that of each of the partners

 Partnership resemble sole proprietorships, except that

there are tow or more owners of the business
 Partnership resemble sole proprietorships, except that
there are tow or more owners of the business. Each owner
is called partner. Partnerships are often formed to bring
together various talents and knowledge.

 Partnerships provide a means of obtaining more equity

capital than a single individual can obtain and allow the
sharing of risk for rapidly growing business
 Mutual Contribution – contribution of money, property or
industry to a common fund.
 Division of Profits or Losses – The essence of
partnership is that each partner must share on the profits or
looses of the venture
 Co-Ownership of Contributed Assets – All assets
contributed into the partnership are owned by the
partnership by virtue of its separate and distinct juridical
personality. If one partner contribution an asset to the
business, all partners jointly own it in a special sense.
 Mutual Agency – Any partner can bind the other partners to a
contract if he is acting within his express or implied authority.
 Limited Life – a partnership has a limited life. It may be
dissolved by the admission, death, insolvency, incapacity,
withdrawal of a partners or expiration of the term specified in
the partnership agreement.
 Unlimited Liability – All partner (except limited partners),
including industrial partners, are personally liable for all debts
incurred by the partnership. If the partnership can not settle its
obligations, creditors’ claim will be satisfied from the personal
assets of the partners without prejudice to the rights of the
separate creditors of the partners
 Mutual Agency – Any partner can bind the other partners to a
contract if he is acting within his express or implied authority.
 Limited Life – a partnership has a limited life. It may be
dissolved by the admission, death, insolvency, incapacity,
withdrawal of a partners or expiration of the term specified in
the partnership agreement.
 Unlimited Liability – All partner (except limited partners),
including industrial partners, are personally liable for all debts
incurred by the partnership. If the partnership can not settle its
obligations, creditors’ claim will be satisfied from the personal
assets of the partners without prejudice to the rights of the
separate creditors of the partners
 Partners’ Equity Accounts – Accounting for partnerships
are much like accounting for sole proprietorships. The
difference lies in the number of partners’ equity accounting.
Each partner has a capital account and a withdrawal
account that serves similar functions as the related
accounts for sole proprietorships
 Advantages versus Proprietorships
1. Brings greater financial capability to the business
2. Combines special skills, expertise and experience of the
partners.
3. Offers relative freedom and flexibility of action in
decision-making
 Advantages versus Corporations
1. Easier and less expensive to organize.
2. More personal and informal.
 Disadvantages
1. Easily dissolved and thus unstable compared to a
corporation.
2. Mutual agency and unlimited liability may create
personal obligations to partners.
3. Less effective than a corporation in raising large
amounts of capital.
 General partner – one who is liable to the extent of his
separate property after all the assets if the partnership are
exhausted.
 Limited partner – one who is liable only to the extent of his
capital contribution. He is not allowed to contribute industry
and services only.
 Capitalist partner - one who contributes money or
property to the common fund of the partnership.
 Industrial partner - one who contributes money or
personal service to the partnership.
 Managing partner – one who is designated to wind up or
settle the affairs of the partnership.
 Liquidating partner – one who is designated to wind up or
settle the affairs of the partnership after dissolution.
 Dormant partner – one who does not take active part in
the business of the partnership though may be known as a
partner.
 Silent partner – one who does not take active part in the
business of the partnership though may be known as a
partner
 Secret partner - one who takes active part in the business
but is not known to be a partner by outside parties.
 Nominal partner or partner by estoppel – one who as
actually not a partner but who represents himself as one
 Manner of Creation - A partnership is created by mere
agreement of the partners while a corporation is created by
operation of law
 Number of Persons – two or more persons may form a
partnership; in a corporation, at least five persons, not
exceeding fifteen.
 Commencement of Juridical Personality - In a
partnership, juridical personality commences from the
execution of the articles of partnership; in a corporation,
from the issuance of certificate of incorporation by the
Securities and Exchange Commission.
 Management – every partner is an agent of the partnership
if the partners did not appoint a managing partner; in a
corporation, management is vested on the Board of
Directors.

 Extent of Liability – in partnership, each of the partners

except a limited partner is liable to the extend of his
personal assets; in a corporation, stockholders are liable
only to the extent of their interest or investment in the
corporation.
 Right of Succession – in a partnership, there is no right of
succession; in a corporation, there is right of succession. A
corporation has the capacity of continued existence
regardless of the death, withdrawal, insolvency or capacity
of its directors or stockholders

 Terms of Existence – in partnership, for any period of time

stipulated by the partners; in a corporation, not to exceed
fifty (50) years but subject to extension.
A partnership may be constituted orally or in writing. In the
latter case, partnership agreements are embodied in the
Articles of Partnership. The following essential provisions
may be contained in the agreement:
1. The partnership name, nature, purpose and location
2. The names, citizenship and residence of the partners;
3. The date of formation and the duration of the partnership;
4. The capital contribution of each partner, the procedure for
valuing non-cash investment, treatment of excess
contribution (as capital or as loan) and the penalties for a
partner’s failure to invest and maintain the agreed capital;
5. The rights and duties of each partner;
6. The accounting period to be adopted, the nature of
accounting records, financial statements and audits by
independent public accountants;
7. The method of sharing profits and loss, frequency of
income measurement and distribution, including any
provisions for the recognition of differences in contributions;
8. The drawing or salaries to be allowed to partners;
9. The provision for arbitration of disputes, dissolution and
liquidation
Partners may invest cash or non-cash assets in the
partnership. When a partner invests non-cash assets, they
are to be recorded at values agreed upon by the partners. In
the absence of any agreement, the contribution will be
recognized at their fair market values at the date of transfer
to the partnership.
The fair market value of an asset is the estimated amount
that a willing seller would receive from a financially capable
buyer for the sale of the asset in a free market.
Per IFRS no. 3 – fair value is the price at which an asset or
liability could be exchanged in a current transaction between
knowledgeable, unrelated willing parties.
On may 1, 2018, Gonzaga and Balace formed a partneship
and agreed to share profits and losses in the ratio of 3:7,
respectively. Gonzaga contributed a parcel of land that cost
of P10,000, Balace contributed P40,000 cash. The land was
sold for P 18,000 on May 1, 2015, immediately after
formation of the partnership. What amount should be
recorded in capital account.
On Mar 1, 2018, Sarabia and Abad decided to combine their
businesses and form a partnership. Their statements of financial
position on Mar 1 before adjustments shoed the following:
Sarabia Abad
Cash 9,000 3,750
Accounts Receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and Fixtures 30,000 9,500
Office Equipment 11,500 2,750
Prepaid Expenses 6,375 3,000
Total 105,375 51,500

Accounts Payable 45,750 18,000

Capital 59,625 33,500
Total 105,375 51,500