MIRIAM COLLEGE College of Business, Entrepreneurship and AccountancyCollege of Business, Entrepreneurship and Accountancy Business Administration Department BSA – 102 Principles of Accounting Part 2 2nd Semester, SY 2012-2013
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
CHARACTERISTICS OF A PARTNERSHIP College of Business, Entrepreneurship and Accountancy1. 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.
CHARACTERISTICS…Cont. College of Business, Entrepreneurship and Accountancy3. 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.
CHARACTERISTICS…Cont. College of Business, Entrepreneurship and Accountancy6. 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.
ADVANTAGES OF A PARTNERSHIP College of Business, Entrepreneurship and Accountancy1. 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.
DISADVANTAGES OF A PARTNERSHIP College of Business, Entrepreneurship and Accountancy1. 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.
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.
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.
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.
KINDS OF PARTNERSHIPS cont. College of Business, Entrepreneurship and Accountancyb. 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The Articles of Co-Partnership College of Business, Entrepreneurship and Accountancy1. 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; and11. The provision for arbitration in settling disputes.
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 IssuedSecurities and Exchange Articles of Co-Partnership Filled SEC Certificate Commission SEC registration formDepartment of Trade and Articles of Co-Partnership SEC Certificate of Registration of Industry Certificate Business Name (renewable Mayor’s Permit and License toCity 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
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 DataPhilippine 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