 Rules in Division of Profit or Loss

 If all are capitalist partners

a) Profits and losses shall be divided according to their agreement.

b) If only the share in profits has been agreed upon, the share in losses shall be in the
same proportion as the share in profits.

c) If no agreement has been made, the share in profits and losses shall be proportional
to his capital contribution.

Example: Mr. A, B and C formed ABC enterprise with the following capital contribution,
A with 20,000, B with 30,000 and C with 50,000. The partnership earned 10,000 for the
year.

A) If A, B and C agreed to share profit or loss on 1:2:3 ratio respectively, A will receive
1,667, B will receive 3,333 and C will receive 5,000.

B) If in case rather than having a 10,000 profit the partnership incurred a 10,000 loss
and the partnership agreed to share profit on 1:2:3 ratio, the partners will share the loss
in the same manner as what is agreed upon on profit sharing.

B) If A, B and C did not have any agreement, A will receive 2,000, B will receive 3,000
and C will receive 5,000.

 If there is/are industrial partner/s other than the capitalist partner

As to Profit

a) Profits shall be divided according to agreement.

b) In the absence of any agreement, the industrial partner shall first receive a just and
equitable share, then the capitalist partners shall share in the profits proportional to
their capital contribution.

As to Loss

c) Industrial Partner shall not share in the loss.

d) Losses shall be divided among capitalist partners according to their agreement.

e) In the absence of an agreement, each capitalist partner shall share in the losses in the
same proportion as the share in profit.
 d) In the absence of both, capitalist partner shall share in proportion to their capital
contribution.

Example: Mr. A, B and C formed ABC enterprise with the following capital contribution,
A with 40,000, B with 60,000 and C is an industrial partner. The partnership earned
10,000 for the year.

a) If the partners agreed to share profit equally, each partner will receive P3,333.

b) If the partners did not agree on profit sharing, the industrial partner (C) shall first
receive his just and equitable share (say 3,000) and the balance of 7,000 will be divided
to the capitalist partners (A and B) in accordance to their capital contribution. A will
receive 2,800 and B will receive 4,200.

c) If instead of earning 10,000, the partnership incurred a 10,000 loss, C will not share in
the loss.

d) If the partners agreed to share losses in the ratio of 1:3 for A and B respectively. A will
share 2,500 and B will share 7,500 in the loss.

e) If no agreement at to loss sharing, A and B will share equally based on their profit
sharing ratio. Thus, 5,000 each.

d) If no agreement as to profit and sharing ratio, the loss will be divided in accordance to
their capital contribution. A will share 4,000 and C will share 6,000.

*Any stipulation which excludes one or more partners from any share in the profits and
losses is void except for industrial partner.

 Designation of share in profits and Losses by a Third Person or by a Partner

1) If by a third person

The designation shall be binding upon the partners and may be impugned only when it
is manifestly inequitable. However, even if the designation of the third person is
inequitable, any partner cannot impugn such if:

a) the partner has begun to execute it

b) if three (3) months had already passed from the time the partner had
knowledge of such designation.

2) if by a partner
 The designation made by a partner is VOID because profit and loss sharing cannot be
entrusted to one partner. The profit and loss sharing shall be as if there was no
stipulation as to such.

 Rules of Management

 Management of the partnership is primarily governed by the agreement of the partners

1) All the partners; or

2) A number of partners appointed as managers, which may be appointed:

 POWERS OF A MANAGING PARTNER

General rule: The partner designated as manager in the articles may execute all acts of
administration despite opposition by the other partners.

Exception: He cannot do so when he acts in bad faith

 REVOCATION OF POWER OF MANAGING PARTNER

(1) If appointed in the articles of partnership, when:

a) There is just or lawful cause for revocation; and

(2) If appointed after the constitution of the partnership, at any time and for any cause

 MANAGEMENT BY TWO OR MORE PARTNERS

When there are two or more managing partners appointed, without specification of
their duties or without a stipulation on how each one will act:

1) Each one may separately execute all acts of administration.

2) If any of them opposes the acts of the others, the decision of the majority prevails.

3) In case of a tie, the partners owning the controlling interest will decide
 Stipulation of Unanimity: In case there is a stipulation that none of the managing
partners shall act without the consent of others, the concurrence of all is necessary for
the validity of the acts. The absence or disability of one cannot be alleged, unless there
is imminent danger of grave or irreparable injury to the partnership

 MANAGEMENT WHEN MANNER NOT AGREED UPON

1) All the partners are considered agents [mutual agency]. Whatever any one does alone
binds the partnership, unless there is a timely opposition to the act.

2) Any important alteration in the immovable property of the partnership, even if useful
to the partnership, requires unanimity. If the alteration is necessary for the preservation
of the property, however, consent of the others is not required

 Right of Partners to Engage in Business

 INDUSTRIAL PARTNER

An Industrial Partner cannot engage in business for himself, unless the partnership
expressly permits him to do so. This rule applies even if the kind of business engaged in
by the industrial partner is different from the partnership business.

Should he do so without permission, the capitalist partners may:

 CAPITALIST PARTNER

A Capitalist Partner cannot engage, for his own account, in the same kind of business as
that of the partnership, unless there is a stipulation to the contrary

Should he do so, he shall bring to the common fund any profits accruing to him from his
transactions and shall personally bear all the losses.

 Rules on Sharing of Partnership Liabilities to Third Persons

 NATURE OF INDIVIDUAL LIABILITY

1) Subsidiary- The partners are liable subsidiarily. It only arises upon exhaustion of
partnership assets.

2) Pro- Rata- liability shall be equally divided

All General Partner whether:

a) Capitalist Partner
b) Industrial Partner

An industrial partner, who is not liable for losses, is not exempt from this liability.
However, he can recover the amount he has paid from the capitalist partners, unless
there is a stipulation to the contrary.

 STIPULATION AGAINST INDIVIDUAL LIABILITY

Any stipulation against this liability is:

1) Void against third persons;

If there is such stipulation, the liabilities shall be paid as follows:

a) The assets of partnership shall first be used.

b) If not sufficient, the liability shall be paid equally from the separate assets of the
partners including any industrial partner.

c) Thereafter, the partners not exempted from pro rata and subsidiary liability shall
reimburse according to the partner’s profit or loss sharing agreement or in the ratio of
their capital contribution, whichever is applicable, to the following partners the amount
paid by them:

aa) Industrial Partner