Hector De Leon's Expertise on Partnership and Corporation Law in the Philippines
Law on Partnership and Corporation by Hector De Leon
If you are planning to start or run a business in the Philippines, you need to know the basic laws that govern your chosen business structure. One of the most popular books that covers this topic is Law on Partnership and Corporation by Hector De Leon. This book provides a comprehensive and updated discussion of the legal principles and rules that apply to partnership and corporation in the Philippines. It also includes illustrative cases, problems and solutions to help you understand and apply the law in practice.
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In this article, we will give you a brief overview of what this book covers, who is the author, why is it important for business owners and managers, and where can you download it. We will also compare and contrast partnership and corporation as two common forms of business organization, highlight their advantages and disadvantages, and provide some case studies of how they operate in the Philippines. Finally, we will answer some frequently asked questions about partnership and corporation law in the Philippines.
Overview of Partnership Law
A partnership is a voluntary association of two or more persons who agree to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves. A partnership can be either general or limited, depending on the extent of liability of the partners. A general partnership is one where all partners are liable for all the debts and obligations of the partnership. A limited partnership is one where one or more partners have limited liability while one or more partners have unlimited liability.
A partnership is formed by contract, either oral or written. However, it is advisable to have a written partnership agreement that specifies the terms and conditions of the partnership, such as the name, purpose, duration, capital contributions, profit sharing ratio, management authority, dissolution procedure and other matters relevant to the partnership. A partnership agreement can be modified by mutual consent of all partners or by operation of law.
The rights and obligations of partners include:
The right to participate in the management of the partnership business
The right to share in the profits and losses of the partnership
The right to inspect and access the books and records of the partnership
The right to demand an accounting of the partnership affairs
The right to dissolve the partnership for just cause
The obligation to contribute capital or industry to the partnership
The obligation to act in good faith and with due diligence in carrying out the partnership business
The obligation to refrain from competing with or engaging in conflict of interest with the partnership
The obligation to indemnify the partnership for any loss or damage caused by their negligence or misconduct
The obligation to be liable for the debts and obligations of the partnership
Overview of Corporation Law
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. A corporation can be either stock or non-stock, depending on whether it has capital divided into shares or not. A stock corporation is one that issues shares of stock to its members or shareholders, who are the owners of the corporation. A non-stock corporation is one that does not issue shares of stock, but instead has members who may or may not have voting rights.
A corporation is formed by complying with the requirements of the Corporation Code of the Philippines, which include:
Filing articles of incorporation with the Securities and Exchange Commission (SEC)
Subscribing at least 25% of the authorized capital stock and paying at least 25% of the subscription price
Electing a board of directors or trustees and officers
Adopting by-laws
Obtaining necessary permits and licenses from other government agencies
The rights and obligations of shareholders, directors and officers include:
The right to vote in the election of directors or trustees and on other corporate matters
The right to receive dividends or other benefits from the corporation
The right to inspect and access the books and records of the corporation
The right to file a derivative suit on behalf of the corporation
The right to dissent from certain corporate actions and demand payment for their shares
The obligation to pay for their shares of stock
The obligation to act in good faith and with due diligence in managing the corporation
The obligation to refrain from competing with or engaging in conflict of interest with the corporation
The obligation to comply with the by-laws and other corporate policies
The obligation to be liable for the debts and obligations of the corporation only to the extent of their shares, unless they are guilty of fraud, negligence or misconduct
Comparison and Contrast of Partnership and Corporation
Partnership and corporation are two common forms of business organization that have their own advantages and disadvantages. The following table summarizes some of the similarities and differences between them in terms of formation, management, liability, taxation and dissolution.
Aspect Partnership Corporation --- --- --- Formation By contract, either oral or written By operation of law, complying with the Corporation Code Management By partners, unless delegated to a managing partner or a third party By board of directors or trustees, elected by shareholders or members Liability Unlimited for general partners, limited for limited partners Limited for shareholders, directors and officers, unless guilty of fraud, negligence or misconduct Taxation Pass-through entity, taxed at individual level Separate entity, taxed at corporate level Dissolution By agreement, death, incapacity, withdrawal or expulsion of a partner, expiration of term, accomplishment of purpose, loss of capital, insolvency or illegality By expiration of term, accomplishment of purpose, voluntary dissolution by shareholders or members, involuntary dissolution by SEC or court Advantages and Disadvantages of Partnership and Corporation
Choosing between partnership and corporation as a business structure depends on various factors, such as the nature, size and scope of the business, the capital requirements, the risk tolerance, the tax implications and the personal preferences of the owners. Here are some general advantages and disadvantages of each form:
Advantages of Partnership
Easier and cheaper to form than a corporation
More flexible and adaptable to changing business needs than a corporation
More personal and direct involvement in the business by partners than by shareholders
No double taxation as profits are taxed only at individual level
More access to capital and expertise from multiple partners than from a single owner
Disadvantages of Partnership
Unlimited liability for general partners, exposing their personal assets to creditors
Limited life span as it can be dissolved by any partner's death, incapacity, withdrawal or expulsion
Potential conflicts among partners due to different opinions, interests or goals
Limited transferability of ownership as it requires consent of all partners
Less protection from legal regulations than a corporation
Advantages of Corporation
Disadvantages of Corporation
More difficult and expensive to form than a partnership
More rigid and complex to manage than a partnership
Less personal and direct involvement in the business by shareholders than by partners
Double taxation as profits are taxed at both corporate and individual level
More exposure to legal regulations and compliance than a partnership
Case Studies of Partnership and Corporation in the Philippines
To illustrate how partnership and corporation work in the Philippines, here are some examples of real-life businesses that use these forms of organization.
Case Study 1: Ayala Corporation
Ayala Corporation is one of the largest and oldest conglomerates in the Philippines, with interests in real estate, banking, telecommunications, water, power, infrastructure, education, health care and other sectors. It was founded in 1834 as a distillery business by Domingo Roxas and Antonio de Ayala. It later diversified into other industries and became a corporation in 1968. Today, it is owned by the Ayala family and other shareholders, and is led by a board of directors chaired by Jaime Augusto Zobel de Ayala.
As a corporation, Ayala Corporation enjoys the following benefits:
It has a perpetual existence that is not affected by the death or withdrawal of any shareholder
It has a limited liability that protects the personal assets of its shareholders from creditors
It has a large capital base that enables it to pursue various projects and investments
It has a wide market reach that allows it to serve different customers and segments
It has a professional management that oversees its operations and strategies
However, Ayala Corporation also faces some challenges as a corporation:
It has to comply with various legal requirements and regulations imposed by the SEC and other government agencies
It has to pay corporate income tax on its profits before distributing dividends to its shareholders
It has to deal with potential conflicts of interest among its shareholders, directors and officers
It has to balance the interests of its various stakeholders, such as employees, customers, suppliers, creditors, regulators and the public
It has to cope with the changing business environment and competition from other corporations
Case Study 2: Reyes Barbecue
Reyes Barbecue is a popular food chain in the Philippines that specializes in grilled dishes with peanut sauce. It was founded in 2002 by Francisco Reyes Jr., a third-generation member of the Reyes culinary clan that owns other famous restaurants such as The Aristocrat and Alex III. It started as a single outlet in Makati City and later expanded to over 50 branches nationwide. It operates as a general partnership among Francisco Reyes Jr. and his siblings.
As a partnership, Reyes Barbecue enjoys the following benefits:
It is easy and cheap to form and maintain than a corporation
It is flexible and adaptable to changing customer preferences and market trends than a corporation
It is more personal and direct in its relationship with its customers and suppliers than a corporation
It does not pay income tax on its profits as they are passed through to its partners
It benefits from the expertise and reputation of its partners who belong to a well-known family of restaurateurs
However, Reyes Barbecue also faces some challenges as a partnership:
It has an unlimited liability that exposes the personal assets of its partners to creditors
It has a limited life span that can be dissolved by any partner's death, incapacity, withdrawal or expulsion
It has a limited capital base that restricts its growth potential and expansion plans
It has a limited market reach that limits its customer base and brand recognition
It has to deal with potential conflicts among its partners due to different opinions, interests or goals
Conclusion and Recommendations
In conclusion, partnership and corporation are two common forms of business organization that have their own advantages and disadvantages. Choosing between them depends on various factors, such as the nature, size and scope of the business, the capital requirements, the risk tolerance, the tax implications and the personal preferences of the owners. There is no one-size-fits-all solution, as each form has its own strengths and weaknesses.
Therefore, we recommend that business owners and managers carefully weigh the pros and cons of each form, consult with legal and financial experts, and consider their long-term goals and vision before deciding on their business structure. We also suggest that they review and update their business structure periodically to ensure that it is still suitable and effective for their current and future needs.
For further reading, we recommend the following sources:
Law on Partnership and Corporation by Hector De Leon - This book provides a comprehensive and updated discussion of the legal principles and rules that apply to partnership and corporation in the Philippines. It also includes illustrative cases, problems and solutions to help you understand and apply the law in practice.
Download Law On Partnership And Corporation By Hector Deleon Pdf - This link allows you to download the PDF version of the book for free.
Securities and Exchange Commission (SEC) - This is the government agency that regulates and supervises corporations, partnerships and other forms of business organization in the Philippines. It provides information, guidelines and forms for registering, operating and dissolving a business entity.
Department of Trade and Industry (DTI) - This is the government agency that promotes trade, industry and entrepreneurship in the Philippines. It provides information, assistance and programs for starting, growing and sustaining a business.
FAQs
Here are some common questions about partnership and corporation law in the Philippines:
Q: What are the other forms of business organization in the Philippines besides partnership and corporation?
A: The other forms of business organization in the Philippines are sole proprietorship, cooperative, joint venture, franchise, branch office, representative office and regional headquarters.
Q: What are the differences between a stock corporation and a non-stock corporation?
A: A stock corporation is one that issues shares of stock to its members or shareholders, who are the owners of the corporation. A non-stock corporation is one that does not issue shares of stock, but instead has members who may or may not have voting rights. A stock corporation is usually formed for profit-making purposes, while a non-stock corporation is usually formed for charitable, educational, religious or civic purposes.
Q: What are the differences between a general partnership and a limited partnership?
A: A general partnership is one where all partners are liable for all the debts and obligations of the partnership. A limited partnership is one where one or more partners have limited liability while one or more partners have unlimited liability. A limited partner is one who contributes capital but does not participate in the management of the partnership business. A general partner is one who contributes capital or industry and participates in the management of the partnership business.
Q: How can I register a partnership or a corporation in the Philippines?
A: To register a partnership or a corporation in the Philippines, you need to file articles of incorporation or articles of partnership with the SEC, pay the required fees and taxes, obtain necessary permits and licenses from other government agencies, and comply with other legal requirements. You can visit www.sec.gov.ph for more information.
Q: How can I dissolve a partnership or a corporation in the Philippines?
A: To dissolve a partnership or a corporation in the Philippines, you need to file articles of dissolution with the SEC, pay the required fees and taxes, settle all debts and obligations, distribute all assets among partners or shareholders, obtain clearance from other government agencies, and comply with other legal requirements. You can visit www.sec.gov.ph for more information. 71b2f0854b