Partnership Classifications

Universal partnership (of all present property or of profits) – Universal partnership has two types 1) Universal partnership of all present property and 2) Universal partnership of profits.

For universal partnership of all present property, the partners contribute ALL of their present (current and existing) properties with the intention of dividing the properties as well as the profits among themselves. Basically, they are going to utilize the properties to generate profits. Take note, that this partnership only covers PRESENT properties, any property acquired by a partner in the future will only form part of the partnership if there is a STIPULATION. If there is no stipulation, these properties acquired after the formation of the partnership will NOT be a part of the partnership.

For universal partnership of all profits, the properties contributed (if any) are still owned by the individual partner and NOT by the partnership. Only the profits resulting from the utilization of the properties will form part of the partnership and divided among the partners. Also, profits resulting from an individual partner’s industry will form part of the partnership. This includes salaries and wages, commissions, etc. Note that these profits must result from a partner’s exertion of work, physical or intellectual. Those that results from chance (i.e., lotto winnings, raffle) are excluded. Profits from properties acquired AFTER formation of the partnership are also excluded, UNLESS there is a stipulation stating that future properties will be included.

General partnership – basically, this partnership is composed of general partners. In general, when a partnership becomes insolvent, the creditors may go after the personal properties of solvent partners. These are general partners. Once the partnership assets have been used up to pay the partnership creditors, the partners are liable to use their personal net assets (personal assets minus personal liabilities) to pay the remaining liabilities of the partnership. Kinda scary, but there you have it.

Limited partnership - Sometimes, to protect one’s self, a partner requests to be excluded from liability (as against personal net assets) through a stipulation in the partnership agreement. This person is called a limited partner. A limited partnership is composed of limited and general partners. The requirement for this type of partnership is to have AT LEAST ONE general partner. Also, their PARTNERSHIP NAME should contain the word LIMITED.

Partnership for a fixed term – A partnership that is formed to last only a certain period of time. Say, for only five years. Or ten years. This is usually included in the Articles of Partnership. After the passage of time, the partnership is automatically dissolved/liquidated at the date stated (fixed term).

Partnership for a particular undertaking – A partnership that is formed to last only until the achievement of its purpose. For example, a partnership is formed to accumulate profit amounting to five million pesos. Once five million pesos has been generated, the partnership will be liquidated.

For partnership for a fixed term and partnership for a particular undertaking, after the fulfillment of the term or the purpose, the partners may still continue the operating the partnership, provided they apply for a new one or they could simply amend the documents of the original partnership.

Partnership at will – this one is much easier. A partnership that may be terminated by the will of the partners. If they want to discontinue, they could simply agree to liquidate.

Ordinary partnership – one that actually exists and recognized by the partners and the public (with legal recognition)

Partnership by estoppel – one that is not really a partnership, but is considered one by reason of conduct or admission. Example of this is when a person (who is not a partner) represents himself as a partner in an existing partnership, or when a person represents himself as a partner in a non-existing partnership.