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Learn more about Partnership Agreement in Philippines

In the Philippines, registering a Partnership Agreement is required. It might be simple or difficult, depending on your legal framework. Partnerships and corporations, unlike sole proprietorships, must be registered with the Securities and Exchange Commission (SEC). A partnership is one of the most popular types of company in the Philippines. This is because you have someone with whom to collaborate (a partner), rather than managing everything on your own. It has two or more partners and much of capacity for capital and expansion. If you are debating whether to expand your firm, you should consider this sort of corporate entity. If you need to, do not hesitate to consult our other agreement templates, such as Consulting Agreement or Shareholders Agreement.

Table of contents

What is a Partnership Agreement?

A partnership is a legally binding arrangement between two or more businesses. When two firms from Philippines or elsewhere join forces to fulfill their mutual interests in a certain fashion, you should enter into a partnership agreement with them. Depending on the nature of your partnership and the nature of your company’s operation, establishing a compelling and exciting Partnership Agreement may necessitate the aid of a lawyer who provides you with the option to download your Partnership Agreement. Create an agreement to manage and operate the firm together in order to profit from a business partnership. Each partner shares in the partnership’s earnings and losses.

What laws apply to business partners?

According to the Philippine Civil Code, a partnership is defined as follows:

According to Art. 1767, the partnership contract binds two or more people to contribute money, property, or industry to a common fund with the goal of distributing the gains among themselves.
A partnership can also be formed by two or more people to practice a profession.

In many aspects, a partnership differs from a corporation. First, the partnership has no temporal restriction because its existence is determined by the parties’ agreement. A company, on the other hand, can exist for a maximum of fifty (50) years. Second, in terms of the onset of juridical personality, a partnership becomes a juridical person from the start of the contract, but a corporation does not become a juridical person until it is registered with the Securities and Exchange Commission (SEC).

Third, although a partner may transfer his interest in a partnership to another, the transferee does not automatically become a partner unless all the other partners give their consent. However, in corporations, when the shares of stock are transferred to another, the transferee becomes a stockholder of the corporation. Fourth, as to liability to third persons, partners may be held liable with their private and personal property while in corporations, the stockholders are generally liable only to the extent of their subscribed capital stock. Lastly, a partnership may be dissolved due to the insolvency, civil interdiction, death, insanity or retirement of any of the partners while such grounds do not dissolve a corporation.

Why use a Partnership Contract?

A Partnership Agreement is very easy to draft and is appropriate for collaborations with two to 10 people. The pact, though, might also be utilized for larger cooperation.

You may be able to recruit new staff if you give an incentive to become a partner. The ownership shares of partnership assets, revenue, and costs do not have to be equal. Your share ratio might be 50:50, 60:40, 70:30, or any combination of the above.

A Partnership Agreement benefits from the complimentary talents of two or more persons. Your company now has a greater pool of knowledge, skills, and relationships. This contract can be utilized if one or more of the partners is “sleeping” or “silent,” that is, donating finances, experience, or assets but not participating in the firm’s day-to-day activities.

While most Partnership Agreements involve human partners, this agreement can also be used when one or more of the parties is a company or a non-profit organization. Your ‘business’ as partners might be a single specialized endeavor, such as a technology development project, and it does not have to be commercial in nature.

What are the steps to register a partnership business?

Step 1. File a registration statement with the Securities and Exchange Commission (SEC)

The first step is to register your company with the SEC. In the Philippines, they are in charge of regulating partnerships and companies. You must input the following information here:

➤ Name Verification Slip
➤ Partnership Articles
➤ Joint Affidavit (Not required if already stated in Articles of Partnership)
➤ Clearance Endorsement (From other government agencies)
➤ Form 105 of the FIA (If you have a foreigner partner)

Step 2. Obtain a Barangay Permit

This is essential since you will be establishing a company in the barangay. As a result, your business should adhere to the barangay’s norms. Depending on your barangay, fees and other restrictions may be required.

Step 3. Register your company and employees with the Social Security Administration (SSS)

The registration of your personnel (temporary or permanent) in the SSS is required by law. This guarantees that you are legally remitting your employees‘ monthly payments so that they can benefit afterwards. You will require the following items:

➤ R-1 and R-1A SS Forms
➤ A photocopy of the Partnership Articles
➤ A drawing or map of the business's location
➤ Clearance Endorsement (From other government agencies)
➤ Validated Miscellaneous Payment Return (SS Form R-6 or SS Form R-6 with Special Bank Receipt) (proof of payment for the Employer Registration Plate)

Step 4. Obtain a Business License or a Mayor's Permit

You can now apply for a Business Permit or Mayor’s Permit after receiving the certificate of registration from the SEC. This is essential since your firm is located within the LGU’s jurisdiction. Your company, like that of a barangay, should adhere to the LGU’s requirements.

Here’s our comprehensive guide to obtaining a company or mayor’s permission in the Philippines.

Step 5. Register your company with BIR

You may now register your business in BIR with a mayor’s permit. Registering with the Bureau of Internal Revenue allows you to issue formal receipts, keep books of accounts, and acquire a distinct Tax Identification Number (for partnerships and companies).

What are the different types of partnerships?

Partnerships are categorised based on how liability is distributed among partners, as follows:

➤ General partnership (GP): Each partner is fully liable for all of the company's financial and legal responsibilities, even those created by the activities of another partner.
➤ Limited partnership (LP): At least one partner (the "general partner") is personally liable, but one or more "limited partners" (typically investors) are only partially liable.
➤ Limited liability partnership (LLP): Each partner is fully liable for business responsibilities but is protected from responsibility arising from the actions of other partners. LLPs are usually designated for professionals such as physicians, attorneys, and accountants, and they are only available in a few states.
➤ Limited liability limited partnership (LLLP): Similar to an LP, but the general partner has limited responsibility as well. LLLPs are not accessible in many jurisdictions, and the liability protection they provide has not been properly established in court.

How to terminate a Partnership Contract?

Although dissolving your partnership is not as simple as halting operations and closing the doors, it does not have to be difficult.
When a partnership dissolves, the individuals involved are no longer legally partners, but the partnership continues until the business’s obligations are paid, its legal existence is dissolved, and the company’s residual assets are dispersed.

1. Review Your Partnership Agreement: If you and/or your partner(s) decide to end the relationship, make sure you follow the dissolution process outlined in the legal agreement. The agreement normally requires a majority vote to dissolve the business.

2. Discuss the Decision to Dissolve with Your Partner(s): You created your firm with your partner(s), and you should openly discuss dissolving it with them. You and your partner must examine your obligations, such as the company’s debts and future liabilities, as well as how you want to wind down the business.

3. File a Dissolution Form: To officially dissolve the partnership, you must file a dissolution of partnership form with the state where your company is based. This plainly specifies that you are no longer a partner or liable for the obligations of the business; it is a prudent measure to take.

4. Notify Others: Notify other parties of the dissolution, including employees, customers, the landlord, and any government agencies, such as the IRS, that have registered or issued a license to your company.

5. Close and settle all accounts: Notify all creditors of the dissolution. You should ensure that all of your debts are paid in full. All commercial bank accounts should be closed. Then, distribute all assets in line with your partnership agreement or any other agreement you make with your partners. If there is insufficient cash to meet the partnership’s commitments and responsibilities, get legal advice from a company attorney.

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