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This article was originally published on March 17, 2021 and has been updated to reflect recent legal developments.

This article is provided for general informational purposes only and does not create, nor shall it be construed as creating, a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. For advice on specific legal concerns, you are encouraged to engage the services of a qualified lawyer. You may also directly consult Alburo Alburo and Associates Law Offices for proper guidance tailored to your situation.

The views and information presented herein are based on the laws, rules, and jurisprudence prevailing at the time of writing. They do not take into account subsequent legal developments and should not be relied upon as a substitute for professional legal advice.

AT A GLANCE:

A limited partnership is formed by two or more persons, having as members one or more general partners and one or more limited partners. The limited partners shall not be bound by obligations of the partnership. The contributions of the partners may be cash or property, but not his services.

What is a Limited Partnership?

Under Article 1843 of the Civil Code, a limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership.

Forming a Limited Partnership

To form a limited partnership, under Article 1844 of the Civil Code two or more persons shall:

1. Sign and swear to a certificate, which shall state –
   1. The name of the partnership, adding the word “Limited”;
   2. The character of the business;
   3. The location of the principal place of business;
   4. The name and place of residence of each member, general and limited partners being respectively designated;
   5. The term for which the partnership to exist;
   6. The amount of cash and a description of and the agreed value of the other property contributed by each limited partner;
   7. The additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made;
   8. The time, if agreed upon, when the contribution of each limited partner shall be returned;
   9. The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution;
   10. The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution;
   11. The right, if given, to admit additional limited partners;
   12. The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority;
   13. The right, if given, of the remaining general partner or partners to continue business on the death, retirement, civil interdiction, insanity or insolvency of a general partner; and
   14. The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.
2. File for record the certificate in the Office of the Securities and Exchange Commission.

A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.

May the surname of a limited partner appear in the partnership name?

Under Article 1846 of the Civil Code, the surname of a limited partner shall not appear in the partnership name unless:

1. It is also the surname of a general partner, or
2. Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared.
   
   

A limited partner whose surname appears in a partnership name which is not in accord with the enumeration above is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

Rights of a Limited Partner

A limited partner shall have the same rights as a general partner to:

1. Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them;
2. Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable; and
3. Have dissolution and winding up by decree of court.

A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in articles 1856 and 1857. (Article 1851 of the Civil Code)

What is a limited partner liable for?

Under Article 1858 of the Civil Code, a limited partner is liable to the partnership:

(1) For the difference between his contribution as actually made and that stated in the certificate as having been made, and

(2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.

A limited partner holds as trustee for the partnership:

(1) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and

(2) Money or other property wrongfully paid or conveyed to him on account of his contribution.

Article 1858 of the Civil Code further provides that the liabilities of a limited partner, as listed above, can be waived or compromised only by the consent of all members. However, a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities.

When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return.

Read also: What is a Contract of Partnership?

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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