Partnerships significantly contribute to business growth by providing diverse perspectives and strategies. They also broaden a company’s target reach, which can result in opportunities for free advertising and better brand recognition. However, there are some circumstances in which the partnership comes to dissolution.
What is the Dissolution of Partnership?
The Civil Code of the Philippines defines dissolution of a partnership as the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. Additionally, under Article 1829 of the said Code, the dissolution does not necessarily mean that the partnership is terminated, rather it continues until the winding up of partnership affairs is completed. The remaining partners may also choose whether to continue or not on as a new partnership.
What are the Grounds of Extrajudicial Dissolution of a Partnership?
In accordance with Article 1830 of the Civil Code of the Philippines, the following are causes for the extrajudicial dissolution of a partnership:
- Without violation of the agreement between the partners:
- By the termination of the definite term or particular undertaking specified in the agreement;
- By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified;
- By the express will of all partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking; or
- By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners.
- In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time.
- By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership.
- When a specific thing, which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof.
- By the death of a partner.
- By the insolvency of any partner or the partnership.
- By the civil interdiction of any partner.
- By decree of court under the following article (1700a and 1701a).
What are the Grounds of Judicial Dissolution of Partnership?
According to Article 1831 of the Civil Code, the court shall decree dissolution when a partner is involved in any of the following:
- A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
- A partner becomes in any other way incapable of performing his part of the partnership contract;
- A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
- A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matter relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;
- The business of the partnership can only be carried on at a loss; or
- Other circumstances render a dissolution equitable.
Moreover, under Article 1813 or 1814, regarding the application of the purchaser of a partner’s interest:
- After the termination of the specified term or particular undertaking; or
- At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued.
How to Dissolve a Partnership in the Philippines?
Dissolving a partnership in the Philippines involves legal procedures designed to mitigate liabilities under the partnership agreement and prevent potential disputes among partners. These procedures include:
- Review the Partnership Agreement. When withdrawing a partnership, it is necessary to review the partnership agreement, as some agreements outline specific dissolution procedures, including requirements and financial implications. If the agreement does not include such procedures, the provisions of the Civil Code of the Philippines will be followed.
- Notice of Withdrawal. The withdrawing partner must provide a written notice addressed to other partners. The letter should include the reason for withdrawal and the effective date of withdrawal. Additionally, if the partnership is registered with the Securities and Exchange Commission (SEC), an amendment to the Articles of Partnership must be filed, reflecting the withdrawal and any other changes in partnership’s structure.
- Settlement of Interests. After the withdrawal, the withdrawing partner may return their capital contribution or any share in the partnership assets. They may also receive a sum based on their share of the capital and profits before the effectiveness of their withdrawal.
- Settlement of Liabilities and Discharge of Obligations. While the withdrawal is not yet effective, the withdrawing partner remains responsible with their partnership obligations. However, they can be released from their responsibilities, if the other partners and the creditors agreed to it.
- Registration. If the partnership is registered with the SEC, any changes in the partnership structure must be reported to ensure the records accurately reflect the partnership’s current status.
Dissolving a partnership can be legally complex, and the process often involves financial, contractual, and regulatory considerations that may lead to disputes if not properly handled. In this regard, it is advisable to consult with a lawyer to navigate these complexities. They can help you prepare the necessary documents, review the partnership agreement, and protect your interests.
How to Register a Partnership Business with the Securities and Exchange Commission (SEC)?
The Securities and Exchange Commission (SEC) has introduced the SEC Electronic Simplified Processing of Application or Registration of Company (e-SPARC) to significantly simplify and expedite the business registration process in the Philippines. It also made it easier for entrepreneurs and businesses to comply with regulatory requirements.
For partnerships, the registration process through e-SPARC typically involves several key steps:
- Name Verification and Reservation. This initial step ensures that the desired business name is available and complies with SEC guidelines. The e-SPARC system allows users to check name availability and reserve it for a specified period.
- Preparation and Uploading of Documents. The required documents for partnership registration, such as the Articles of Partnership and other supporting documents, need to be prepared, signed, and notarized. These documents are then uploaded to the e-SPARC system in digital format.
- Payment of Fees. The corresponding registration fees, as determined by the SEC, must be paid through the available payment options within the e-SPARC platform.
- Submission and Review. Once the documents are uploaded and the fees are paid, the application is submitted for review by the SEC. The SEC will then assess the completeness and compliance of the application.
Upon successful registration and completion of all requirements, the SEC issues a Certificate of Registration or Certificate of Partnership. This certificate serves as legal proof of the partnership’s existence and registration with the SEC.
Need further information and assistance regarding Dissolution of Partnership? Talk to our team at Duran & Duran-Schulze Law in Bonifacio Global City, Taguig, Philippines to know more about the requirements and process. Call us today at (+632) 8478 5826 or +63 917 194 0482, or send an email to info@duranschulze.com for more information.
