Admission of a New Partner to the General Co-partnership

December 29, 1958 BIR RULING NO. 729-58 MEMORANDUM FOR The Chief, Investigation Division B.I.R, Manila There is returned herewith the case of Sy Kian and Company. It is contended that the admission of a new partner to the general co-partnership Sy Kian & Company in 1958 without registration of the change in the personnel of the partnership resulted in the dissolution of the partnership, and the resulting partnership becomes an unregistered partnership. The question of whether or not the admission of a new and additional partner to a duly registered general co-partnership will result in dissolution of the partnership had already been decided in the case "Tec Bi & Co. vs. Collector", 61 Phil. 351. As a matter of fact the instant case is on all fours with said case. Although in the Tan Senguan case, (55 Phil. 439), the Supreme Court held that the admission of a member in the old partnership legally operated as a dissolution of the old firm and the creation of a new partnership which is not registered, however, said doctrine was set aside in the Tec Bi case. For a clear understanding of the doctrine in the Tec Bi case, the pertinent portion of the decision is quoted below, to wit: "We come now to the principal question of the case, namely: Did the failure of the association to record these transfers in the Mercantile Register until July 11, 1927, have the legal effect of converting the registered association of Yu Yiong and Company into an unregistered association? or, stated differently: Did the admission of Yu Siong, Heng Shiu Nian and Uy Quioco as additional partners in the firm under the circumstances mentioned, have the effect of dissolving the duly registered general partnership of Yu Yiong and Company and of creating a new unregistered copartnership for the interval between February 21, 1924, and July 11, 1927? "We have come to the conclusion that it did not have that effect for the following reasons: First, there is no provision in the Code of Commerce that such a conversion should take place. Second, there is no provision in the Code of Commerce that the registration of the transfers in the Mercantile Register on July 11, 1927, should have the effect of revising or recreating the alleged extinct registered general copartnership of Yu Yiong and Company; in other words, the Code of Commerce does not recognize the existence of a hiasus such as the Government argues in this case. Third, articles 24 and 25 of the Code of Commerce, construed together, plainly contemplate the continued existence of the association in the manner and form in which it appears in the Mercantile Register regardless of the un-registered changes therein. Article 25 specifically provides in its last paragraph the consequences of the omission to register the resolutions or acts of a mercantile association which modify or alter the conditions of the recorded articles of association; that is to say, any changes not so registered are binding between the members of the association but shall not prejudice third persons, who, on the other hand, may avail themselves thereof insofar as it may be advantageous to them. Fourth, uncertainties and confusion in trade and commerce would necessarily arise if the public could not rely upon the Mercantile Register to ascertain the status of a registered commercial partnership. "There is not the slightest indication that the transfers in question were dishonest or fraudulent, or, that the delay in registering them has caused loss or disadvantage to the Government or any one else. "The case of Tan Senguan & Co. vs. Collector of Internal Revenue (55 Phil 439), insofar as it may be in conflict with this decision, is to be considered overruled." He is advised to be guided accordingly. (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue