Messrs. Jose T. Tale & Jose Luis G. De Dios

February 23, 1994 Messrs. Jose T. Tale & Jose Luis G. De Dios Romulo, Mabanta, Buenaventura, Sayoc & De Los Santos 4th Flr.,Kings Court 2129 Pasong Tamo, Makati, Metro Manila Gentlemen: This refers to your letters of February 2 and 17, 1994 requesting opinion as to whether corporations can form a "limited partnership". llcd On several occasions, the Commission ruled that as a general rule, corporation cannot enter into a contract of partnership with an individual or another corporation, and the reasons, quoting American Authorities are, follows: "According to the prevailing view a corporation has no implied power to become a partner with an individual or another corporation. This limitation is based on public policy, since in a partnership the corporation would be bound by the acts of the persons who are not its duly appointed and authorized agents and officers, which would be entirely inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively." (13 Am. Jur. S 823, (1938)) "It is fairly well settled that corporations cannot ordinarily enter into partnerships with other corporations or with individuals, for, in entering into a partnership the identity of the corporations is lost or merged with that of another and the directions of the affairs is placed on other hands than those provided by the law of its creation. A corporation can act only through its duly authorized agents; and its not bound by the acts of anyone else, while in a partnership each member binds the firm when acting within the scope of the partnership." (6 Fletcher Cyclopedia Corporations, S 2520 (perm. ed. rev. repl. 1950)) It would thus appear from the foregoing authorities that the general rule is that a corporation cannot ordinarily enter into partnership with other corporations or with individuals. ( SEC Opinion dated Dec. 22, 1966 addressed to Messrs. Juan G. Collas, Jr. and Luis Ma. Guerrero ) However, the Commission allows exceptions to the application of the above rule, provided the following conditions are complied with: 1. The authority to enter into a partnership relation is expressly conferred by the charter or articles of incorporation of the corporation, and the nature of the business venture to be undertaken by the partnership is in line with the business authorized by the charter or articles of incorporation of the corporation involved. ( SEC letter to Mr. Antonio E. Librea dated Feb. 29, 1980 ) 2. The agreement on the articles of partnership must provide that all the partners shall manage the partnership ,and the articles of partnership must stipulate that all the partners shall be jointly and severally liable for all the obligations of the partnership; (Ibid) 3. If it is a foreign corporation, it must obtain a license to transact business in the country in accordance with the Corporation Code of the Philippines and the Foreign Investments Act. Considering that under the second condition, the partners are required to stipulate that all of them shall manage the partnership and that they shall be jointly and severally liable for all the obligations of the partnership, it necessarily follows that a partnership of corporations should be organized as a "general partnership" wherein all the partners are general partners. In such a situation, all corporate partners shall take part in the management and are jointly and severally liable with the other partners. However, it is your contention that a partnership of corporations can be organized as a " limited partnership " since under Article 1848 of the Civil Code, quoted hereunder, a limited partner is given the option to take part in the management of the partnership in addition to the rights of a limited partner. "A limited partner shall not become liable as a general partner unless ,in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business ." (Emphasis supplied) On the basis of the foregoing provision you claim that a partnership composed of corporations as partners may be organized as a limited partnership since even if the corporate partner is merely a limited partner he may opt to participate in the management thereof. As earlier mentioned, a partnership of corporations, as a general rule, is not allowed, unless the above-mentioned conditions are complied with. The second condition requiring that all corporate partners in a partnership shall take part in the management was imposed so that the above argument against surrendering the management to others will not apply. If a corporation is allowed to be a limited partner only, there is no assurance that the corporate partner shall participate in management of the partnership as required and this may create a situation wherein the corporation may not be bound by the acts of the partnership in the event that, as a limited partner, it opts not to participate in the management, thereby defeating the intention of the present policy requiring that all the partners of a partnership composed of corporations shall be jointly and severally liable for all the obligations of the partnership. Accordingly, we answer your query in the negative. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman