If you’ve been contemplating starting a business, the idea of doing it alone may seem daunting. With business partners, however, you can share the responsibility of funding the startup and managing operations. That’s one of the key features that make a partnership a viable business structure for many entrepreneurs. 

It sits somewhere between a sole proprietorship and a domestic corporation. Duties and decision-making can be divided among business partners, all while complying with fewer startup requirements — compared to a corporation. 

But you may still be asking yourself: What exactly is a partnership business? What are the legal implications and the registration requirements to start one?

Let’s cover all the basics about forming a partnership in the Philippines. 

📖In summary:

• There are at least two people in a partnership who agree to contribute skills and resources to the business. 
• The rules on how partnerships are formed, operated, and dissolved are mainly detailed in the Civil Code of the Philippines.
• There are two types of partnerships in the Philippines: General Partnership and Limited Partnership
• Partnerships involving foreign individuals or companies have additional documentary requirements.

How Philippine law defines a partnership

According to the Civil Code of the Philippines, a partnership involves two or more persons who agree to: 1) provide money, property, or industry to a common fund and; 2) divide the resulting profit among themselves.

The partnership becomes a separate legal entity from the partners once the contract is enforceable. However, the general rule is that partnerships have unlimited liability. In other words, the partners’ personal assets can be used to ensure the business fulfills its obligations.  

The following are the key characteristics of a partnership:

• At least two people enter into agreement to form the partnership. 
• They contribute resources to the business, whether it’s financial support, equipment, property skills and expertise, and so on
• They divide the profit among themselves, however they see fit
• Valid registration with the Securities and Exchange Commission (SEC) with a capital of at least Php 3,000. 

Most notably, unlike a corporation, a partnership between two or more people may be formed to exercise a profession. This offers an ideal set-up for for the likes of lawyers, doctors, accountants, and architects. 

For more information on all aspects of a partnership (including formation, operation, dissolution, and partner obligations), you may refer to Article 1767 to 1867 of the Civil Code.

The two types of partnerships in the Philippines

You have two options when it comes to setting up a partnership. Each type will have pros and cons depending on the nature of the business you’re planning:

General Partnership 

Each partner shares an equal responsibility in the management of the business. Everyone can make decisions that they deem to be beneficial to the business. And depending on the exact number of partners, you can generate a higher startup capital compared to, say, a sole proprietorship. 

Similarly, everyone is also responsible in any event that the business fails. So a general partnership that goes underwater may draw from the personal assets of all partners to cover business debts/duties. 

A general partnership may be the right business structure if you prefer to keep things simple — and hold everyone equally accountable. 

Limited partnership

Partners in a limited partnership have varying responsibilities and liabilities. Some have unlimited liability, while some are only held responsible up to the extent of their financial contributions. 

These limited partners are often referred to as silent partners/investors because they’re not involved in directly managing the business

Limited partnerships can still pool in significant starting capital for the business — if not more than a general partnership, especially if you have wealthy benefactors. 

A limited partnership can be a good option for you if you have non-technical partners. They won’t be obligated to support the day-to-day running of the business, but they can provide monetary support.

Requirements you need for a partnership business in the Philippines

As mentioned earlier, in order to be a valid partnership, you must be registered with the relevant government agencies. Below are the documents you need to submit:

• SEC Registration Cover Sheet
• Name Verification Slip (can be found in SEC website)
• Name of the partnership
• Articles of Partnership
• Joint Affidavit (not required if stated in Articles of Partnership)
• Certificate of Bank Deposit
• Principal office address
• Contact number of the partner
• Info on partners: name, citizenship, address, birthday, and Taxpayer Identification Number (TIN)
• Capital contribution of the partners
• Purpose of the partnership
• Endorsement of Clearance from other government agencies (detailed in next section)

If there are foreign partners or foreign companies involved, you’ll also need the following: 

• FIA Form 105 
• Proof of existence of the foreign company, if a partner in the partnership is registered abroad
• Board resolution of the foreign company
• Certificate of Reciprocity as required by the Retail Trade Liberalization Act (RTLA), if applicable
• Certificate of Inward Remittance/ Bank Certificate, as required by RTLA, if applicable

 

The six-step partnership registration process 

Follow these steps to make your partnership business official in the Philippines. 

1. Register with the SEC

In this first step, you’ll need your name verification slip, articles of partnership as well as a joint affidavit. With foreign partners involved, the above mentioned additional requirements will need to be submitted as well. 

2. Secure a barangay certificate

A barangay certificate is required to operate within any barangay’s local jurisdiction. The barangay is the smallest administrative district in the Philippines. This clearance will certify that your partnership complies with prevailing business requirements in a specific locale.

3. Register your business and workers with the Social Security System (SSS)

All businesses with employees must be duly registered with the SSS. Aside from submitting a copy of your Article of Partnership and a map of your business location, you’ll need:

• Form R-1 
• Form R1-A
• Form R-6 or R-6 with a Special Bank Receipt 

4. Apply for Mayor’s Permit (business permit)

A Mayor’s Permit or business permit is also needed to ensure compliance with the city’s business and safety standards. You’ll need to visit the Business Permit and Licensing Office of the city where you plan to do business. Typical requirements they’ll ask for include:

• Application Form 
• Zoning Clearance
• Fire Safety Inspection Permit
• Sanitation Permit

5. Register with the Bureau of Internal Revenue (BIR)

The last step is to register with the BIR. This will ensure your business has a TIN and is  permitted to use official receipts and keep a book of accounts. 

6. Work with Loft to register a partnership business

Starting any business involves piles of paperwork and several trips to government offices. With Loft’s business experts, you won’t go through the process alone. You’ll have a knowledgeable team by your side to help you get started fast, while complying with all requirements. 

Make your business plans a reality today. Get in touch with us via email or call us at +63-917-899-1111.