SEC OPINION DATED FEBRUARY 29, 1980

From: Rosario N. Lopez,
Director,
Corporate and Legal Department of SEC

To: Antonio E. Librea,
Acting Director, Legal Service,
Office of the Minister Ministry of Public Highways

Issue:
Whether two or more medium-size corporations (contractors) may enter into a partnership or joint venture/consortium for the purpose of qualifying in terms of capitalization and equipment in large-scale projects of the Ministry of Public Highways through competitive bidding.

Opinion:
Corporations cannot ordinarily enter into a contract of partnership with another corporation or individual. 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 persons who are not 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.

It is fairly well-settled that corporations cannot ordinarily enter into partnerships with other corporations or individuals, for, in entering into a partnership the identity of the corporation is lost or merged with that of another and the direction of the affairs is placed in other hands than those permitted by the law of its creation. A corporation can act only through its duly authorized agents and is 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

Exceptions to the application of this general rule may be allowed by this Commission, provided that the following conditions are adequately met:
1) The articles of incorporation of the corporations involved must expressly authorize the corporation to enter into contracts of partnership with others in the pursuit of its business;
2) The agreement or articles of partnership must provide that all the partners will manage the partnership; and
3) The articles of partnership must stipulate that all the partners are and shall be jointly and severally liable for all the obligations of the partnership.

Two or more corporations may enter into a joint venture/consortium if the nature of the venture is in line with the business authorized by its charter through a contract or voluntary agreement between the said parties. Please note that no independent legal entity is borne out of it and the same need not be registered with the Commission. However, when the joint venture/consortium would result in the formation of a corporation or partnership, the same has to be registered with the Commission and the conditions and requirements above-mentioned should be complied with.

One thought on “SEC OPINION DATED FEBRUARY 29, 1980

  1. Pingback: Partnership Cases

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