Parkin Son

Archive for December, 2009

One spouse maintains control over properties of the family limited partnership (FLP). This spouse owns a small fraction of the partnership interests. This spouse will hold, say 5%, of the FLP assets as general partner and hold the remainder, or 95%, as limited partner. if that spouse is named a defendant in a lawsuit for breach of contract or negligence and he loses the case, the judgment creditor may collect the part of the debtor spouse in the partnership distribution of shares. This asset protection strategy will work if the partnership does not have abundant income or cash flow to be disbursed to the partner spouses because of the nature of the properties, such as a family home. The judgment creditor may not receive anything if the partnership does not make any distribution of shares.
Note that in the Philippines, the contributions of a limited partner may be cash or other property, but not services (Article 1845, Civil Code). The limited partner is not legally allowed to contribute industry or services alone. However, an industrial partner can become a general partner in a limited partnership (V Paras, Civil Code of the Philippines Annotated, 2000). A person may be both a general and a limited partner at the same time if the certificate allows it (Article 1853, Civil Code). Bear in mind that anyone who is both a general and a limited partner can have third parties running after his individual assets. However, when it comes to his rights to receive his contributions, he would have the rights only of a limited partner insofar as the other partners are concerned (V Paras, supra). Thus, a limited partner may receive his share of the profits or the compensation by way of income stipulated in the certificate but only if a condition is met: that the assets of the partnership are more than its liabilities to third persons (Article 1856, Civil Code). Moreover, the contributions of a limited partner can be returned to him after the following conditions have been satisfied: 1) all partnership liabilities to third parties have been paid or there remains property of the partnership, 2) all members have given their consent, 3) the certificate is canceled or amended to set forth the withdrawal or reduction (Article 1857, Civil Code). Even if the limited partner has contributed property, he has the right to demand and receive cash in return. If these conditions are violated, previous creditors can sue, but they must allege and prove the non-existence of the conditions (V Paras, supra, citing Snipler v. Leland, 127 Mass, 291).