Technical dissolution

THE admission of the new partner in the partnership will cause the latter’s dissolution. The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on of the business (Art. 1828, Civil Code).

Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination (Art. 1829, Civil Code).

Please note however that the term “dissolution” as used in our Civil Code simply means the point in time when all the partners cease to carry on the business together, and should not be understood as necessarily including the winding up and the termination of the partnership. Thus, it has been held in SEC Opinions dated August 18, 1983 and June 29, 1960 that the admission of new partners through a sale of the interest of an existing partner dissolves the partnership.

But the dissolution in such case is only in the sense that his connection with the partnership is terminated, that is, there is only a technical dissolution. The SEC Opinions cited the following American authorities:

“Any change in the membership or personnel of a partnership, either by the retirement of a partner or by the admission of new members into the partnership, produces, technically, an immediate dissolution of the existing partnership relation and the formation of a new one, although common business usage speaks of the admission of a partner to a firm and regards the firm as subsisting so long as the course of its business is not materially interrupted . . .” (40 Am. Jur. par. 197, p. 267).

Based on the foregoing, the admission of the new partner into the partnership brings about the technical dissolution of the partnership. However, the operations of the partnership can still continue provided that there is no material interruption due to the dissolution and the intention of the partners is to continue the business (SEC Opinion dated April 25, 1985).

If the new partner has not yet put in additional capital, however, the partnership may still continue its operations but such partner however will become a debtor of the partnership for whatever he may have promised to contribute thereto (Article 1786 of the Civil Code).

Moreover, a partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation (Article 1788 of the Civil Code).

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