cheeseman blaw8e ch35

Chapter 35

Limited Partnerships and Special Partnerships

Limited Partnership

Two types of partners: General partners: invest capital, manage the

business, and are personally liable for partnership debts

Limited partners: invest capital, but do not participate in management and are not personally liable for partnership debts beyond their capital contributions

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 35-2

Limited Partnership

At least one general partner and one limited partner No restrictions on maximum number of general or

limited partners Any person may be a general or limited partner A person may be both a general and limited partner


Revised Uniform Limited Partnership Act (RULPA)

Modern, comprehensive law for the formation, operation, and dissolution of limited partnerships

Supersedes the Uniform Limited Partnership Act (ULPA)

Provides basic foundation for limited partnership law


Certificate of Limited Partnership

Document executed and signed by two or more persons that makes a limited partnership legal and binding

Contents of the certificate: Name of address and each partner Name, character, and place of business Amount of cash, property, or services Latest date of dissolution


Foreign Limited Partnership

Limited partnership in all other states besides the one in which it was formed

Law of the state governs its organization, internal affairs, and partners’ liabilities

For business transactions, a certificate of registration is required


Name of Limited Partnership

Name may not include surname of limited partner unless: It is also surname of general partner Business was carried on under that name before

admission of limited partner Other restrictions:

Should not be the name of other corporations Name must contain the words, “limited

partnership”


Capital Contributions

Contribution may be in cash, property, services rendered, or promissory notes or other obligations to contribute cash, property, or to perform services

Partner or creditor may bring lawsuit to enforce promise to make contribution


Defective Formation

Occurs when: Certificate not properly filed, Defects in certificate that is filed Other statutory requirement for creation of limited

partnership is not met In case of such defects, limited partners may be liable

as general partners Can escape liability by filing certificate of

amendment or certificate of withdrawal


Limited Partnership Agreement

Document that sets forth the rights and duties of general and limited partners

Terms and conditions regarding operation, termination, and dissolution of partnership

Approval of transactions by partners


Share of Profits and Losses

Agreement may specify how profits and losses are to be allocated among the general and limited partners

If not specified, RULPA provides that profits and losses are shared on the basis of value of the partner’s capital contribution


Right to Information

Each limited partner has right to obtain full information regarding state of business, finances, etc.

Partnership must keep the following records: Certificate and all amendments Full names and addresses of each partner Written limited partnership agreements All income tax returns Three years of financial statements


Admission of a New Partner

New limited partner can be added only upon the written consent of all partners Agreement can provide otherwise

New general partner can be admitted only upon written consent of each partner Agreement cannot vary this requirement

Admission effective after amendment is filed


Liability of General and Limited Partners

General partners have unlimited liability for debts and obligations of the partnership

Limited partners are liable only up to their capital contributions

Creditor may enforce personal guarantee and recover payment from limited partner who guaranteed repayment of loan


Participation in Management

General partners have management rights Limited partners give up these rights in exchange for

limited liability Liable as general partner if participation is

substantially the same Only liable to persons who reasonably believe

them to be general partners


Permissible Activities of Limited Partners

Being an agent, employee, or contractor of the partnership

Acting as surety for the partnership Being a consultant or advisor to a general partner

regarding the limited partnership Voting on amendments to partnership agreement Voting on other partnership matters, including

dissolution, removal of general partner, etc.


Summary: Liability of Limited Partners

General Rule Limited partners are not individually liable for the obligations or conduct of the partnership beyond the amount of

their capital contribution

Exceptions to the General Rule

Limited partners are individually liable for the debt, obligations, and tortious acts

of the partnership in three situations:

1. Defective Formation

2. Participation in Management

3. Personal Guarantee


Dissolution of a Limited Partnership

Certificate of cancellation must be filed upon dissolution of limited partnership

Causes of dissolution: End of life of limited partnership Written consent of general and limited partners Withdrawal of general partner Entry of decree of judicial dissolution


Winding Up of a Limited Partnership

Partnership must wind up its affairs upon dissolution Affairs may be wound up by general or limited

partners Partner may petition the court to wind up the affairs

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Distribution of Assets

After the assets of the limited partnership have been liquidated, proceeds must be distributed

Order of distribution of partnership assets: Creditors of the limited partnership Partners with respect to

Unpaid distributions Capital contributions The remainder of the proceeds


Limited Liability Limited Partnership (LLLP)

Organized under state law by filing articles of LLLP with the secretary of state’s office

General and limited partners have limited liability They are not personally responsible for debts of the

LLLP


Liability of General and Limited Partners of an LLLP

Liability limited to capital Liability limited to capital contributioncontribution

No personal liability for partnership’s No personal liability for partnership’s debts and obligationsdebts and obligations

Personal liability for partnership’s Personal liability for partnership’s debts and obligationsdebts and obligations

Capital investmentCapital investment

Debt or obligation Debt or obligation owedowedLimited Limited

PartnershipPartnershipThird PartyThird Party

Limited Limited PartnerPartner

Limited Limited PartnerPartner

General General PartnerPartner

General General PartnerPartner


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