Business Associations Flashcards
Special Rules for limited Partners
What is a limited partnership?
A limited partnership contains at least one general partner and at least one limited partner and is formed by compliance with specific statutory procedures.
What distinguishes limited partners from general partners?
Limited partners do not participate in managing and controlling the business and are best thought of as passive investors.
What is the personal liability of a limited partner?
A limited partner is not personally liable for partnership obligations beyond their capital contributions.
What happens if a limited partner participates in controlling the partnership?
She may be treated as a general partner and become personally liable to the same extent as a general partner.
What is the control test in relation to limited partners?
The control test determines if a limited partner who participates in controlling the business may become personally liable.
Under what conditions may a limited partner face liability under the control test?
If a third party reasonably believed that the limited partner was a general partner based on their conduct.
What are some activities that do not count as exercising control for limited partners?
- Working for the limited partnership as an agent, employee, or independent contractor
- Acting as an officer, director, or shareholder of a corporation that is a general partner
- Voting on specified partnership actions
What rights do limited partners have regarding information from general partners?
Limited partners have the right to request certain information to make informed investment decisions.
What information is a partnership required to maintain under the Revised Uniform Partnership Act?
Information that a limited partnership must maintain, including a current list of all partners, the certificate of limited partnership, partnership agreements, financial statements, and voting records.
How must a limited partner request required information?
By making a written demand received by the limited partnership with at least 10 days’ notice.
What is the time frame for a limited partnership to respond to a request for other information?
No later than 10 days after receiving a written demand.
What is the allocation rule for profits, losses, and distributions in a limited partnership?
They are allocated based on the value of unreturned contributions to the partnership.
How does profit and loss distribution in a limited partnership differ from a general partnership?
In a general partnership, profits and losses are distributed evenly, regardless of capital contributions.
