Chapter 4: Limited Partnership Flashcards
1
Q
A partnership formed by two or more persons, having as members one or more general partners and one or more limited partners.
A
Limited Partnership
2
Q
What are the charactersitics of a limited partnership?
A
- Formed by compliance in good faith with the statutory requirements
- One or more general partners control the business and are personally liable to creditors
- One or more limited partners (special partner/s) contribute to the capital and share in the profits but do not participate in the management of the business
- The limited partners are not personally liable for partnership obligations beyond their capital contributions
- The limited partners may ask for the return of their capital contributions
- The partnership debts are paid out of the common fund and the separate properties of the general partners.
3
Q
What are the steps if two or more persons wants to form a limited partnership?
A
- Sign and swear to a certificate that states all the requirements under Article 1844
- File for record the certificate under the Office of SEC
4
Q
How can the validity of a limited partnership be checked?
A
If the requirements of the certificate are complied with and is done in good faith.
5
Q
A partnership transacting business with third persons.
A
General Partnership
6
Q
Can a limited partner’s surname be included in the partnership name?
A
No
7
Q
What will happen if the surname of a limited partner is included in the partnership name?
A
They may be held liable as a general partner.
8
Q
Does the limited partner also acquire the rights of a general partner when they are held liable in terms of liability?
A
No, the limited partner will only be held liable and does not acquire the rights of a general partner.
9
Q
Who can be held liable for false statements in a certificate of limited partnership?
A
Any party in the certificate of limited partnership who is in bad faith.
10
Q
What is the first circumstance under which a party is liable for a false statement?
A
When the party knew the statement was false at the time they signed the certificate.
11
Q
What must a party do if they become aware of a false statement after signing the certificate?
A
If a party becomes aware of a false statement after signing, they must rectify the situation by canceling or amending the certificate.
12
Q
What is the timeframe within which a party must act after becoming aware of a false statement?
A
Within a reasonable timeframe before someone relies on the false statement
13
Q
Can a limited partner be held liable as a general partner when they participate in the managing of the business?
A
Yes, but the limited partner will only be held liable and not acquire the rights of a general partner.
14
Q
What does the partnership must do when a new limited partner decides to join the partnership after it was formed?
A
The partnership must file an amendment to the original certificate to allow new limited partners to join.
15
Q
What is the purpose of filing an amendment to the original certificate?
A
The purpose of filing an amendment is to update the official partnership documents to reflect the inclusion of new limited partners.
16
Q
What must a general partner obtain from all limited partners to perform acts of ownership?
A
A general partner must obtain written consent or ratification of the specific act from all limited partners.
17
Q
Can a general partner confess a judgment against the partnership without limited partners’ consent?
A
No, a general partner cannot confess a judgment against the partnership without the limited partners’ consent.
18
Q
Is a general partner allowed to admit a new general partner without the written consent of the limited partners?
A
No, a general partner is not allowed to admit a new general partner without the written consent of the limited partners.
19
Q
What happens to the partnership business in the event of a general partner’s death or retirement?
A
The business will be dissolved on the death, retirement, insanity, civil interdiction, or insolvency of a general partner unless the certificate grants that right or all or the other partners consent to it.
20
Q
What is required for a general partner to admit a new limited partner?
A
A general partner can only admit a new limited partner if the right to do so is given in the certificate.
21
Q
What acts can a general partners do?
A
Acts of administration
22
Q
What rights does a limited partner have concerning the partnership books?
A
A limited partner has the right to have the partnership books kept at the principal place of business and to inspect and copy them at a reasonable hour.
23
Q
What information can a limited partner demand regarding the partnership?
A
True and full information of all things affecting the partnership.
24
Q
Under what circumstances can a limited partner request a formal account of partnership affairs?
A
Whenever circumstances render it just and reasonable.
25
What legal action can a limited partner take regarding the dissolution of the partnership?
To seek dissolution and winding up of the partnership by decree of court.
26
What are the two main benefits a limited partner is entitled to receive from the partnership?
- To receive a share of the profits or other compensation by way of income
- The return of their contribution.
27
What happens if a person mistakenly believes they are a limited partner after contributing to a partnership's capital?
They won't be treated as a general partner or be responsible for the business's debts.
28
What protection does a person have if they promptly renounce their interest in the profits after discovering they are not a limited partner?
By promptly renouncing their interest in the profits, the person protects themselves from being personally liable for the business's obligations.
29
What must a person do to avoid being held liable for the business's obligations if they realize their mistake about their partnership status?
To avoid being held liable for the business's obligations, the person must promptly renounce their claim to any profits or income from the business once they realize their mistake.
30
What are the requisites for a person to not be liable as a general partner due to mistake about their partnership status?
- He must promptly renounce his interest in the profits or any other income of the business.
- He does not take part in the control of the business.
31
His rights are those of a general partner but also has the rights of a limited partner as regards to his contributions.
General-Limited Partner
32
Can a partner be both a general partner and a limited partner at the same time?
Yes, this fact must be stated in the certificate of limited partnership.
33
How does a general-limited partner's liability affect partnership creditors?
They are liable to partnership creditors up to the extent of their separate property.
34
Regarding their contributions, what rights does a general-limited partner have against other partners?
As to their contributions, a general-limited partner has the rights of a limited partner against the other partners.
35
Something provided to a lender as a guarantee or repayment
Collateral
36
What two actions are prohibited for limited partners regarding partnership property?
- Receive or hold any partnership property as collateral security.
- Receive payments, conveyances, or releases from liability if the partnership's assets are insufficient to cover debts owed to creditors who are not partners.
37
What happens if a limited partner receives collateral security from the partnership?
Receiving collateral security in violation of the rules is considered fraud on the creditors of the partnership.
38
Why are there restrictions on what a limited partner can receive from the partnership?
The restrictions are in place to prevent illegal competition between the limited partner and partnership creditors for the partnership's assets.
39
What business transactions is a limited partner allowed to do?
- Lend money to the partnership
- Transact business with the partnership
- Receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets
40
Can limited partners agree to give some partners priority over others?
Yes, limited partners can agree to give some partners priority over others.
41
What areas can limited partners establish priority rights in?
- Return of their contributions
- Their compensation by way of income
- Any other matter
42
What happens if there is no statement about priority rights in the certificate?
All limited partners will stand on equal footing
43
Is it possible for a limited partner to claim priority without a written agreement?
No, a limited partner cannot claim priority without a written agreement documented in the partnership certificate.
44
Where must the agreement about priority rights be documented?
It must be stated in the partnership certificate.
45
What can a limited partner receive from the partnership according to the certificate?
Their share of the profits or compensation as stipulated in the partnership certificate.
46
Under what condition can a limited partner receive their share of profits or compensation?
Only if the partnership's assets exceed all its liabilities.
47
Are debts to limited partners included when checking if the partnership can pay profits?
No, debts to limited partners are not included.
48
Can a limited partner receive their compensation if the partnership's assets do not exceed its liabilities to third parties?
No, a limited partner cannot receive their compensation if the partnership's assets do not exceed its liabilities to third parties.
49
What must happen to all partnership liabilities before a limited partner can get their contributions back?
All partnership liabilities must be paid, or there must be enough property left to cover them, except those owed to general partners and limited partners for their contributions.
50
What must be done to the partnership's certificate when a limited partner withdraws or reduces their contribution?
The partnership's certificate must be updated or cancelled to reflect the withdrawal or reduction of contributions.
51
Requisites for the return of contributions
- All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them.
- The consent of all members is had
- The partnership’s official document, known as the certificate, must be updated or canceled to reflect any withdrawal or reduction of contributions.
52
When can the contributions be returned?
- On the dissolution of the partnership
- When the date specified in the certificate arrived
- After the 6 months notice to all other members
53
In what form of payment can a limited partner generally receive as a return of their contribution?
Cash
54
Under what condition can a limited partner receive a return other than cash?
- If there is a stipulation to that effect in the certificate of limited partnership.
- All partners must consent to the return of the contribution in a form other than cash
55
When can a limited partner demand the dissolution of the partnership?
- If their rightful demand for a return of their contribution is denied
- If the other liabilities of the partnership have not been paid, or if the partnership property is insufficient to cover those debts
56
What liability does a limited partner have if their actual contribution is less than what is stated in the partnership certificate?
A limited partner is responsible for making up the difference between their actual contribution and what is stated in the partnership certificate.
57
What must a limited partner do if they declared a higher contribution but only provided a lower amount?
They must pay the partnership the shortfall.
58
What happens if a limited partner fails to meet their obligation for future contributions as stated in the certificate?
They may be held accountable for the amount they promised to contribute.
59
What are the liability of a limited partner as a trustee to the partnership?
- Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned.
- Money or other property wrongfully paid or conveyed to him on account of his contribution.
60
What are the requisites of a limited partner's liabilities that may be waived?
- With the consent of all partners
- The waiver or compromise shall not affect the right of partnership creditors who extended credit or whose claim arose after the filling and before a cancellation or amendment of the certificate.
61
Can creditors enforce a limited partner's liabilities if the waiver has been agreed upon by the partners?
Yes, creditors can still enforce a limited partner's liabilities regardless of any internal agreements among the partners to waive those liabilities.
62
Are limited partners still liable even after their contribution has been returned?
Yes, a limited partner is still liable for any sum necessary to discharge the partnership's liabilities to all creditors who extended credit or whose claims arose before their contribution was returned.
63
What is the limit of a limited partner's liability after his contribution has been returned?
Up to the extent of his contribution. (Plus interest)
64
Can an assignee require an information or inspect the partnership books?
No, if the assignee does not become a substituted limited partner then they don't have those rights.
65
A person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership.
Substituted Limited Partner
66
Can a limited partner transfer their interest in the partnership to someone else?
Yes
67
What can a limited partner pass on to the assignee when they transfer their interest?
A limited partner can pass on their share of the profits, income, or any amount they would have received if they were still part of the partnership.
68
What rights does an assignee have after receiving the limited partner's interest?
The assignee is entitled to receive the share of profits, other income, or the return of the contribution that the original limited partner (assignor) would have received.
69
What are the requisites for an assignee to become a substituted limited partner?
- All the partners must consent, or if the assignor gives the assignee the right
- The certificate of partnership must be amended
- The certificate of partnership must be registered in SEC
70
What are the rights and liabilities of a substituted limited partner?
He shall gain the rights and powers of the assignor. He shall also be subjected to all the restrictions and liabilities of the assignor.
71
What is the exception regarding liabilities for a substituted limited partner?
Liabilities that he do not have the knowledge of at the time he became a limited partner and which could not be determined from the certificate.
72
Does the substitution of the assignee release the assignor from liability?
No, the assignor remains liable to persons who suffered damages due to false statements and to creditors with claims before the substitution.
73
What events can cause the dissolution of a partnership involving a general partner?
- Retirement
- Death
- Insolvency
- Insanity
- Civil Interdiction
74
Under what two conditions can the remaining general partners continue the partnership despite the dissolution events?
- Stated in the certificate
- With the consent of all partners
75
What rights does the executor or administrator of a deceased limited partner have?
The executor or administrator inherits all the rights of the deceased limited partner for settling the estate.
76
What is the liability of the estate of a deceased limited partner?
The estate is liable for all the liabilities of the deceased limited partner.
77
Can the executor or administrator of a deceased limited partner constitute an assignee as a substituted limited partner?
Yes, the executor or administrator has the power to constitute an assignee as a substituted limited partner.
78
Can the interest of the indebted limited partner be redeemed with partnership property?
No, the interest may not be redeemed with partnership property. But the separate property of a general partner can be used.
79
What type of property can be used to redeem the interest of a limited partner?
Separate property of any general partner.
80
What can a court do upon the application of a creditor of a limited partner?
The court may charge the interest of the indebted limited partner and appoint a receiver.
81
What is the order of settling the liabilities of the partnership after dissolution?
1. Creditor
2. Limited partner's profits
3. Limited partner's capital contribution
4. General partner's liabilities owed to them
5. General partner's profits
6. General partner's capital
82
How do limited partners share in the partnership's remaining assets?
In proportion to the amounts owed to them for their capital contributions and profits.
83
What happens to the certificate when a partnership is dissolved?
The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such.
84
What is one reason for amending the certificate related to general partners?
If a general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued.
85
Deprives individuals of parental rights, guardianship, marital authority, and the right to manage and dispose of property.
Civil Interdiction
86
If there is a false statement in the certificate, what action should be taken?
The certificate must be amended to correct the false or erroneous statement.
87
What are the instances when the certificate of partership should be amended?
- Change in the name of partnership or the amount or type of a limited partner's contribution
- When a new partner is added
- If a general partner retires, dies, becomes insolvent or insane, or is legally incapacitated
- If the nature of the business changes
- If there are errors in the certificate
- The timeline for dissolution or returning contributions is altered
88
What are the requirements for the writing to amend a certificate?
- Conform to the requirements of Article 1844 (Certification Requirements)
- Be signed and sworn to by all members, with additional signatures required for substitutions or additions of limited or general partners.
- Must be filed for record in the Office of SEC
89
Who must sign the writing when substituting or adding a limited partner?
All of the members, plus the sign of the member to be substituted or added. If a limited partner is being substituted, the original limited partner must also sign the amendment.
90
What are the requirements in cancellation of certificate?
- Must be in writing
- Must be signed and sworn by all members
- Must be filed for record under SEC
91
What can a person do if someone designated to sign the writing for amendment or cancellation refuses to do so?
Seek court intervention to order a cancellation or amendment of the certificate.
92
What action does the court take if it finds the petitioner has a right to the certificate that was refused?
If the court finds that the petitioner has a right to have the writing executed, it shall order the Office of the Securities and Exchange Commission, where the certificate is recorded, to record the cancellation or amendment of the certificate.
93
Who is not considered a proper party to proceedings by or against a partnership?
A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership.
94
What is the general rule regarding limited partners and legal proceedings involving a partnership?
GENERAL RULE: A limited partner not a proper party to proceedings by or against a partnership because he does not take control or participate in the management of the business of the partnership.
95
In what situation can a limited partner be a proper party to legal proceedings?
If the case aims to enforce their rights against the partnership or to address any liabilities they may have toward it. To allow limited partners to protect their interests and enforce their rights or liabilities in relation to the partnership.
96
Why are limited partners typically excluded from being proper parties in legal proceedings?
Limited partners are excluded because they do not engage in the control or management of the partnership's business, limiting their legal standing in proceedings involving the partnership.
97
What two things must be included in the certificate for a limited partnership?
- The amount of each limited partner's original contribution and when it was made
- That the partnership's property is greater than its liabilities to creditors by more than the total contributions of limited partners.
98
What happens if a limited partnership does not meet the requirements of Article 1867?
It will still be governed by the old law.
99
What is the purpose of Article 1867?
To allow old limited partnerships to align with the current legal rules.
100
What must a limited partnership do to switch to the new code?
It must follow the rules in Article 1844 and update its certificate.
101
Who will be affected if the partnership remains under the old laws?
The limited partners will continue to be governed by the old legal framework, which may not provide the same protections.
102
What are the exceptions in including a limited partner’s surname in the partnership name?
- The surname also belongs to a general partner
- The business had previously operated under a name that include the limited partner's surname before they became a limited partner
