Creation of Partnerships Flashcards
General Partnership Formation
A general partnership is a type of partnership that has NO limited personal liability (i.e., general partners remain personally, jointly and severally liable for ALL debts of the partnership).
A general partnership is formed when:
(1) Two or more persons;
(2) Associate as co-owners;
(3) To carry on a business for profit
Factors (3) court considers in determining whether a general partnership exists.
In determining whether a general partnership exists, it is irrelevant whether the parties intended to form a partnership. However, courts may consider the following:
(1) Sharing of Profits. A person who receives a share of the profits of a business is presumed to be a partner in the business unless the partner receives the profits as payment of debt, rent, wages, or for services rendered.
(2)Joint Ownership. Joint ownership of property tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself.
(3)Sharing of Control. Sharing of control, capital investment, and labor tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself
What is a Limited Partnership?
Alimitedpartnershipconsists of one or more general partners and one or more limited partners. General partners remain personally, jointly, and severally liable for ALL debts of the limited partnership, while limited partners are personally liablefordebtsONLYtothe extent of their investment in the limited partnership.
How is a Limited Partnership Formed?
A limited partnership is formed when a written certificate of limited partnership is
executed and filed with the secretary of state. A certificate of limited partnership
must “substantially comply” with the following requirements, including:
(1) The signature of each general partner;
(2) The name of the limited partnership; AND
(3) The name, street, and mailing address of:
(a) Each general partner;
(b) The initial designated office; AND
(c) The initial agent for service of process - must be within the state.
NOTE: If the parties intend to form a limited partnership, but fail to substantially
comply with the above requirements, they may have instead formed another business association (e.g., a general partnership).
General v. Limited Partner
General partners manage and control the day-to-day operations of the business, while limited partners generally have no say in such matters.
Limited partners are generally passive investors, and only have voting rights in extraordinary situations (e.g., sale of the partnership, amending the partnership, etc.)
Name requirement of Limited Partnership
If an LP, the name must contain “limited partnership” or the abbreviation “LP” or “L.P.”.
If an LLLP, the name must contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.”
What is a Limited Liability Partnership (LLP)?
A limited liability partnership (LLP), limits a partner’s potential liability for professional malpractice (e.g., medical malpractice, legal malpractice, etc.) that is committed by another partner.
How is an LLP formed?
Any partnership may become an LLP upon: (1) approval by the same vote that is necessary to amend the partnership agreement; AND (2) by filing a Statement of Qualification with the Secretary of State.
*Unless otherwise agreed, a unanimous vote is required to amend a partnership agreement.
What must be included in a Statement of Qualification?
A Statement of Qualification must include:
(i) the name and address of the partnership;
(ii) a statement that the partnership elects to become an LLP; AND
(iii) a deferred effective date, if any.
NOTE: The filing of a Statement of Qualification DOES NOT create a new partnership. Instead, the LLP continues to be the same partnership entity that existed prior to the filing. Thus, the LLP remains liable for any unfulfilled obligations of the partnership entity before it became an LLP.
Name requirements of a Limited Liability Partnership
The name of an LLP must end with “Registered Limited Liability Partnership”, “Limited Liability Partnership”, “R.L.L.P.”, “L.L.P.”, “RLLP,” or “LLP”.
LLP - Annual Reports
Annual Reports: If an LLP fails to file an annual report with the appropriate state office or pay the annual required filing fee, the state may revoke the partnership’s statement of qualification. A partnership whose statement of qualification was revoked may apply to the state for reinstatement within 2 years after the effective date of revocation.
