Limited Partnership Flashcards by Ivy Anne

Is a partnership which has one or more general partners and one or more limited partners.

Limited Partnership

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As a general rule, The limited partners as such shall not be bound by the obligations of the partnership except up to the extent of their contribution.

True or False?

True

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In absence of statutory restriction, limited partnership may carry on any business which could be carried on by a general partnership.

True or False?

True

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What are the Characteristic of Limited Partnership?

A. Limited partnership is formed by compliance with statutory requirements (Art 1844)

B. One or more general partners control the business and are personally liable to creditors (Arts 1848 and 1850)
personally liable with extent of their personal properties

C. One or more limited partners contribute to the capital and share in the profits but fo not participate in the management of the business and are not personally liable for the partnership obligations beyond their capital contributions. (Arts 1845,1848 and 1856)

D. Limited partners may ask for the return of their capital contributions under the conditions prescribed by law (Arts 1844 and 1857)

E. Partnership debts are paid out of the common fund and the individual properties of the general partners

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What are the requirements for formation of limited partnership?

They must subscribe and swear to a certificate
They must file for record the certificate with the Securities and Exchange Commission (SEC).

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Requirements for formation

Under:
1. They must subscribe and swear to a certificate, what should be stated in the following?

a.. The name of the partnership, adding thereto the word “Limited”.

b. The character of the business.

c. The location of the principal place of business.

d. The name and place of residence of each member, general and limited partners being respectively designated.

e. The term for which the partnership is to exist.

f. The amount of cash and a description of and the agreed value of the other property contributed by each limited partner.

g. The additional contributions, if any, to be made by each limited partner and the times at which or events on the happenings of which they shall be made.

h. The time, if agreed upon, when the contribution of each limited partner is to be returned.

i. The share of the profits or the compensation by way of income which each limited partner shall receive by reason of his contribution.

j. The right, if given, of a limited partner to substitute an assignee or contributor in his place and the terms and conditions of the substitution.

k. The right, if given, of the partners to admit additional limited partner.

l. The right, if given, of one or more of the limited partners to priority over the other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority.

m. The right, if given, of the remaining general partner or partners to continue the business on the death, retirement, civil interdiction insanity or insolvency of a general partner.

n. The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.

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If the term “Limited” is omitted in the firm name, such name cannot be considered as the firm name of a limited partnership.

True or False?

True

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A limited partner may contribute money or property but not services.

True or False?

True

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Requirements for formation

Under:
2. They must file for record the certificate with the Securities and Exchange Commission (SEC).

a. What is the effect of substantial compliance?

A limited partnership is formed if there has been substantial compliance in good faith of the above requirements.

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Under:
2. They must file for record the certificate with the Securities and Exchange Commission (SEC).

b. What is the effect of failure to register with the SEC?

The partnership will be considered a general partnership since the requirements are intended to protect the public.

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In general partnership, it is perfected by mere agreement however in limited partnership, it is a creation of law (an exemption), you need to comply first with the statutory requirements before having a limited partnership.

True or False?

True

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Under rules regarding limited partners

What are the limited partner’s contribution?

The contributions of a limited partner may be cash or property, but not services
- (you will be a general partner if you contributed services)

The contribution must be paid before the formation of the limited partnership although additional contributions may be paid after the limited partnership has been formed

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Under rules regarding limited partners

What is the liability when surname of limited partner appears in Partnership Name?

He is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

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Under rules regarding limited partners

What is the general rule?

Not to allow the inclusion of his surname in the partnership name.

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Under rules regarding limited partners

What is the exception to the general rule?

1) If it is also the surname of a general partner.

2) The business had been carried on under a name in which his surname-appeared prior to his admission as a limited partner.

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Under rules regarding limited partners

What are the Requisites to make a Limited Partner liable for False Statement in the Certificate of Limited Partnership?

A.
1. At the time he signed the certificate, or

Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or, amend the certificate, or petition for its cancellation or amendment.

B.
The person seeking to enforce liability has relied upon the false statement in transacting with the partnership

C.
He suffered loss as a result of reliance upon such false statement

Under rules regarding limited partners

Situation:
The Limited Partner’s contribution appearing in the certificate is 10,000 but he only contributed 5,000. If a third person relied on the erroneous statement in the certificate and suffered loss, while the limited partner knew that it was a false statement but didn’t correct it.

Is the limited partner liable?

Yes

Under rules regarding limited partners

What is the liability of Limited Partner for Participating in the Management of the Partnership?

A limited partner is liable as a general partner for the firm’s obligations if he becomes involved in the management of the partnership.

Note: Should have ACTIVE MANAGEMENT

Under rules regarding limited partners

What is the liability for unpaid contribution?

Limited partner is liable not only for the difference between the amount of his actual contributions and that stated in the certificate as having been made but also for any unpaid contributions he agreed to make at a future time

Under rules regarding limited partners

What is the liability for for Return of Contribution Lawfully Received?

A limited partner who has received his contribution is bound to return the same with interest when there are still liabilities to be paid but the amount returned should not be in excess of what he received

Assets should now be more than the liabilities

Under rules regarding limited partners

What is the liability as Trustee?

a. Specific property stated in the certificate as contributed by him, buť which was not contributed.
b.Specific property which has been wrongfully returned to him.
c. Money or property wrongfully paid or conveyed to him on account of his contribution.

Under rules regarding limited partners

What are the requisites for Waiver or Compromise of Liabilities?

A. The waiver or compromise is made with the consent of all partners

B. The waiver or compromise does not prejudice partnership creditors who extended credit or whose claims arose before the cancellation or amendment of the certificate

Under rules regarding limited partners

What does the law require about the admission of additional limited partners after formation?

The law requires that there is proper amendment to the certificate of limited partnership which must be signed and sworn to by all the partners including the new limited partner and filed to the SEC

Under rules regarding limited partners

What are the rights of a limited partners?

To have the partnership books kept at the principal place of business of the partnership, (Art. 1851)
To inspect and copy the partnership books or any of them at a reasonable hour. (Art. 1851)
To have on demand true and full information of all things affecting the partnership. (Arts. 1806, 1851)
To have on demand a formal account of partnership affairs whenever circumstances render it just and equitable. (Arts. 1809, 1851)
To have dissolution and winding up by decree of court. (Arts. 1831, 1851, 1857)
To receive a share of the profits or other compensation by way of income stipulated in the certificate. (Arts. 1851, 1856)

This right, however, is subject to the condition that after such payment, whether from the property of the partnership or of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners. (Art. 1856)

To receive the return of his contribution provided partnership assets exceed the liabilities. (Arts. 1851, 1857)

Under rules regarding limited partners What are the rules regarding a Limited Partner’s right to transact Business with the Partnership as to Allowable Transactions?

1. Granting loans to the partnership 2. Transacting other business with the partnership 3. Receiving a pro-rata share of the partnership assets with general creditors if he is not also a general partner.

Under rules regarding limited partners What are the rules regarding a Limited Partner’s right to transact Business with the Partnership as to Prohibited Transactions?

1. The limited partner cannot receive or hold as collateral security any partnership property - bawal isangla ang specific partnership property sa limited partner 2. The limited partner cannot receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming a general or limited partners.

What is the Compensation of Limited Partner by way of Income?

The right of the limited partner to receive his share of the profits or compensation by way of income stipulated for in the certificate is subject to the condition that partnership assets will still be in excess of partnership liabilities after such payment. - In other words, third party creditors have the priority over the limited partner’s rights.

Under rules regarding limited partners What are the Requisites for Return of Contribution of Limited Partner?

a. All liabilities of the partnership have been paid or there remains sufficient partnership property to pay them, except liabilities to general partners and to limited partners on account of their contributions. b. The consent of all the partners (general and limited) has been obtained, unless the return of the contribution may be rightfully demanded; and c. The certificate is cancelled or so amended to set forth the withdrawal or reduction.

Under rules regarding limited partners When does limited partner may rightfully demand return of his contribution?

a. On the dissolution of the partnership; or b. When the date specified in the certificate for its return has arrived; or c. After he has given six months notice in writing to all members, if no time is specified in the certificate, either for the return of his contribution or the dissolution of the partnership.

Under rules regarding limited partners When does Contribution of limited partner be returned in cash?

Irrespective of the nature of his contribution, a limited partner has only the right to demand and receive cash except in the following: a. When the certificate contains a statement that the contribution may be returned in a form other than cash, or b. There is an agreement among the partners (general and limited) that the contribution may be in a form other than cash.

Under rules regarding limited partners When does limited partner may have the partnership dissolved and wound up?

a. When he rightfully but unsuccessfully demands the return of his contribution; or b. When, although he is entitled to the return of his contribution, the same is not paid to him because the other liabilities of the partnership have not been paid or the property of the partnership is insufficient for their payment. - assets are less than the liabilities

Under rules regarding limited partners A limited partner is referred to in Article 1866 as mere contributor. He is practically a stranger in the limited partnership whose liability is limited to his interest in the firm without any right and power to participate and control of the business. True or False?

True

Since limited partners are not principals in partnership transactions, their liability, as a general rule, is to the partnership not to the creditors of the partnership. For the same reason, they have no right of action against third persons against whom the partnership has any enforceable. True or False?

True

When is a limited partner not a proper party to proceedings?

1. A limited partner is not a proper party to proceedings: a. By a partnership, or b. Against a partnership.

When is a limited partner a proper party to proceedings?

2. Exceptions: a. If he is also a general partner. b. Where the object of the proceedings is to enforce a limited partner's right against the partnership. c. Where the object of the proceedings is to enforce a limited partner's liability to the partnership. An action at law may be maintained by creditors of a firm against a limited partner to account for and restore sums withdrawn by him from the capital of the firm with outstanding debts on a voluntary restitution.

In relation with preferred limited partners, by an agreement of all the members (general and limited partners) stated in the certificate, preference may be given to some limited partners over other limited partners. True or False?

True

What are the preferences of a preferred limited partners?

a. Return of their contributions. b. Compensation by way of income. c. Any other matter.