Limited Partnerships Flashcards
LIMITED PARTNERSHIPS
A limited partnership (“LP”) is a partnership with at least one general partner and at least one limited partner. Because it’s a partnership, general partnership principles typically apply unless displaced by LP-specific provisions. The general partner(s) is personally liable for partnership obligations, while the limited partner(s) generally does not have any liability beyond the liability to make agreed-upon contributions.
Formation-Certificate of Limited Partnership
A certificate of limited partnership must be filed with the secretary of state. The certificate must be signed by all general partners. The information required in the certificate is minimal. It includes, among other items: (1) the name of the partnership, (2) the names and addresses of the agent for service of process, and (3) the names and addresses of each general partner.
Records Office
A limited partnership must maintain in its state of organization an office with records of the certificate, any partnership agreements, and the partnership’s tax returns for the three most recent years.
General Partners Management
The LP is managed by the general partner(s). Each general partner has equal rights in the management and conduct of the LP’s activities. Generally, any matter relating to the limited partnership’s
ordinary business activities may be exclusively decided by the general partner or, if more than one general partner, by a majority of the general partners.
Right to Distributions
A partner has no rights to distributions unless the partner makes a contribution to the partnership. A contribution may be in the form of any benefit to the partnership (for example, money, property, services, and promises to make such contributions). A partner’s
contribution obligation is not excused by death or other disability and may be compromised only on the consent of all partners.
Right to Assign Partnership Interest
As in a general partnership, a partner’s right to distributions is personal property that may be transferred, in whole or in part. Such a transfer gives the transferee only the right to receive the transferred
distributions and to demand an accounting thereon.
General Partners Liability
General partners are jointly and severally liable for all obligations of the LP, just as they are in a general partnership.
General Partner Fiduciary Duties
A general partner owes the LP and the other partners the same fiduciary duties of loyalty and care that general partners owe in a general partnership. However, a general partner does not automatically
violate the duty of loyalty merely because the general partner’s conduct furthers his own interests.
Distribution of Assets upon Winding Up
Upon winding up a limited partnership, the assets are distributed in the following order:
(1) First, to creditors (including partners who made loans to the limited partnership)
(2) Second, any surplus must be paid in cash as a distribution
Distribution Where Assets Are Insufficient to Satisfy
Debts
If limited partnership assets are insufficient to satisfy all obligations to creditors, each person who was a general partner when the obligation was incurred must contribute to the partnership to satisfy the obligation.
