Limited Partnerships and Limited Liability Partnerships Flashcards
Limited Partnerships
- A partnership with at least one general partner and at least one limited partner.
- Limited partnerships can ONLY be created by filing a certificate of formation with the state.
- A limited partnership is a distinct entity from its partners and has perptural duration unless otherwise provided.
Formation of Limited Partnership
- A certificate of a limited partnership MUST be filed with the secretary of state.
- The certificate must be signed by all general partners.
- Information required in the certificate: (1) name of the partnership; (2) names and addresses of agents for service of process; (3) names and addresses of all the general partners.
- Certificate should also include whether partnership is an LLLP or LP.
- LP must maintain an office in the state of organization where records of the certificate, partnership agreement, and tax returns for three most recent years are kept.
- LP MUST have an agent for service of process in the state.
- LP’s official name must have “LP” or “Limited Partnership” in it.
Limited Partnership – Partnership Agreement
- A partnership agreement is where all the details for the LP will be. This isn’t required to be filed.
- It can be oral, written, or implied.
- The agreement can edit/modify all default statutory provisions/rules.
Limited Partnership – Management
- LP is managed by its general partner(s).
- Each general partner has equal rights in the management and conduct of the LP’s activities.
- Any matter relating to the ordinary business activities may be exclusively decided by general partner or by a majority of the general partner(s).
- Limited partners have NO management rights unless the partnership agreement provides otherwise.
- Participation in the management does not cause a limited partner to become personally liable for an obligation.
Limited Partnerships – Extraordinary Activities
The vote of all partners (general and limited) is necessary for certain extraordinary activities including:
* amending the partnership agreement;
* converting the partnership to a limited liability limited partnership;
* dispose of all or substantially all of the limited partnership’s property outside the usual and regular course of the partnership’s activities;
* admit a new partner;
* compromise a partner’s obligation to make a contribution or to return an improper distribution.
Limited Partnerships – Financial Rights
- Distributions from an LP are made on the basis of the partners’ contributions.
- Partners get a distribution that is in proportion to the value of each partners’ contribution.
- An LP may not make a distribution if after making the distribution the LP would be unable to pay its debts as the are due or if the LP’s total assets would be less than the total sum of its liabilties.
Right to Distributions
- A partner has no right to distributions unless partner makes a contribution to the LP.
- Contribution = any benefit to the partnership.
- Contribution obligation is not excused by death or disability.
- Contribution obligation can only be excused by consent of all partners.
- General partner who consents to an improper distribution is personally liable to the LP.
- A partner who knowingly receives an improper distribution may be forced to return it.
- A partern’s right to distribution is transferrable.
- A transferee does not become a partner.
- The transfer of a partner’s entire transferable interest in the partnership is a ground for explusion.
Limited Partnerships – Liability
- General Partners are jointly and severally liable.
- GP is not personally liable for an obligation incurred before they became a GP.
- Limited partners are NOT personally liable for an obligation of the LP.
- Limited partners can only lose the value of their investments.
- General and limited partners are always liable for their own torts.
Limited Partnerships – Fiduciary Duties
General Partners:
* owes the LP and the other partners the same duties that a partner in a general partnership owes.
* A general partner does not atuomatically violate the duty of loyalty when their conduct furthers their own interest.
Limited Partner:
* Owes NO fiduciary duty to the LP or any other partner.
* Limited partners can do whatever they want, unless the partnership agreement provides otherwise.
Additional Rights of Partners
- Right to Transact Business with the Partnership – Any partner can lend money to and transact other business with the LP.
- Right to Dissolve – Any partner may apply for dissolution of the LP whenever it is not reasonably practicable to carry on the business in accordance with the partnership agreement.
- Direct Action Against LP by Partner – A partner may maintain a direct action against the LP or another partner for legal or equitable relief to enforce rights/interests.
- Right to Information – A general partner has the same right to information as a partner in a general partnership. A limited partner has a right to inspect and copy partnership records.
- ** Indemnification** – A general partner is not entitled to remuneration for services performed. General partner MUST be indemnfied for liabilities they incur during ordinary course of activities.
Conversion or Merger
- An LP may convert to or merge with another form of business entity upon consent of all partners and filing of a certificate with the secretary of state.
Limited Partnerships – Derivative Actions
- A partner may maintain a derivative action to enforce a right of a limited partnership if: the partner first makes a demand on the general partners to bring the action and the general partners don’t do it within a reasonable time or if the demand would be futile.
- A derivative action can be maintained only by a person who is a partner at the time that the action is commenced and (1) was a partner when the conduct occurred; or (2) whose status as a partner was created by operation of law or pursuant to the terms of the partnership agreement
Limited Partnerships – Dissociation
- Dissociation is caused by the same events that cause a dissociation in a general partnerhsip.
- A limited partner has NO RIGHT to dissociate before termination of the LP.
- After dissociation, a limited partner is treated as a transferee of the LP’s transferable interest.
Limited Partnerships – Dissolution
An LP be can be dissolved by:
* judicial action upon an application by a partner;
* Adminstratively dissolved by secretary of state for failure to pay fees or annually file;
* The happening of an event specified in the partnership agreement
* The consent of all general and limited partners holding a majority of the right to receive distributions
* Upon consent of partners owning a majority interest if a general partner has disassociated
* If no general partner remains after 90 days unless the partners admit a new general partner
* 90 days after the dissociation of the last limited partner
Limited Partnerships – Distribution
- Assets are distributed first to creditors and then any surplus is paid in cash as a distribution.
- If the LP’s assets are insufficient, each person who was a general partner must contribute to the partnership to satisfy the obligation.
- The contribution due is in proportion to the right to receive distributions
