Limited Partnerships, Limited Liability Partnerships & Limited Liability Companies Flashcards
Limited Partnership
- Must be filed w/ Secretary of State w/ name including “LP”
- Requires 2 classes of partners
(1) General partners: Same as partners in partnership.
(2) Limited partners
General Partner
o Responsible for management, acts bind partnership
o Jointly & severally personally liable
o An LLC can serve as the general partner, so opportunity for legal arbitrage
Limited Partner
Lt’d or no management responsibilities
1. Owe duty of good faith and fair dealing only, no duty of loyalty/care
Liability ltd to their investment.
Aka “passive, silent, investor partners”
Limited Liability Partnership
- NO general partners. Thus lt’d partners retain mgmt rights.
- Must file w/ Sec of State as LLP w/ words “LLP” or “RLLP” per RUPA 306.
- All partners have lt’d liability for LLP but remain liable for their own negligence or malpractice or the negligence of those they supervise.
o Goal: Lt’d liability for partners who do not participate in wrongdoing. No vicarious liability. - Benefit: Partnership assets c/n satisfy creditor for personal wrongdoing of a partner.
Limited Liability Corporation Governed by…
o “Articles of Organization” or “Certificate of Formation”: est. LLC governance structure, incl. dissolution, dissociation, fiduciary duty carve-outs.
o Operating Agreement: contract sets members’ rights/duties per ULLCA §105.
LLC Members
o Can contribute capital, property, services and can only lose max contribution
o Have management rights & financial interests (distribution/liquidation rights)
LLC Voting
o Default for General Decision Making: Majority
o Default for Significant Matters (e.g. merger, dissolution, admit new members): Unanimity.
LLC Dissociation
As w/ partnership, members have right to dissociate and liquidate.
o Not available to shareholders in a corp.
LLC Fiduciary Duties
apply as w/ partnership, corp., principal-agent.
o C/n waive or modify good faith and fair dealing but can waive all others.
o Member-managed = all members have fiduciary duties to each other & LLC.
o Manager-managed = only managers have fiduciary duties, other members not generally
How can members of limited organizations be liable?
o Agency law
o LLC veil is pierced
o Operating Agreement or Articles of Organization allow.
Manichaen Capital LLC v. Exela Technologies
When SourceHOV was acquired, the Exela company knew there was potential litigation. So Exela put in place an account receivable structure to take the money out of the subsidiary that would pay up the dividend, it was re-routed to Exela. HELD: Grounds for reverse piercing corp veil b/c subsidiaries were acting as alter egos to defraud plaintiff creditors.
A Guy Named Moe v. Chipotle
Foreign corporations need to register in the state of operation or you may not be able to have access to court protections.
Stephen Bushi v. Sage Health Care PLLC
Bushi engaged in questionable conduct (dating employees, taking out personal credit in name of PLLC) and members modified agreement (which required unanimous -1 consent) to dissociate him and offered him $ per calculation in agreement (~$11K v valuation of $250K).
HELD: Even though they complied w/ operating agreement terms, members may have acted in bad faith where the facts suggested the action could be out of pure financial gain.
In Re: GR BURGER LLC
Judicial dissolution is proper when it is not reasonably practical to carry on the business in conformity w/ LLC agreement b/c of (1) deadlock (2) no means to resolve the deadlock and (3) financial condition is such that there’s not really a business to operate.
