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Business Associations > Limited Partnerships (LPs) & Limited Liability Limited Partnerships (LLLPs) > Flashcards

Limited Partnerships (LPs) & Limited Liability Limited Partnerships (LLLPs) Flashcards

1
Q

Limited Partnerships
Number of Co-Owners

A

At least one General Partner and one Limited Partner

All partners must be a legal person

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2
Q

Limited Partnerships
Taxation

A

Limited Partnerships are generally treated as General Partnerships for Tax purposes

Income and losses are allocated and passed through to partners

The entity does not pay taxes, but must still file information returns

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3
Q

Limited Partnerships

Governing Law

A

The jurisdiction of organization/formation governs the internal affairs of the Limited Partnership

The governing law will generally defer to the terms of the limited partnership agreement

There are some restrictions on the terms of the LP Agreement

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4
Q

Limited Partnerships

Formation

A

A Limited Partnership is formed by filing a certificate with the Secretary of State

The Certificate must be signed by all general partners and filed with the state of organization

Certificates of Limited Partnerships tend to be “bare bones” because they are public documents

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5
Q

Limited Partnerships
Certificate of Limited Partnership Requirements

A

The Certificate must be signed by all general partners and filed with the state of organization

Certificates of Limited Partnerships tend to be “bare bones” because they are public documents

Requirements:

  1. Name of the LP
  2. Registered Office and Agent
  3. Names and Addresses of General Partners
  4. Dissolution Date
  5. Other Matters
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6
Q

Limited Partnerships

Certificate - Naming Requirements

A

The name of an LP generally must contain the words “limited partnership” or the abbreviation

Purpose: public notice that the partnership is not a general partnership

The name of an LP may not include a Limited Partner’s name, unless there is a General Partner with that name OR the LP operated under that name prior to the admission of the Limited Partner.

A Limited Partner who allows their name to be used in the name of the LP may be liable to the partnership’s creditors.

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7
Q

Limited Liability Partnership

Certificate - Registered Officer and Agent

A

The LP Certificate must designate and provide the address of an office, not necessarily the principal place of business, in the state where documents and notices can be sent

The LP Certificate must designate an agent for service of process

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8
Q

Limited Partnerships

Certificate - Name and Addresses of General Partners

A

The LP Certificate must provide the names and business addresses of each general partner

Purpose: Provides an official address for correspondence and provides sufficient information so that the limited partners and third party creditors can investigate the general partners

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9
Q

Limited Partnerships

Certificate - Dissolution Date

A

The LP Certificate must prove the latest date for dissolution of the LP

Purpose: Provides notice to limited partners so they know when final distributions may be made and when their involvement ends

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10
Q

Limited Partnerships

Certificate - Other Matters

A

The General Partners may include other items in the LP Certificate, including:

  1. Events triggering dissolution
  2. Names and addresses of limited partners
  3. Information regarding additional contributions that may need to be made by the limited partners
  4. Specifics regarding the return of contributions
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11
Q

Limited Partnerships

Certificate - Errors and Deficiencies

A

If errors are made in connection with the filing of the certificate, the overall compliance with pertinent state statutes when attempting to form the LP may be examined to determine the treatment of the LP

If LP substantially complied ⇒ Court may treat the entity as an LP

If LP has not substantially complied ⇒ Court may treat all owners as partners in a general partnership

⇒

Individuals who erroneously believe they are limited partners are not subject to liability as a general partner to creditors if they either:

  1. Cause the appropriate certificate to be filed or
  2. Renounce future profits
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12
Q

Limited Partnerships

Certificate - Amendments

A

A certificate of amendment must be filed with the state.

Events Requiring Filing within 30 Days:

  1. Admission of a new general partner
  2. Withdrawal of a general partner
  3. Continuation of the business after the withdrawal of a general partner
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13
Q

Limited Partnerships

General Partners Rights & Duties

A
  1. Have equal rights in the management of partnership business (Default Rules)
  2. Are Agents of the LP
  3. Owe Fiduciary Duties to the LP and other partners (Default Rules)
  4. Have Unlimited Personal Liability for LP obligations
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14
Q

Limited Partnerships

General Partners - Management & Control Rights

A

Under default rules, General Partners have equal rights in the management and conducting of partnership business

These rights may be modified by the LP Agreement

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15
Q

Limited Partnerships

General Partners - Agent Status

A

General partners are Agents of the LP when acting in the ordinary course of business, with actual or apparent authority

They can subject the LP to tort liability and can bind the LP to contracts

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15
Q

Limited Partnerships

General Partners - Fiduciary Duties

A

General Partners owe the partnership and other partners a duty of loyalty and a duty of care

16
Q

Limited Partnerships

General Partners - Liability

A

If there is more than one General Partner, the liability is joint-and-several

LPs may appoint entities as General Partners to limit the risk of unlimited personal liability

17
Q

Limited Partnerships

Limited Partners Rights & Duties

A

Limited Partners DO NOT:

  1. Have statutory rights to manage or control (Default Rules)
  2. Owe Fiduciary Duties to the LP and other partners
  3. Have unlimited personal liability for LP obligations, even if they participate in management and control

Limited Partners DO:

Owe a contractual obligation of good faith and fair dealing

18
Q

Limited Partnerships

Limited Partners - Management & Control Rights

A

Under RULPA (but not ULPA 2001), limited partners may lose their limited liability status if the act like a General Partner–such as participating in the management and control of the partnership (control rule)–and their actions are not a safe harbor activity.

19
Q

Limited Partnerships

Limited Partners - Fiduciary Duties/Obligation of Good Faith and Fair Dealing

A

Limited Partners do not owe Fiduciary Duties to the partners or partnership.

Limited Partners have an Obligation of Good Faith and Fair Dealing, which cannot be waived or eliminated, when:

  1. Discharging duties to the partnership and other partners under the LP Agreement
  2. Exercising any rights arising under the LP Act or LP Agreement
20
Q

Limited Partnerships

Limited Partners - Liability

A

Limited Partners are not liable for the debts and obligations of the LP based solely on their status as a Limited Partner.

Limited Partners may be held personally liable in RULPA states under the control rule

21
Q

Limited Partnerships

Partners’ Interest in the LP

A

Under default rules, a partner’s interest in an LP is personal property

Like in a General Partnership, partners may only transfer financial rights, not management rights.

Under default rules, distributions are not automatically equal and distributions correlate to the value of contributions made

22
Q

Limited Partnerships

Methods of Dispute Resolution

A
  1. Direct Actions
  2. Derivative Suits
23
Q

Limited Partnerships

Direct Actions

A

A limited partner who is directly injured by the partnership may bring a Direct Action against the partnership

24
Q

Limited Partnerships

Derivative Suits

A

When the LP itself is injured, a limited partner may bring a Derivative Suit against the partnership to enforce obligations due to the partnership

If a derivative action is successful, the recovery belongs to the limited partnership, but the limited partner who brought the action may be reimbursed for expenses and attorney’s fees

Requirements:

(1) The limited partner must be a partner at the time of the action at issue
(2) The limited partner must first make a demand on the General Partners requesting they cause the partnership to bring an action to enforce the right at issue, and either
(a) The General Partners wrongfully refuse to bring the action, or
(b) The limited partner is able to demonstrate that efforts to cause the General Partners to bring the action are likely to be futile.

25
Q

Limited Partnerships

End Game of Partners and Partnership

A

Dissolution generally requires some level of partner consent.

Dissolution of an LP is not automatic on the dissociation of either a limited or general partner, but may occur if either no general partner or no limited partner remain in the LP

When a LP is dissolved and wound up, a certificate of cancellation, signed by all general partners, must be filed with the state.

26
Q

Limited Partnerships

Effect of Dissolution on Limited Partners

A
  1. No right to dissociate before winding up
  2. Altered Obligations
27
Q

Limited Partnerships

Effect of Dissolution on General Partners

A

(1) May dissociate at any time, whether rightfully or wrongfully
(2) Altered Obligations, Powers, and Rights
(a) Management
(b) Fiduciary Duties
(c) Agency Authority

28
Q

Limited Partnerships

Special LP Forms

A
  1. Family Limited Partnerships (FLiPs)
  2. Master Limited Partnerships
  3. Limited Liability Limited Partnerships
  4. Foreign Limited Partnerships
29
Q

Limited Partnerships

Special LP Forms

A

Family members place property in the partnership then claim a minority discount for the gifts of limited partner interests to children

Estate Planning tool

30
Q

Limited Partnerships

Master Limited Partnership

A

LP formed under state law that is publicly traded and listed on national securities exchange

31
Q

Limited Partnerships

Limited Liability Limited Partnership

A

LPs may file registration with the state to be classified as an LLLP

General Partners have the same limited liability as limited partners

32
Q

Limited Partnerships

Foreign Limited Partnership

A

An LP formed in one state that is conducting business in another state.

States may require applications by LPs to do business within their borders

Business Associations (4 decks)

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