LLPs Flashcards
Limited Partnerships
Limited Partnerships (LP). Need:
Pship with at least one general partner and at least one LIMITED partner.
Certificate of lmimited partnership
Filed with secretary of state
Records office
Agent for service of process
Limited Partnerships (LPs) liability
The general partner(s) is personally liable for partnership obligations (J&S liable for all partnership obligations),
while the limited partner(s) generally does not have any liability beyond the liability to make agreed-upon contributions.
Like a modern partnership, a limited partnership is an entity distinct from its partners and has a perpetual duration unless otherwise provided.
Limited Partnerships (LP): requirements
Need at least one GENERAL partner and at least one LIMITED partner.
Need to file a certificate of limited partnership with Secretary of State
General partnership principles typically apply unless displaced by LP-specific provisions (governed by ULPA).
Formation of Limited Partnership
Formation - A limited partnership differs from a general partnership in that a limited partnership can be created only by filing a certificate of formation with the state.
NOTE: a limited partnership is a creature of statute and thus can exist only on compliance with the limited partnership statute.
Certificate is signed by all general partners
CERTIFICATE OF LIMITED PARTNERSHIP: Filing that MUST be made to the state to form limited partnership.
*** Distinguish from Pship Agmt: which actualy says more about the pship.
If NO filing, that’s not a limited Pship and all partners are subject to full liability.
REGISTERED AGENT: Person designated to receive officila mail from state or to receive service of process. A limited partnership must maintain in the state an agent for the service of process.
d. Name: The limited partnership name must contain the phrase “limited partnership” or the abbreviation “L.P.” (unless the limited partnership is a limited liability limited partnership, in which case that must be reflected in the name (for example, “L.L.L.P.”))
The name may contain the name of any partner (general or limited).
Limited Partnership - If no statutory compliance…?
If no statutory compliance, a limited partnership is not created and all partners are subject to full liability.
Partnership Agreement
The real detail on the operation and governance of a LP is found in a partnership agreement. It can be written, oral, or implied.
As in a general partnership, the agreement can displace almost all of the statutory provisions.
Management and Operation of LPs
General partners are managers of LPs.
Limited partners ahve no management rights unless agmt says otherwise. (but limited partners still vote on some things… certain extraordinary activities.)
a. General Partners
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 ordinary business activities may be exclusively decided by majority of general partners.
b. Limited Partners
Limited partners usually have NO management rights unless the partnership agreement grants them rights.
Participation in management does not cause a limited partner to become personally liable for an obligation of the limited partnership.
That said, unless otherwise agreed, the vote of all partners (general and limited) is necessary for certain extraordinary activities, including to:
(1) amend the partnership agreement;
(2) convert the partnership to a limited liability limited partnership;
(3) dispose of all or substantially all of the limited partnership’s property outside the usual and regular course of the partnership’s activities;
(4) admit a new partner; or
(5) compromise a partner’s obligation to make a contribution or to return an improper distribution.
Financial Rights in LP
Profit not distrubted equally in LP’s….
Limited Partnership profits are based on CAPITAL CONTRIBUTION (Unless otherwise agreed). Means in proportion to value of each partners’ contribution.
*Recall: for general, it was equal split for profits.
*In LP, a Partner has no rights to distributions absent a contribution.
Contributions may be in the form of any benefit to the partnership (e.g., money, property, services, and promises to make such contributions)
A limited partnership may not make a distribution if after making the distribution:
the limited partnership would be unable to pay its debts as they become due, OR
the limited partnership’s total assets would be less than the sum of its total liabilities, including sums needed to satisfy superior preferential rights upon dissolution.
b. Liability for Improper Distributions
A general partner who consents to an improper distribution is personally liable to the limited partnership for the amount that the distribution exceeds what could properly have been distributed.
Any partner who receives an improper distribution knowing that it is improper may be forced to return the improper amount to the partnership.
However, no personal liability for an improper distribution arises if the distribution appeared to have been proper based on reasonably prepared financial statements.
c. 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. The transfer does not make the transferee a partner or give the transferee any rights as a partner. Moreover, the transferring partner remains a partner, and the transfer does not constitute a dissociation or cause a dissolution. However, transfer of a partner’s entire transferable interest in the partnership is a ground for expulsion.
a. 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 (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.
Liability in LP
in LP:
GENERAL PARTNERS:
General Partners are jointly and severally liable for all obligations of the LP, just as they are in a general partnership.
Note: A general partner may also be a limited partner and have the rights of a limited partner, but such a dual capacity does not relieve the general partner of his duties as a general partner.
- Incoming Partners: A person who becomes a general partner of an existing limited partnership is not personally liable for an obligation that the limited partnership incurred before he became a general partner.
- Limited Liability Limited Partnership: if the LP is a limited liability limited partnership, the general partners are not liable for liabilities incurred by the individual partners; liability belongs to the partnership alone.
LIMITED PARTNERS: Can just lose their investment, but that’s it.
A limited partner is not personally liable for an obligation of the LP solely by reason of being a limited partner.
Limited partners have limited liability, meaning that they can only lose the value of their investments.
NOTE: A limited partner (as well as a general partner) is always liable for her own torts.
The limited liability shield of any business organization does not protect a person from liability for her own torts.
*Limited liability means limiuted partner isnt liable for the debts of the biz, says nothing about partner’s own debts.
Fiduciary Duties in an LP
Limited partners have NO fiducairy duties.
* fiduciary duties are only imposed on people with management rights, like general partners
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.
b. Limited Partner
Generally, a limited partner owes no fiduciary duty to the partner- ship or any other partner solely by reason of being a limited partner.
Thus, they’re free to compete with the partnership and have interests adverse to those of the partnership, unless the partnership agreement provides otherwise.
Additional Rights of Partners
a. Right to Transact Business with the Partnership - Any partner may lend money to and transact other business with the limited partnership.
b. Right to Dissolve - Any partner may apply for a decree of dissolution of the limited partnership whenever it is not reasonably practicable to carry on the business in conformity with the partnership agreement.
c. Direct Action Against Limited Partnership by Partner - A partner may maintain a direct action against the limited partnership or another partner for legal or equitable relief to enforce her rights and interests.
d. Derivative Action - 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 an action to enforce the right and the general partners do not bring the action within a reasonable time; or a demand would be futile. A derivative action may be maintained only by a person who is a partner at the time the action is commenced and: (1) who was a partner when the conduct giving rise to the action occurred; or (2) whose status as a partner devolved upon him by operation of law or pursuant to the terms of the partnership agree- ment from a person who was a partner at the time of the conduct.
e. Right to Information - A general partner’s right to information is similar to that of a partner in a general partnership. Each limited partner has the right to inspect and copy any partnership records required to be maintained (see 1.2.5, supra).
f. Indemnification of General Partners - Unless otherwise provided, a general partner is not entitled to remuneration for services performed for the partnership. However, the limited partnership must indemnify a general partner for liabilities that they incur in the ordinary course of the activities of the partnership.
LP: Admission of Additional General and Limited Partners
A person may be admitted to the limited partnership as a general or limited partner as provided in the partnership agreement, as a result of a merger or conversion, or on the consent of all partners.
LP: Conversion and Merger
A limited partnership may convert to or merge with another form of business entity upon the consent of all partners and filing of a certif- icate (of conversion or merger) with the secretary of state.
Dissociation of an LP
The events that will cause dissociation of a partner in a general partnership will also cause dissociation of a partner (general or limited) in a limited partnership.
Note that a limited partner has no right to dissociate before termination of the limited partnership.
A general partner’s right to dissociate is similar to the right of a partner to dissociate in a general partnership.
a. Effect on Limited Partner
After dissociation, a limited partner is treated as a transferee of the limited partner’s transferable interest.
b. Effect on General Partner
The effects of dissociation of a general partner in a limited partner- ship are similar to the effects of dissociation of a partner in a general partnership,
Dissolution and Distribution of LP
a. Dissolution in General
A limited partnership may be judicially dissolved upon application of a partner if it is no longer reasonably practicable to carry on the limited partnership in conformity with the limited partnership agree- ment. A limited partnership may also be administratively dissolved by the secretary of state for failure to pay fees or file an annual report, but the partnership may apply for reinstatement by curing the defect within two years of the dissolution. Otherwise, a limited partnership may be dissolved only upon the occurrence of one of the following:
• The happening of an event specified in the partnership agreement
• The consent of all general partners and limited partners holding a majority of the right to receive distributions (“majority in interest”)
• After dissociation of a general partner, upon consent of partners owning a majority in interest if another general partner remains; if no general partner remains, after 90 days unless the partners admit a new general partner
• Ninety days after dissociation of the last limited partner, unless a new limited partner is admitted within the 90 days
b. Winding Up
A limited partnership continues after dissolution only for the purpose of winding up its activities. In winding up, the partnership must discharge liabilities, settle and close partnership activities, and marshal and distribute its assets.
c. Power to Bind Partnership After Dissolution
After dissolution, a partnership will be bound by any acts of a general partner that are appropriate for winding up the partnership. The partnership can also be bound by acts of a general partner that are not appropriate for winding up if the acts would have bound the partnership before dissolution and the party with whom the general partner dealt did not have notice of the dissolution.
d. 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
y Distribution Where Assets Are Insufficient to Satisfy Debts
If limited partnership assets are insufficient to satisfy all obliga- tions to creditors, each person who was a general partner when the obligation was incurred must contribute to the partnership to satisfy the obligation. The contribution due is in proportion
to the right to receive distributions in effect when the obligation was incurred. If a person does not contribute the full amount required, the other persons required to contribute must pay
the additional amount necessary to discharge the obligation, in proportion to the right to receive distributions in effect when the obligation was incurred. A person who pays an additional contri- bution may recover from any person whose failure to contribute necessitated the additional contribution, but may not recover more than the amount additionally contributed.
