Other Unincorporated Forms Flashcards
Limited Partnership
A partnership that has at least one general partner and one limited partner:
- A limited partnership is managed by the general partners;
- Profits are distributed in proportion to financial contribution;
- General partners are liable as they would be in a general partnership;
- Limited partners enjoy limited liability and may only lose the value of their investment.
⇒ Must file Certificate of Limited Partnership with the Secretary of State’s office to form.
Limited Liability Partnership
A limited liability partnership is a general partnership in which all of the general partners enjoy limited liability.
- All partners enjoy limited liability and are not personally liable for the partnership’s obligations.
⇒ Any partnership can become an LLP upon: (1) approval by the SAME VOTE that is necessary to amend the partnership agreement; AND (2) file Statement of Qualification with the Secretary of State’s office.
NOTE: An LLP is not an LP. LLP’s have nothing to do with contributions. They simply covert a general partnership into a general partnership where all partners enjoy limited liability.
Limited Liability Limited Partnership
LLLPs combine LPs and LLPs.
Limited Liability Company
A hybrid between a partnership and a corporation in which the “members” enjoy limited liability and partnership tax treatment.
What is the LLC equivalent of a partnership’s partnership agreement or a corporation’s articles of incorporation?
Operating Agreement
Who manages an LLC?
LLCs are, by default, managed by all the members. The members act by majority vote when approving ordinary business decisions. A unanimous vote is requried for extraordinary business decisions.
⇒ LLCs can establish alternative management arrangements if they do so in the operating agreement.
How are financial rights determined in an LLC?
Profits and losses are allocated according to each member’s contribution.
What fiduciaries to members (or managers) in an LLC owe?
They owe fiduciary duties to both the LLC and its members:
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Duty of Care. Members must discharge their duties with the degree of care that a reasonably prudent person would consider appropriate under the circumstances.
- The Business Judgment Rule applies.
- Duty of Loyalty. Members must discharge their duties in good faith and in the reasonable belief that their actions are in the best interests of the company.
Business Judgment Rule
Thus business judgment rule is a presumption that the member complied with their duty of care when they made a decision, acting in good faith, with adequate information, and with a rational basis. The burden is on the plaintiff to prove that the member violated their duty of care.
To what degree are management and financial rights in an LLC transferable?
Financial rights may be transferred unilaterally; management rights may not be transferred, except with unanimous consent of the members.
When does an LLC dissolve?
An LLC will dissolve if:
- The operating agreement specifies an event or circumstance that will trigger dissolution;
- The members unanimously consent to dissolve the LLC;
- The LLC has no members for 90 days.
Liability of Limited Partners
Generally, not personally liable for obligations of the LP.
Exceptions:
* Always liable for their own misconduct or when they sign a personal guarantee
* MAY become liable if the partner participates in the management or control of the business (basically rising the level of a general partner)
Liability of Limited Liability Partners
Generally, not personally liable.
Exceptions:
* Always liable for their own misconduct or when they sign a personal guarantee
* Obligations incurred BEFORE partnership became an LLP are treated as obligations of the prior entity
Special Rules for LPs
A Limited Partnership (LP) is composed of general and limited partners. General partners of a LP have full management rights and control the partnership business to the exclusion of the limited partners. **Limited partners have NO say or control as to how the partnership is run, and they DO NOT have the right to manage or control the day-to-day business of the partnership. ** Limited partners are generally passive, and have voting rights only in extraordinary situations, such as the sale of the partnership (or all of its assets), amending the partnership agreement, or admitting a new partner.
Under RULPA, a limited partner has the right during normal business hours to inspect and copy any information that the Limited Partnership (LP) is legally required to keep. In addition, a limited partner may obtain upon a reasonable demand: (1) true and full information regarding the state of the business and financial condition; (2) copies of the LP’s tax returns; and (3) any other information regarding the affairs of the LP that is just and reasonable.
These rights may be exercised for **any purpose. ** Seeking to obtain documents because of suspicion of mismanagement or self-dealing is considered a just and reasonable demand.
