Other Unincorporated Forms: Limited Partnerships and Limited Liability Partnerships

Question 1

Limited Partnership - General Concept

Answer 1

• a partnership w/ at least one general partner + at least one limited partner
• general partnership provisions typically apply unless displaced by LP-specific ones
• general partner is personally liable for partnership obligations, while limited partner generally doesn’t have any liability beyond the liability to make agreed-upon contributions
• entity distinct from its partners w/ perpetual duration unless otherwise provided

Question 2

Certificate of Limited Partnership

Answer 2

• certificate of limited partnership must be filed w/ the secretary of state
• must be signed by all general partners
• if this ISN’T filed, the business is just a general partnership

Question 3

Info Required on Certificate of Partnership

Answer 3

Includes:
- name of partnership
- names + addresses of agent for service of process
- names + addresses of each general partner

Question 4

Records Office

Answer 4

• a limited partnership must maintain in its state of org an office w/ records of the certificate, any partnership agreements, + the partnership’s tax returns for the three most recent yrs
• the partnership agreement or some other record must contain the amount + description of each partner’s contribution, special rights of partners regarding distributions, etc.

Question 5

Agent for Service of Process

Answer 5

• LP must maintain in the state an agent for service of process

Question 6

LP and Statutory Compliance

Answer 6

• b/c LP = creature of statute, can exist only on compliance w/ that statute -> even if you get an exam q where one partner asks for limited liability + other says okay, it’s NOT a limited partnership if there’s no formal filing with the secretary of state
  -> means that it’s just a general partnership + all partners are subject to full liability

Question 7

Name

Answer 7

• LP must contain the phrase “limited partnership” or LP abbreviation
• may contain the name of any partner, general or limited

Question 8

Partnership Agreement

Answer 8

• can be written, oral or implied
• can displace almost all statutory provisions
• typically contains the most details on the op + governance of the LP

Question 9

General Partners

Answer 9

• manage the LP
• each has equal rights in management + conduct of LP’s activities
• any matter relating to LP’s ordinary business activities can usually be exclusively decided by the general partner or, if more than one, the majority of general partners

Question 10

Limited Partners

Answer 10

• usually have no management rights unless granted in the partnership agreement
• participation in management doesn’t cause a limited partner to become personally liable for an obligation of the limited partnership
• unless otherwise agreed though, vote of ALL partners is necessary for certain extraordinary activities, including to:
  1) amend the partnership agreement
  2) convert the partnership to a limited liability partnership
  3) dispose of all or substantially all of the limited partnership’s property outside the usual + 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

Question 11

Distributions - Split Among Partners

Answer 11

• Uniform Limited Partnerships Act (UPLA) provisions for distributions are very similar to distribution provisions for corporations
• unless otherwise agreed, distributions from an LP are made on the basis of the partners’ contributions (in proportion to the value of each partners’ contribution)
  -> vs equal split default in general partnership

Question 12

Assets + Ability to Make Distributions

Answer 12

• LP may not make a distribution if after making the distribution, the LP wouldn’t be able to pay its debts as they become due OR its assets would be less than the sum of its liabilities (including sums needed to satisfy superior preferential rights upon dissolution)

Question 13

Partners’ Rights to Distributions

Answer 13

• partner has no right to distributions unless makes a contribution to the partnership
• contribution may be in the form of any benefit to the partnership
  -> contribution ob not excused by death or other disability
  -> may be compromised only on consent of all partners

Question 14

Liability for Improper Distributions

Answer 14

• 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’s improper may be forced to return the improper amount to the partnership
• BUT no personal liability for an improper distribution arises if the distribution appeared to have been proper based on reasonably prepared financial statements

Question 15

Right to Assign Partnership Interest

Answer 15

• partner’s right to distribution is personal property -> may be transferred, in whole or in part
  -> doesn’t make transferee a partner though, + doesn’t cause dissociation or change transferring partner’s status
• BUT transfer of a partner’s entire transferable interest in the partnership is grounds for expulsion

Question 16

Liability of General Partners

Answer 16

• same as general partnership -> jointly + severally liable for all obligations of the LP
• incoming partners not liable for obligations the limited partnership incurred before became partner

Question 17

Limited Partners - Liability

Answer 17

• NOT personally liable for an obligation of the LP solely by reason of being a limited partner
• have limited liability -> can only lose the value of their investments
  -> this applies even if their names are used in the title of the business
• BUT always liable for own torts though (limited liability shield doesn’t protect an indiv from liability for own torts)

Question 18

General Partner - Fiduciary Duties

Answer 18

• general partner owes LP + other partners the same fiduciary duties of loyalty + care that are owed in a general partnership
• bUT does NOT automatically violate duty of loyalty merely b/c general partner’s conduct furthers own interests

Question 19

Limited Partners - Fiduciary Duties

Answer 19

• generally owe no fiduciary duties to the partnership or any other partner solely by reason of being a limited partner
  -> FREE to compete w/ partnership + have interests adverse to the parties, unless partnership agreement provides otherwise

Question 20

Additional Rights of Partners

Answer 20

• any partner may lend money to + transact other businesses w/ the limited partnership
• right to dissolve -> any partner may apply for decree of dissolution when not reasonably practicable to carry on the business in conformity w/ the partnership agreement
• partner may maintain a direction action against limited partnership or another partner for legal or equitable relief to enforce her rights + interests
• derivative actions
• right to info
• indemnification of general partners (not entitled to remuneration for services, but indemnified for liabilities they incur in ordinary course of activities of the partnership

Question 21

Derivative Action

Answer 21

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 + the general partners don’t bring the action w/in a reasonable time OR demand would be futile

May be maintained only by person who is a partner at time 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 agreement from a person who was a partner at the time of the conduct

Question 22

Right to Information

Answer 22

• general partner’s right to info is similar to that of a partner in a general partnership
• each limited partner has the right to inspect + copy any partnership records required to be maintained

Question 23

Admission of Additional General and Limited Partners

Answer 23

• 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

Question 24

Conversion and Merger

Answer 24

• limited partnership may convert to or merge w/ another form of business entity upon consent of all partners + filing of a certificate (of conversion or merger) w/ secretary of state