Partnerships

Question 1

Elements of a partnership

Answer 1

• An association of two or more persons (inc. legal entities) for for-profit purposes.

PERSONS must have capacity to contract.

INTENT must be to carry on a business for profit as co-owners (doesn’t need to be intent to create a partnership)

AGREEMENT may be implied.

PASSIVE CO-OWNERSHIP of property by itself does not create a partnership. Courts will consider the amount of related activities directed toward achieving a business’s end goal when determining whether a partnership exists

Question 2

S/F

Answer 2

Partnerships may be formed w/o a written agreement, but the agreement itself is subject to the statute of frauds.

Question 3

KEY TEST

Answer 3

Look for sharing of profits - PRESUMPTION that it’s a partnership if profits are shared.

BUT PRESUMPTION NOT CREATED IF:
i) Debt payments, including installment payments;

ii) Interest or other loan charges, even though the payment varies with the profits of the business;
iii) Rent;
iv) Wages or other compensation paid to an employee or independent contractor;
v) Goodwill payments stemming from the sale of a business, including installment payments; and
vi) Annuities or other retirement or health benefits paid to a beneficiary, representative, or designee of a deceased or retired partner.

Question 4

Joint ventures

Answer 4

A joint venture is not a clearly defined legal entity. Frequently, courts use the term “joint venture” to describe a partnership for a specific, limited purpose. Courts usually apply partnership rules to a joint venture when the association has a business purpose rather than a personal purpose.

Question 5

Subpartnership

Answer 5

A subpartnership, which is not a true partnership, refers to an agreement between a partner and a third party that the third party will share in the partner’s profits from the partnership. The third party does not become a member of the partnership and has only a contractual claim against that partner for a share of the partnership’s profits.

Question 6

Partner by Estoppel

Answer 6

Generally, if a partnership does not exist, a person cannot be liable to a third party as a partner. RUPA 308(e). However, even though a partnership does not exist, a person may, under circumstances enumerated below, be treated as a partner of a purported partnership. Similarly, there are situations when someone who is not a partner of an established partnership may still be treated as one. In either case, the person is characterized as a purported partner (or a partner by estoppel).

For liability as a purported partner to be imposed, the following elements must be established:

i) There must be a representation—orally, in writing, or implied by conduct—that a person is a partner in an actual or purported partnership;
ii) The purported partner must make or consent to the representation;
iii) A third party must have reasonably relied on the representation; and
iv) The third party must have suffered damages as a result of that reliance.

Question 7

Partnership Agreement

Answer 7

Although a formal agreement is not required to create a partnership, if the partners have entered into such an agreement, then the agreement, rather than RUPA, generally governs the relations among the partners and between the partners and the partnership when there is a conflict between the agreement and RUPA.

Question 8

Duty of Loyalty

Answer 8

a. Duty of loyalty

Under the duty of loyalty, a partner is required to refrain from the following activities:

i) Competing with the partnership business;
ii) Advancing an interest adverse to the partnership; and
iii) Usurping a partnership opportunity or otherwise using partnership property or business to derive a personal benefit, without notifying the partnership.

Question 9

Limitation of Duty of Loyalty

Answer 9

A partnership agreement may not eliminate the duty of loyalty. However, the agreement may identify specific types or categories of activities that do not violate this duty, if not manifestly unreasonable. For example, a real estate partnership agreement could permit a partner to retain commissions on partnership property bought and sold.

Question 10

Loyalty Safe Harbor

Answer 10

In addition, the agreement may provide a safe harbor with respect to a transaction between a partner and the partnership. Under a safe harbor, a certain number or percentage of the other partners—after full disclosure of the material facts—could authorize or ratify the transaction.

Question 11

Duty of Care

Answer 11

Duty to refrain from engaging in grossly negligent, reckless, knowing, or intentional misconduct, and knowing violation of the law.

May not unreasonably limit this duty.

Question 12

Timing of fiduciary duties

Answer 12

PROSPECTIVE partners not subject to FDs but may be subject to general K duties to deal honestly without fraud.

DISSOCIATED partners not subject to duties unless winding up (but if winding up, noncompete duty does not apply)

Question 13

Obligation of good faith and fair dealing.

Answer 13

In observing the duties of loyalty and care and in exercising any rights, a partner has the obligation of good faith and fair dealing. RUPA 404(d). The partnership agreement cannot eliminate this obligation, but it can prescribe reasonable standards by which the performance of the obligation is measured.

Question 14

Rules for Profits and Losses

Answer 14

If agreement speaks to share of each, CONTROLS.

If silent as to PROFITS, presumption is that each partner is entitled to equal share.

If silent as to LOSSES, the losses follow the profits.

Question 15

Transfer of Partnership Interest

Answer 15

• May freely transfer some or all of interest, unless forbidden by the partnership agreement (and transfer is ineffective as to a transferee who has notice of the restriction)
• Does NOT result in dissolution.
• EFFECT ON TRANSFEROR: The transfer of a partner’s partnership interest to a third party does not trigger the partner’s dissociation from the partnership. Instead, the transferor partner retains all rights and duties of a partner in the partnership apart from an interest in the distributions transferred.
• EFFECT ON TRANSFEREE: The transferee has the right to receive distributions from the partnership to which the transferor partner would otherwise have been entitled, including both distributions made by the partnership as an ongoing concern and those made upon dissolution of the partnership and the winding up of its business. In addition, the transferee may seek a judicial order for dissolution of the partnership. In the event of dissolution, the transferee is entitled to an accounting, but only for the period beginning from the date of the last accounting agreed to by all of the partners.

Question 16

Partnership Property

Answer 16

All property acquired by a partnership, whether by contribution from a partner or by purchase or other transfer from a partner or a third party, is partnership property and belongs to the partnership, not to the individual partners. RUPA 101(11), 203. A partner cannot transfer an ownership interest in partnership property, voluntarily or involuntarily.

When property is not regarded as partnership property, the intent of the partners controls in determining whether the property belongs to the partnership or to the individual partners. Two statutory presumptions are applicable in ascertaining that intent.

1) Presumed partnership property—purchased with partnership funds

Property is presumed to be partnership property if it was purchased with partnership assets or if partnership credit is used to obtain financing. RUPA204(c).

2) Presumed partner’s separate property

By contrast, property is rebuttably presumed to be a partner’s separate property when (i) the property is acquired in the name of one or more partners, (ii) the instrument transferring title to the property does not indicate the person’s capacity as a partner or the existence of a partnership, and (iii) partnership assets were not used to acquire the property. The use of property for partnership purposes is not enough to overcome this presumption. RUPA 204(d).

Question 17

Adding a new partner

Answer 17

To become a partner, a person must secure the consent of all of the existing partners.

Question 18

Ordinary Partnership Business

Answer 18

A majority of the partners can make a decision as to a matter in the ordinary course of the partnership’s business, such as a distribution of partnership profits. Acting individually, a partner has the actual authority to commit the partnership to usual and customary matters, unless the partner has reason to know that: (i) other partners might disagree; or (ii) for some other reason consultation with fellow partners is appropriate.

Question 19

Special Partnership Business

Answer 19

A decision as to a matter outside the ordinary course of the partnership’s business requires the consent of all partners. An amendment of the partnership agreement also requires the consent of all partners. Acting individually, a partner has no actual authority to take unusual or non-customary actions that will have a substantial effect on the partnership.

Question 20

Remuneration and Reimbursement

Answer 20

A partner is not entitled to remuneration for services performed for the partnership. An exception exists when the partner renders services in winding up the business of the partnership, in which case the partner is entitled to reasonable compensation.

A partner may make a loan in furtherance of the ordinary business of the partnership or to preserve the partnership’s business or property. The partnership is required to repay the loan or reimburse the partner for the advances, including interest from the date of the loan or advance.

Question 21

Use of Partnership Property & Obligation to Compensate

Answer 21

A partner may use or possess partnership property only on behalf of the partnership. RUPA 401(g). A partner who derives a personal benefit from the use or possession of partnership property is required to compensate the partnership for such benefit.

Question 22

Access to Records

Answer 22

Pship must provide this during business hours; cannot be limited unreasonably.

In addition, each partner and the partnership must furnish to a partner (or the partner’s legal representative), without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the partnership agreement or RUPA and, on demand, any other information concerning the partnership’s business and affairs unless the demand or the information demanded is unreasonable or improper.

Question 23

Events Causing Dissociation

Answer 23

i) The partner’s notice to the partnership of the partner’s express will to withdraw;
ii) An occurrence specified in the partnership agreement;
iii) The expulsion of the partner pursuant to the partnership agreement;
iv) The expulsion of the partner by the unanimous vote of the other partners, if it is unlawful to carry on the partnership business with that partner;
v) The expulsion of the partner by court order because the partner has either (i) engaged in misconduct that adversely and materially affected the partnership business, (ii) willfully and persistently caused a material breach of the partnership agreement, or (iii) breached a duty owed to the partnership or other partners;
vi) The partner’s voluntary or involuntary bankruptcy, a general assignment of the partner’s interest for the benefit of the partner’s creditors, or appointment of a trustee, receiver, or liquidator of the partner’s property;
vii) The partner’s death;
viii) The appointment of a guardian or general conservator for the partner, or a specific judicial determination that the partner has become incapable of performing his duties under the partnership agreement; or
ix) The termination of an entity partner (such as a limited liability company), or the distribution by an estate or a trust of the partnership interest.

Question 24

Wrongful Dissociation

Answer 24

1) Circumstances under which a partner’s dissociation is wrongful

For a partnership that is unlimited by time or undertaking, a partner’s dissociation is wrongful only when it is in breach of an express provision of the partnership agreement.

For a partnership that is for a definite term or undertaking, the partner’s dissociation is wrongful when, before the expiration of the term or completion of the undertaking, the partner:

i) Withdraws, unless withdrawal follows within 90 days of another partner’s wrongful dissociation or dissociation due to death, bankruptcy, or other circumstances described below;
ii) Is expelled by court order;
iii) Is a debtor in bankruptcy; or
iv) Is not an individual, a trust, or an estate, and the partner willfully dissolved or terminated.

Question 25

Effect of dissociation

Answer 25

Wrongful dissociation results in dissolution if a majority of the remaining partners express a will to wind up the partnership within 90 days of dissociation. RUPA 801(2). If the partnership does not dissolve and wind up, the wrongfully dissociated partner is not entitled to payment of any portion of the buyout price until the expiration of the term or completion of the undertaking, unless the partner proves to the court that earlier payment will not cause undue hardship to the business of the partnership. A deferred payment must be adequately secured and bear interest. RUPA 701(h). A partner who wrongfully dissociates is liable to the partnership and the other partners for damages caused by the dissociation.

Question 26

Effect of Dissociation

Answer 26

1) Dissociated partner’s management rights

A dissociated partner generally does not have the right to participate in the management or conduct of the partnership business. RUPA 603(b).

2) Dissociated partner’s duties

A partner’s duty not to compete terminates upon dissociation. The dissociated partner’s other duties of loyalty and care terminate with respect to post-dissociation events, unless the partner participates in winding up the partnership’s business if the partnership itself dissolves. RUPA 603(b).

3) Purchase of dissociated partner’s interest

When a partner dissociates from the partnership but the partnership is not dissolved, the partnership must buy out the dissociated partner’s partnership interest.

Question 27

Valuation of Dissociated Partner’s Interest

Answer 27

The dissociated partner’s interest is valued as if the partnership business was wound up on the date of the dissociation. For this purpose, the partnership is valued as the greater of either the liquidation value of its assets or the value of the partnership as a going concern.

Must pay value w/in 120 days less any offsets.

Question 28

Statement of Dissociation

Answer 28

Either the partnership or the dissociated partner may file a statement of dissociation with the state. This statement, which constitutes a limit on the dissociated partner’s authority, is treated as giving third parties notice of the dissociation as of 90 days after the statement is filed. Consequently, it can be used to reduce the window of partnership liability for a dissociated partner’s actions from two years to 90 days

Question 29

Authority to bind partnership

Answer 29

Normal agency analysis for actual express and implied.

APPARENT: A partner’s act that was not authorized by the partnership may nevertheless bind the partnership under the principle of apparent authority. For apparent authority to apply, the partner must perform the unauthorized act in the ordinary course of apparently carrying on either the partnership business or business of a kind carried on by the partnership. In addition, the third party with whom the partner was dealing cannot hold the partnership liable when that party knew or had received notification that the partner lacked authority.

Question 30

Transfer of Partnership Property

Answer 30

A partner has the authority to transfer partnership property held in the partnership’s name by executing an instrument of transfer (e.g., a deed) in the partnership’s name. This authority is subject to limitation or elimination by a statement of partnership authority.

A partner has the authority to transfer partnership property held in one or more partners’ names by executing an instrument of transfer (e.g., a deed) in the partners’ names. This authority exists whether or not the instrument transferring the property to the partnership reflected the existence of the partnership or the status of the transferees as partners.

RECOVERY: i) Partnership property in which partnership interest is indicated

If the partnership’s interest in the property was indicated in the instrument through which the partnership acquired the property, the partnership may recover the property from any initial transferee if the property was transferred by a partner without authority.

ii) Partnership property in which partnership interest is not indicated—notification requirement

If the partnership interest in property was not indicated in the instrument through which the partnership acquired the property, the partnership may recover property transferred by a partner without authority, but only from a transferee who was aware that the property belonged to the partnership and that the partner executing the transfer did so without authority.

Question 31

Imputation of knowledge to the parnership

Answer 31

A partner’s knowledge or notice of a fact relating to the partnership is generally immediately imputed to the partnership. An exception exists when a fraud on the partnership is committed by or with the consent of the partner.

Question 32

Effect of partner’s tortious acts

Answer 32

A partnership is liable for a partner’s tortious acts, including fraud, committed in the ordinary course of the partnership business or with partnership authority, whether actual or apparent. When the partner enjoys immunity from liability for such acts, the partnership is not entitled to assert that immunity.

Question 33

Limitations on liability for incoming/dissociated partners

Answer 33

1) Limitation on incoming partner’s liability

A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations. However, any capital contribution made by an incoming partner to the partnership is at risk for the satisfaction of such partnership obligations. RUPA 306(b).

2) Limitation on dissociated partner’s liability

A partner who has dissociated from a partnership generally continues to be liable for any partnership obligation incurred before the dissociation. In addition, a dissociated partner may be liable for partnership obligations incurred after the dissociation.

Question 34

Exhaustion of partnership assets

Answer 34

Even though a partner is personally liable for a partnership obligation, a partnership creditor generally must exhaust the partnership’s assets before levying on the partners’ personal assets.

Exceptions exist when the partnership is a debtor in bankruptcy, the partner has consented, or the partner is liable independent of the partnership, such as when the partner was the primary tortfeasor. In addition, a court may authorize execution against a partner’s assets when the partnership’s assets are clearly insufficient, exhaustion of the partnership’s assets would be excessively burdensome, or it is otherwise equitable to do so.

Question 35

Conversion to LP

Answer 35

Unless the partnership agreement specifies otherwise, the conversion must be approved by all of the partners of the general partnership. Once the conversion is approved, the partnership must file the articles of conversion with the state. The conversion takes effect upon the filing of the articles of conversion unless the statement itself specifies a later date.

NOTE: LIABILITY OF A FORMER GP WHO BECOMES LP:
A general partner who becomes a limited partner as a consequence of a conversion remains liable for any obligation incurred by the partnership before the conversion. In addition, such a partner, despite being a limited partner, may be liable for obligations incurred by the limited partnership within 90 days after the conversion becomes effective when the other party to the transaction reasonably believes at the time of the transaction that the limited partner is a general partner.

Question 36

Merger

Answer 36

PLAN: must set forth (i) the name of each partnership or limited partnership that is a party to the merger, (ii) the name of the surviving entity into which the other entities will merge, (iii) the type of entity the surviving entity will be, (iv) any terms and conditions of the merger, (v) the manner of converting interests and obligations of the merging entities into interest or obligations of the surviving entity, and (vi) the street address of the surviving entity’s executive office.

APPROVAL: If a partnership is a party to the merger, then the merger must be approved by all of the partners, unless otherwise specified in the partnership agreement. If a limited partnership is a party to the merger, then the merger must be approved by either (i) the vote required by the law of the jurisdiction in which the limited partnership is organized or (ii) in the absence of a law, by all partners or by whatever number of partners is specified in the partnership agreement.

EFFECTIVE: Upon approval of all parties, filing of all req’d docs, or date specified in plan (whichever is later)

LASTING LIABILITY: (i) all obligations for which he was personally liable before the merger, (ii) all of the surviving entity’s obligations that were incurred by a party to the merger before the merger (although those obligations must be satisfied by the entity’s property), and (iii) all obligations incurred by the surviving entity after the merger takes effect, unless otherwise provided by law.

Question 37

Dissolution of partnership at will

Answer 37

It is dissolved when a partner chooses to dissociate from the partnership by giving notice of her withdrawal.

Question 38

Dissolution of partnership for a term or undertaking

Answer 38

i) The term expires or the undertaking is completed;
ii) All partners agree to dissolve the partnership; or
iii) A partner is dissociated due to death, bankruptcy, or other circumstance, and within 90 days of such occurrence, at least half of the remaining partners agree to dissolve the partnership.

Question 39

Presumption of continuation

Answer 39

When the partners continue the business without any settlement or liquidation after the term expires or the undertaking is completed, there is a presumption that they have agreed to continue the business. The partnership is then transformed into a partnership at will; the rights and duties of the partners remain the same as they were

Question 40

Dissolution of any partnership

Answer 40

i) A dissolving event agreed to in the partnership agreement;
ii) An event that makes it unlawful for all or substantially all of the partnership business to be continued, provided that the illegality is not cured within 90 days after the partnership receives notice;
iii) A judicial determination is sought by a partner that the economic purpose of the partnership is likely to be unreasonably frustrated, another partner has engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business with that partner, or it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement; or
iv) A judicial determination is sought by a transferee of a partner’s partnership interest that it is equitable to wind up the partnership business after expiration of the partnership term or completion of the undertaking or at any time, if the partnership was a partnership at will at the time of the transfer or when the charging order was issued.

Question 41

Winding up

Answer 41

Can be participated in by any partner who has not wrongfully dissociated (including legal representative of last surviving partner)

POWER OF PERSON WINDING UP: A person who is winding up the partnership business may dispose of and transfer partnership property and may discharge the partnership’s liabilities. That person also may preserve the partnership business or property as a going concern for a reasonable time to maximize its value. In winding up the partnership’s business, the person may distribute assets of the partnership to settle partners’ accounts.

Question 42

Consequences of partner’s post-dissolution acts for the partnership

Answer 42

After dissolution, the partnership is bound by a partner’s act that is appropriate for winding up the partnership as well as any act undertaken by a partner that would have bound the partnership before dissolution, if the other party does not have notice of the dissolution. RUPA 804. Each partner is liable to the other partners for his share of partnership liability incurred by such post-dissolution acts. In addition, a partner who knowingly undertakes an act inappropriate for winding up the partnership business is liable to the partnership for any damage caused to the partnership for such an act.

Question 43

Statement of Dissolution

Answer 43

After dissolution, a partner who has not wrongfully dissociated may file a statement of dissolution. A statement of dissolution, which constitutes a limitation on a partner’s authority, is treated as giving third parties notice of the dissolution 90 days after the statement is filed.

Question 44

Discharge of partnership obligations and settlement of accounts

Answer 44

Partnership assets are first applied to discharge partnership obligations to creditors (including partners who are creditors of the partnership) before being distributed to the partners.

Each partner’s account, which reflects not only that partner’s contributions to the partnership but also the partner’s share of the partnership’s pre-dissolution profits and losses, must be adjusted to reflect the profits and losses that result from the liquidation of the partnership assets. After these adjustments, any partners with a negative account balance must contribute to the partnership the amount necessary to bring the account balance to zero. Then the partnership must make a final liquidating distribution to any partner with a positive account balance.

Question 45

Continuation and Waiver

Answer 45

Once a partnership has been dissolved, but before the winding up of its business is complete, the partnership may resume carrying on its business as if dissolution had never occurred. To do so, all partners (including any properly dissociated partners) must agree to waive the right to terminate the partnership. RUPA 802(b).

a. Effect on the partner and the partnership

Any liability incurred by the partnership or by a partner after the dissolution and before the waiver is determined as if dissolution had never occurred. RUPA802(b)(1).

b. Effect on a third party

The waiver does not adversely affect the rights of a third party who dealt with the partnership before the party knew or was notified of the waiver.

Question 46

LLP

Answer 46

An LLP is formed by filing a statement of qualification with the state, usually with the Secretary of State. LLP status is effective on the date that the statement is filed, unless a later date is specified in the statement. RUPA 901(c), (e). The filing of a statement of qualification to transform a partnership into an LLP does not create a new partnership. RUPA 201(b).

a. Authorization

The transformation of a partnership into an LLP must be approved by the vote necessary to amend the partnership agreement. If the partnership agreement is silent on this voting requirement, the approval of the transformation requires the approval of all partners. RUPA 1001(b).

b. Name

The name of an LLP must end with “Registered Limited Liability Partnership,” “Limited Liability Partnership, “R.L.L.P.,” “L.L.P.,” “RLLP,” or “LLP.” RUPA 1002.

c. Partnership agreement

A partnership agreement cannot vary the law applicable to LLPs.

Question 47

LLP Liability

Answer 47

A limited partner in an LLP is not personally liable for an obligation of an LLP, regardless of the type of obligation (e.g., tort, contract). A limited partner is personally liable for his own personal misconduct.

An obligation of an LLP is solely an obligation of the partnership, notwithstanding a contrary provision in the partnership agreement that existed before the vote to transform from a partnership to an LLP.

Question 48

LLP Termination

Answer 48

The cancellation of a statement of qualification transforms the LLP into a simple partnership but does not trigger dissolution. The state may revoke the statement of qualification of an LLP for the failure to file an annual report; this revocation has the same effect as cancellation.

Question 49

LP Formation

Answer 49

To form a limited partnership, a certificate of limited partnership must be filed with the state; must contain only the name of the limited partnership, its in-state address, the name and address of its in-state agent for service of process, the name and business address of each general partner, and a statement about the duration of the limited partnership. All of the general partners must sign the certificate. MUST SUBSTANTIALLY COMPLY

EFFECTIVE: The limited partnership comes into existence upon the filing of the certificate unless the certificate specifies a later date.

EFFECT OF FAILURE TO FILE:
If a certificate of limited partnership is not filed, then the limited partnership is not formed. If a person makes a contribution to a purported limited partnership and erroneously believes in good faith that he has become a limited partner, then he is liable to a third party who transacts business with the purported limited partnership, believing in good faith that the person was a general partner at the time of the transaction. A similar result occurs when a person is mistakenly listed as a general partner in the certificate

Question 50

Becoming LP

Answer 50

A person may become a limited partner upon the creation of the limited partnership. Thereafter, that person may be admitted as a limited partner by acquiring her interest directly from the partnership only upon the written consent of all partners, unless the partnership agreement otherwise provides. An assignee of a partnership interest, including a general or a limited partner’s interest, may become a limited partner if the partnership agreement permits or all partners consent.

COMPARE, GP: A person may become a general partner upon the creation of the limited partnership. Thereafter, a person may be admitted as a general partner only upon the written consent of all partners, unless the partnership agreement otherwise provides. (Note: An assignee of a general partner’s partnership interest may become a limited partner but not a general partner, as long as the partnership agreement permits it or all other partners consent.)

Question 51

LP Voting Rights

Answer 51

A limited partner has the right to vote only to the extent allowed under the partnership agreement. A limited partner does not have the right to vote on any partnership matter as a separate class.

Question 52

Activities not constituting participation in the control of the business

Answer 52

i) Being a contractor for, or an agent of, the limited partnership or a general partner; or being an officer, director, or shareholder of a corporate general partner;
ii) Consulting with or advising a general partner with respect to the limited partnership’s business;
iii) Acting as surety for the limited partnership or guaranteeing or assuming an obligation of the limited partnership;
iv) Requesting or attending a meeting of partners;
v) Winding up the limited partnership; or
vi) Proposing, approving, or disapproving limited partnership matters, such as the sale or transfer of substantially all of the assets of the limited partnership or the admission or removal of a general or limited partner.

NOTE: Even if a limited partner participates in the control of the business, she is personally liable only to persons who transact business with the limited partnership, reasonably believing, based on the limited partner’s conduct, that the limited partner is a general partner.

NOTE ON USE OF NAME: A limited partner who allows his name to be used in the name of the limited partnership is liable to a creditor who extends credit to the limited partnership, unless the creditor has actual knowledge that the limited partner is not a general partner.

Question 53

Withdrawal of a GP

Answer 53

At any time, a general partner may withdraw from a limited partnership by giving written notice to the other partners. When the withdrawal violates the partnership agreement, the general partner may be liable to the limited partnership for any damages from his breach of the agreement. RULPA 602.

The withdrawal of a sole general partner does not necessarily trigger the dissolution of a limited partnership, however; the limited partners have 90 days in which to consent to continue the business and appoint a new general partner

Question 54

Additional events causing a general partner to cease being a partner

Answer 54

i) Assignment of her partnership interest, unless the partnership agreement provides otherwise (RULPA 702);
ii) Removal as a general partner in accordance with the partnership agreement;
iii) Financial difficulties, such as bankruptcy and insolvency;
iv) Death or adjudicated incompetency of a natural person; or
v) Termination of a partner as a business entity.

Question 55

Distributions

Answer 55

6. Distributions a. Allocation of distributions

The partners may choose to make distributions on any basis, provided such basis is in writing. Without a written agreement, distributions are allocated among the partners in the same manner as profits and losses are shared. RULPA 503, 504.

b. Right to distribution

A partner’s right to any type of distribution can be specified in the partnership agreement. If it is not, a partner does not have a right to receive a distribution from the limited partnership before withdrawal or dissolution of the partnership. RULPA 601. Upon withdrawal from the partnership, a partner has the right to receive a distribution of the fair value of his partnership interest, as measured on the date of withdrawal, within a reasonable time after withdrawal. RULPA 604.

c. Distribution as a return of contribution

A distribution constitutes a return of a partner’s contribution to a limited partnership to the extent that it reduces her share of the net assets to less than her contribution. A partner is liable to the partnership for a return of a contribution to the extent necessary to discharge the limited partnership’s liabilities to creditors. The partner’s liability extends for one year after the return of the contribution, unless the return was wrongful, in which case the time period is lengthened to six years.

Question 56

Assignee Rules

Answer 56

In general, a partnership interest in a limited partnership is personal property that can be assigned in whole or in part. Upon assignment of the interest, the partner ceases to be a partner in the limited partnership, but the assignee generally has rights only to receive the distribution to which the assignor partner would otherwise be entitled. RULPA 701-705.

a. Assignee as limited partner

An assignee of a limited partnership interest, including a general partnership interest, may become a limited partner if the partnership agreement permits it or if all partners agree. An assignee becomes liable for obligations of the assignor to make and return contributions known to the assignee at the time he became a limited partner, but the assignor is not released from those obligations or from obligations arising from false statements in the certificate of limited partnership.

Question 57

Termination

Answer 57

A partnership terminates after it is dissolved and its affairs are wound up. The following events cause a partnership to dissolve:

i) The occurrence of an event specified in the partnership agreement or reaching the termination date specified in the certificate of limited partnership;
ii) The written consent of all general partners and of limited partners owning a majority of the rights to receive distribution;
iii) The withdrawal of a general partner or other occurrence in which the general partner ceases to be a general partner, unless, within 90 days, partners owning a majority of the rights to receive distributions agree in writing to carry on the business and appoint any necessary general partners; or
iv) A decree of judicial dissolution based on a determination that it is not reasonably practical to carry on the business in conformity with the partnership agreement.

Question 58

Winding Up

Answer 58

Unless the partnership agreement provides otherwise, the task of winding up the limited partnership’s affairs falls to the general partners who have not wrongfully dissolved the limited partnership. When there are not any such general partners, the limited partners may wind up the partnership’s affairs. Alternatively, a partner, her legal representative, or an assignee may petition a court to wind up the limited partnership’s affairs. RULPA 803.

c. Distribution of assets

Upon winding up, the partnership’s assets are distributed to the following parties in order:

i) Partnership creditors, including partners who are creditors; then
ii) Partners and former partners who are entitled to distributions that have accrued but not been paid; then
iii) Partners for the return of their contributions; and finally
iv) Partners in the proportions in which they share distributions.