1. Chapter 35 Limited Partnerships and Special Partnerships

2. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Limited Partnership
Two types of partners:
General partners: invest capital, manage the business, and are personally liable for partnership debts
Limited partners: invest capital, but do not participate in management and are not personally liable for partnership debts beyond their capital contributions
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3. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Limited Partnership
At least one general partner and one limited partner
No restrictions on maximum number of general or limited partners
Any person may be a general or limited partner
A person may be both a general and limited partner
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4. Revised Uniform Limited Partnership Act (RULPA)
Modern, comprehensive law for the formation, operation, and dissolution of limited partnerships
Supersedes the Uniform Limited Partnership Act (ULPA)
Provides basic foundation for limited partnership law
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5. Certificate of Limited Partnership
Document executed and signed by two or more persons that makes a limited partnership legal and binding
Contents of the certificate:
Name of address and each partner
Name, character, and place of business
Amount of cash, property, or services
Latest date of dissolution
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6. Foreign Limited Partnership
Limited partnership in all other states besides the one in which it was formed
Law of the state governs its organization, internal affairs, and partners’ liabilities
For business transactions, a certificate of registration is required
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7. Name of Limited Partnership
Name may not include surname of limited partner unless:
It is also surname of general partner
Business was carried on under that name before admission of limited partner
Other restrictions:
Should not be the name of other corporations
Name must contain the words, “limited partnership”
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8. Capital Contributions
Contribution may be in cash, property, services rendered, or promissory notes or other obligations to contribute cash, property, or to perform services
Partner or creditor may bring lawsuit to enforce promise to make contribution
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9. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Defective Formation
Occurs when:
Certificate not properly filed,
Defects in certificate that is filed
Other statutory requirement for creation of limited partnership is not met
In case of such defects, limited partners may be liable as general partners
Can escape liability by filing certificate of amendment or certificate of withdrawal
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10. Limited Partnership Agreement
Document that sets forth the rights and duties of general and limited partners
Terms and conditions regarding operation, termination, and dissolution of partnership
Approval of transactions by partners
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11. Share of Profits and Losses
Agreement may specify how profits and losses are to be allocated among the general and limited partners
If not specified, RULPA provides that profits and losses are shared on the basis of value of the partner’s capital contribution
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12. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Right to Information
Each limited partner has right to obtain full information regarding state of business, finances, etc.
Partnership must keep the following records:
Certificate and all amendments
Full names and addresses of each partner
Written limited partnership agreements
All income tax returns
Three years of financial statements
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13. Admission of a New Partner
New limited partner can be added only upon the written consent of all partners
Agreement can provide otherwise
New general partner can be admitted only upon written consent of each partner
Agreement cannot vary this requirement
Admission effective after amendment is filed
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14. Liability of General and Limited Partners
General partners have unlimited liability for debts and obligations of the partnership
Limited partners are liable only up to their capital contributions
Creditor may enforce personal guarantee and recover payment from limited partner who guaranteed repayment of loan
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15. Participation in Management
General partners have management rights
Limited partners give up these rights in exchange for limited liability
Liable as general partner if participation is substantially the same
Only liable to persons who reasonably believe them to be general partners
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16. Permissible Activities of Limited Partners
Being an agent, employee, or contractor of the partnership
Acting as surety for the partnership
Being a consultant or advisor to a general partner regarding the limited partnership
Voting on amendments to partnership agreement
Voting on other partnership matters, including dissolution, removal of general partner, etc.
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17. Summary: Liability of Limited Partners
General Rule
Limited partners are not individually liable for the obligations or conduct of the partnership beyond the amount of their capital contribution
Exceptions to the General Rule
Limited partners are individually liable for the debt, obligations, and tortious acts of the partnership in three situations:
1. Defective Formation
2. Participation in Management
3. Personal Guarantee
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18. Dissolution of a Limited Partnership
Certificate of cancellation must be filed upon dissolution of limited partnership
Causes of dissolution:
End of life of limited partnership
Written consent of general and limited partners
Withdrawal of general partner
Entry of decree of judicial dissolution
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19. Winding Up of a Limited Partnership
Partnership must wind up its affairs upon dissolution
Affairs may be wound up by general or limited partners
Partner may petition the court to wind up the affairs
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20. Distribution of Assets
After the assets of the limited partnership have been liquidated, proceeds must be distributed
Order of distribution of partnership assets:
Creditors of the limited partnership
Partners with respect to
Unpaid distributions
Capital contributions
The remainder of the proceeds
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21. Limited Liability Limited Partnership (LLLP)
Organized under state law by filing articles of LLLP with the secretary of state’s office
General and limited partners have limited liability
They are not personally responsible for debts of the LLLP
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22. Liability of General and Limited Partners of an LLLP
Debt or obligation owed
Limited Partnership
Third Party
Capital investment
General Partner
General Partner
Limited Partner
Limited Partner
Liability limited to capital contribution
No personal liability for partnership’s debts and obligations
Personal liability for partnership’s debts and obligations
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23. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
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