Creation of Partnerships

Question 1

Do general partnerships have limited personal liability?

Answer 1

NO. NO limited personal liability.

general partners remain personally, jointly and severally liable for ALL debts of the partnership).

Question 2

A general partnership is formed when:

Answer 2

Two or more persons;
Associate as co-owners;
To carry on a business for profit.

Question 3

Is it relevent whether P’s intend to form partnership?

Answer 3

NOPE.

In determining whether a general partnership exists, it is irrelevant whether the parties intended to form a partnership.

Question 4

Intentions aside, how do courts decide if P’ship exists?

Answer 4

courts may consider the following:

1. Sharing of profits
   A person who receives a share of the profits of a business is presumed to be a partner in the business unless the partner receives the profits as payment of debt, rent, wages, or for services rendered.
2. joint ownership
   Joint ownership of property tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself.
3. Sharing of control.
   Sharing of control, capital investment, and labor tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself.

Question 5

What is a limited partnership?

Answer 5

A limited partnership consists of one or more general partners and one or more limited partners. General partners remain personally, jointly and severally liable for ALL debts of the limited partnership, while limited partners are personally liable for debts ONLY to the extent of their investment in the limited partnership.

Question 6

In a limited P’ship, how do the roles of general v limited P’ differ?

Answer 6

General partners manage and control the day-to-day operations of the business, while limited partners generally have no say in such matters.

Limited partners are generally passive investors, and only have voting rights in extraordinary situations (e.g., sale of the partnership, amending the partnership, etc.).

Question 7

How is a limited P’ship formed?

Answer 7

A limited partnership is formed when a written certificate of limited partnership is executed and filed with the secretary of state.

Question 8

What is required on a certificate of limited P’ship?

Answer 8

A certificate of limited partnership must “substantially comply” with the following requirements, including:

1. The signature of each general partner;
2. The name of the limited partnership; AND
3. The name, street, and mailing address of:
   Each general partner;
   The initial designated office; AND
   The initial agent for service of process.

NOTE. If the parties intend to form a limited partnership, but fail to substantially comply with the above requirements, they may have instead formed another business association (e.g., a general partnership).

Question 9

How does a limited liability partnership (LLP) limit a partner’s potential liability?

Answer 9

A limited liability partnership (LLP), limits a partner’s potential liability for professional malpractice (e.g., medical malpractice, legal malpractice, etc.) that is committed by another partner.

A partner in an LLP remains liable for professional malpractice if he:

1. Committed the malpractice himself or was directly involved in the activity that resulted in the malpractice;

OR

2. Supervised or directed the person who committed the malpractice.

Question 10

How is an LLP formed?

Answer 10

Any partnership may become an LLP upon the:

1. Approval of the partners by vote;

AND

2. Filing of a statement of qualification with the secretary of state.

NOTE. The filing of a statement of qualification does NOT create a new partnership; the LLP continues to be the same entity that existed prior to the filing.

Question 11

A statement of qualification MUST contain the following:

Answer 11

1. The name and address of the partnership and agent for service of process;
2. A statement that the partnership elects to be an LLP;

AND

3. A deferred effective date, if any.

Question 12

What is the effect of failing to file an annual report for an LLP?

Answer 12

REVOCATION of LLP.

If an LLP fails to file an annual report with the appropriate state office or pay the annual required filing fee, the state may revoke the partnership’s statement of qualification.

A partnership whose statement of qualification was revoked may apply to the state for reinstatement within 2 years after the effective date of revocation.