Partnerships Flashcards
(103 cards)
1
Q
Partnerships
A
Partnerships have the following characteristics: (1) unlimited liability for partners, (2) partners have the right to co-manage the partnership, (3) fiduciary duties exist between and among the partners and the partnership, (4) partners share in profits.
2
Q
General Partnership
A
A general partnership is an association of two or more persons to carry on as co-owners of a buisness for profit.
3
Q
Person
A
A person for partnership purposes includes: (1) an individual, (2) a corporation, (3) a trust, (4) an estate, (5) a partnership; and (6) other associations.
4
Q
Business
A
Business includes every trade, occupation, and profession.
5
Q
Formation
A
All that is required to create a partnership under the Revised Uniform Partnership Act (“RUPA”) is two or more persons who associate to carry on a business for profit; intent does not matter. A partnership may be inferred from the conduct of the parties. If parties act like partners, the law will treat them like partners.
An official agreement or contract is not required, but when there is one, others may be oral.
6
Q
Missing Terms
A
In the absence of any agreed-upon terms, RUPA will fill in those partnership terms.
7
Q
Partnership v. Joint Venture
A
A joint venture is an association contemplating a single transaction or a related series of transactions, as compared to a partnership, which is generally said to be carrying on a business.
RUPA does not apply to joint ventures; however courts have applied the same rules.
8
Q
Capacity
A
Any person who has the capacity to enter into a contract can enter into a partnership agreement.
A corporation can be a partner in any business that it would have the power to conduct by itself so long as the enterprise is appropriate under the corporation’s articles and bylaws.
9
Q
Tests of Partnership
A
The key test of whether a partnership has been formed is the intent of the parties to enter into a partnership relationship.
An express agreement is the best indication of intent.
If the partnership was implied, court may consider evidence such as sharing of profits, the managment practices of the entity, amount and type of services rendered by the parties, and the record title to any real or personal property used by the entity.
10
Q
Sharing of Profits
A
A person’s receipt of a share of the profits of a business is prima facie evidence that he is a partner in the business.
However, no such inference may be drawn if the profits were received in payment of the following:
1. a deby by installments or otherwise
2. for services as an IC, or wages to an employee
3. rent
4. an annuity or other retirement or health benefit to a beneficiary, rep, or designee of a deceased or retired partner,
5. of interest or other charge on a loan, even if the amount of payment varies with the profits of the business
6. for the sale of the goodwill of a business or other property by installments or otherwise
11
Q
Sharing of Gross Returns
A
The sharing of gross returns does not itself establish a partnership. whether or not the persons sharing the returns have a joint or common right or interest in any property from which the returns are derived.
12
Q
Common Property
A
Common property (joint tenancy, tenancy in common, tenancy in entirety, joint property, common property, or part ownership), does not in itself establish a partnership, regardless of whether the owners share any profits made through use of the property.
13
Q
Control
A
Partners, as co-owners. must have the power of ultimate control.
If a person shares profits but lacks any power to control, they are likely an agent, unless the agreement shows a contrary interest.
14
Q
Partnership by Estoppel
A
Even if a voluntary partnership does not exist, liability may be imposed on a person who has let it appear that he is in a partnership if a creditor is thereby misled.
When a person, by words or conduct, represents himself to be a partner, he is liable to anyone who has extended credit in reliance on the representation of partnership.
If the representation is made privately, it may be relied upon only by those to whom it was made. If the representation is made publicly, the “purported partner” is liable to anyone who has knowledge of it and has relied upon it.
15
Q
Powers In General
A
Every partner is an agent of the partnership for the purpose of its business. The act of a partner for apparently carrying on in the ordinary course of business of the partnership binds the partnership, unless: 1. the partner has no authority to act in the matter; and 2. the person with whom he is dealing has knowledge that he has no such authority.
16
Q
Authority
A
A partner may have express authority to act by the terms of the partnership agreement, or by consent of the other partners.
A partner may have apparent authority based on the nature and course of business of the partnership, or on the custom in similar partnerships in the same area.
An act of a partner that is not apparently for carrying on in the ordinary course of business of the partnership does not bind the partnership unless authorized by the other partners.
17
Q
Knowledge that Authority is Lacking
A
Partnership agreements may include specific restrictions on authority; if a partner acts in contravention of such a restriction, and a third party has knowledge of such a restriction, the partnership will not be bound.
A person has knowledge of a fact not only when he has actual knowledge, but also when he has knowledge of such other facts in the circumstances showing bad faith.
18
Q
Notice to Partner
A
Notice to any partner of any matter relating to partnership affairs constitutes notice to the partnership.
A person has notice of a fact when the notification: 1. comes to the person’s attention; or 2. is duly delivered at the person’s place of business or at any other place held out by the person as a place for receiving communications
19
Q
Imputed Notice
A
If a partner acting in a particular matter has acquired knowledge while a partner, or has knowledge present in his mind while acting for the partnership, that knowledge is imputed to the partnership.
If the partner is not acting for the partnership in a particular matter knows that he could and should have communicated to the acting partner, that knowledge will also be imputed to the partnership.
Fraud on the partnership committed by or with consent of that partner is an exception to the imputation of notice rule.
20
Q
Nature of Liability
A
All partners are liable jointly and severally for all obligations of the partnership, whether arising under tort, contract, or otherwise.
A partner will not be bound to a judgment unless he has been served with notice.
A partner may enter into a separate obligation to perform a partnership contract, in which case the partner’s liability is several.
At common law, all partners were required to be named in a lawsuit and served with process; however, states have enacted statutes that allow service on one partner to be sufficient.
21
Q
Extent of Liability
A
Even though a partnership obligation is joint, each partner is individually liable for the entire amount of the partnership’s obligation.
A partner is entitled to indemnification by the partnership for any payments he makes on its behalf.
If a partner is forced to pay the entire debt, or more than his share, and the partnership is unable to indemnify him, he is entitled to contribution from his co-partners and may seek it through an accounting action.
22
Q
Partnership Liability for Acts of Partners
A
A partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act, omission, or other actionable conduct of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.
23
Q
Dormant Partner Liability
A
A dormant partner, one who is not active in managing partnership business and who is not known to the world as a partner is nonetheless liable on parnership obligations.
24
Q
Incoming Partner Liability
A
An incoming partner, one admitted as a partner into an existing partnership, is not personally liable for any partnership obligation incurred before the person’s admission as a partner.
25
Retiring Partner
* Usually, a retiring partner remains liable on all obligations incurred before his retirement.
* A retiring partner can be discharged from liability by an agreement with the continuing partners and
the partnership creditor.
26
Partnership Agreement
Relations among the partners and between the partners and the partnership are governed by the partership agreement. To the extent the partnership agreement does not otherwise provide, RUPA governs relations among the partners and between the partners and the partnership.
27
Partners' Contributions and Shares
Partners make contributions to the partnership in cash or otherwise (e.g., contribution of labor).
Each partner is entitled to be repaid his contributions, whether made by way of capital or through advances to the partnership property, and to share equally in the profits and surplus remaining after all liabilities (including those to partners) are satisfied.
Each partner must contribute toward the losses-whether of capital or otherwise-sustained by the partnership, according to his share in the profits.
Partners may agree to share the profits other than equally, and would then share the losses in the same ratio, unless specifically agreed otherwise.
28
Right to Indemnity
The partnership must indemnify every partner with regard to payments made and liabilities incurred by that partner in the ordinary course of the partnership's business or for the preservation of its business or property.
29
Right to Interest
A payment made by a partner, incurred in the ordinary course of the partnership business or as an advance beyond the amount of capital he agreed to contribute, constitutes a loan that accrues interest from the date of the payment or advance.
30
Right to Compensation
In general, a partner is not entitled to compensation for services performed for the partnership. except reasonable compensation for services rendered in winding up the partnership business.
However, a partner's agreement may provide for salaries to be paid. Such an agreement should
spell out the source of payments (i.e., from the partner's share of profits or from partnership income and the work and time required in exchange.
31
Right to Accounting
The accounting action is equitable in nature, and determines each partner's investment, the permership's profits or losses, and the share of profits to which each partner is entitled.
* RUPA expands on UPA by permitting that, during any term of the partnership, a partner may maintain a legal or equitable action, including an action for an accounting.
* An accounting is not a prerequisite to the availability of other remedies.
32
Management & Control
All partners have equal rights in the management and conduct of the partnership business.
This may be changed by agreement; for example, votes might be assigned varying weights to correspond to capital contributions or shares in the profits.
Any differences arising as to matters connected to the ordinary course of partnership business may be decided by a majority of the partners, but no act in contravention of any agreement between the partners may be accomplished properly without the consent of all the partners.
33
Property Rights of a Partner
The property rights of a partner consist of:
1. his interest in the partnership (i.e., economic rights); and
2. his right to participate in management.
* A partner is not a co-owner of partnership property and has no interest in partnership property that can be transferred, either voluntarily or involuntarily.
34
Transferrable Interest
A partner's transferable interest includes his share of profits and losses of the partnership and his right to receive distributions (such interest is deemed personal property) and his economic or financial interest in the partnership.
35
Encumbrances
A judgment creditor can subject the partner's transferable interest to a charging order.
Upon application, a court can charge the debtor-partner's transferable interest to satisfy the judgment, and may then, or later, appoint a receiver of his share of the distributions due him from the partnership.
36
Fiduciary Duties
As to partnership matters, partners have a fiduciary relationship to one another and owe the partnership and the other partners a duty of care and a duty of loyalty.
37
Duty to Care
* Each partner owes to the partnership a duty of care in the conduct and winding up of the partnership business.
* Such duty is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
38
Duty of Loyalty
* Good Faith: A partner must discharge his duties to the partnership and the other partners exercising his rights consistent with the obligation of good faith and fair dealing.
* Duty Not to Compete: A partner must not compete with the partnership in the conduct of its business, If he does so, he must account to the partnership for his profits.
Business Opportunity: A partner may not exploit a business opportunity of the partnership unless he has made full disclosure and received the approval of his other partners. If no conflict of interest or business opportunity is involved, a partner may engage in other enterprises, unless the partnership agreement specifies otherwise.
39
Good Faith
A partner must discharge his duties to the partnership and the other partners exercising his rights consistent with the obligation of good faith and fair dealing.
40
Duty not to Compete
A partner must not compete with the partnership in the conduct of its business, If he does so, he must account to the partnership for his profits.
41
Business Opportunity
A partner may not exploit a business opportunity of the partnership unless he has made full disclosure and received the approval of his other partners. If no conflict of interest or business opportunity is involved, a partner may engage in other enterprises, unless the partnership agreement specifies otherwise.
42
Duty to Disclose
By statute, partners must render on demand true and full information concerning all thinos affecting the partnershio to any partner, legal representative of any deceased partner, or partner under legal disability.
43
Duty to Account
Under RUPA, every partner must account to the partnership for any benefit, and holds as trustee for the partnership any profit derived by him without the consent of the other partners from any transaction connected with the conduct and winding up of the partnership business or from any use by him of its property
44
Duty to Keep Books and Right of Inspection
• The partnership books and records must be kept, subject to any agreement between the partners, at the chief executive office, and every partner shall, at all times, have access to and may inspect and copy any of the books and records.
45
New Members
* No person can become a member of a partnership without the consent of all partners.
* When a new member is admitted to the partnership by consent, the new partner's liability for obligations and torts arising before his joining is only his contribution to the partnership; the new partner is not personally liable for any such charges that arose prior to him joining the partnership
46
Suits Between Partners
A partner may maintain an equitable or legal action against another partner or the partnership to enforce the partner's rights under the partnership agreement, under RUPA, and any other rights otherwise protectable, whether or not arising under the partnership relationship.
47
Partnership Property
Property Originally Brought In
* All property originally brought into the partnership stock on account of the partnership is partnership property,
* Any property-cash, contributions in kind, goods, labor, or skill —brought into the business at its formation is the capital of the partnership.
48
Property Subsequently Acquired
Unless a contrary intention appears, all property subsequently acquired by purchase or othervise on account of the partnership is property of the partnership and not that of the partners individualy.
49
Property Purchased With Partnership Funds
* Unless a contrary intention appears, property purchased with partnership assets is partnership property. Any receivables, judgments obtained, contracts, or profits are partnership property.
* Factors considered in establishing a contrary intention are:
(1) the terms of the partnership agreement or any other relevant express or implied agreement:
1. the partnership's records;
2. the payment of taxes, repair bills, or insurance premiums;
(4) the conduct of the partners;
(5)whether the property was used or improved by the business; and
(6) how title to the property was held.
• As a corollary to this, it is presumed that property acquired in the name of one or more of the partners, without an indication of the person's status as a partner and without use of partnership funds, is separate property, even if used for partnership purposes.
50
Real Property
Any estate in real property may be acquired in the partnership name. This is a departure from common law, which did not allow real estate to be held in a partnership name. However, RUPA does not require that title be taken in the partnership name (as long as it was purchased with partnership funds, it is presumed to be partnership property even if held in one partner's name).
51
Conveyance of Real Property
Title in Name of Partnership
If title to real property is in the partnership name, any partner may convey title by a conveyance executed in the partnership name.
52
Title in Name of Third Persons
If title is in the name of one or more third persons (e.g., in trust for the partnership), without an indication (in the instrument transferring the property to the third person) of their capacity or of the existence of a partnership, the property may be transferred by an instrument of transfer executed by the persons in whose name the property is held.
53
DISSOCIATION, DISSOLUTION, AND WINDING UP
54
Title in Name of One or More Partners
If title to real property is in the name of one or more of the partners, with an indication of their capacity as partners or of the existence of the partnership, but the record does not disclose the name of the partnership, the partners in whose name the title stands may convey title to the property.
55
Dissociation
Dissociation is the withdrawal of a partner from the partnership.
56
Events of Dissociation
• A partner is dissociated from a partnership upon the occurrence of any of the following:
1. the express intention partnership having notice of the partner's express intention to withdraw as a partner;
2. an event delineated in the partnership agreement as causing the partner's dissociation;
3. the partner's expulsion pursuant to the partnership agreement;
4. the partner's expulsion by a unanimous vote of the other partners for specific reasons;
5. a judicial determination, after application to the court by the partnership or another partner for specific reasons
(6)the partner's bankruptcy or other financial insolvency;
(7)the partner's incapacity or death;
in the case of a partner that is a trust or trustee, the distribution of the trust's entire transferable interest in the partnership;
(9)in the case of a partner that is an estate or representative of an estate, distribution of the entire transferable interest in the partnership; or
(10) the termination of a partner who is not an individual, partnership, corporation, trust, or estate.
57
Power to Dissociate
• A partner has the power to dissociate at any time, rightfully or wrongfully, by expressly stating the intention to do so.
58
Wrongful Dissociation
• In the event of a willful dissociation, a partner's action is wrongful only if:
(1) it is in breach of an express provision of the partnership agreement; or (2)
in the case of a partnership for a definite term or particular undertaking, it occurs before the expiration of the term or the completion of the undertaking by virtue of:
(a) a partner's express will to withdraw, unless the withdrawal follows within 90 days after another partner's dissociation by death, bankruptcy or insolvency, incapacity, distribution by a trust or estate that is a partner of such trust or estate's entire transferable interest in the partnership, or termination of a partner who is not an individual, partnership, corporation, trust, or estate;
the partner's expulsion following judicial determination;
the partner's dissociation by becoming a debtor in bankruptcy; or
in the case of a partner who is not an individual, trust, or estate, the partner is expelled or otherwise dissociated because the partnership willfully dissolved or terminated.
59
Wrongful Dissociation Liability
• A partner who wrongfully dissociates is liable to the partnership and the other partners for damages caused by the dissociation. This liability is in addition to any other obligation the partner has to the partnership or to the other partners.
60
Effect of Dissociation on Rights and Duties of Dissociating Partner
Upon a partner's dissociation, that partner's:
(1) right to participate in the management and conduct of the partnership business terminates;
(2)
duty of loyalty for future events terminates; and
(3) duty of loyalty and duty of care continue only with regard to matters that arose before the partner's dissociation.
Under older versions of RUPA, the withdrawal of a partner resulted in dissolution of the partnership.
61
Dissociated Partner's Power to Bind Partnership
For two years after a partner dissociates without resulting in a dissolution and winding up of the partnership business, the partnership is bound by an act of the dissociated partner that would have bound the partnership before dissociation only if, at the time of entering into the transaction, the other party:
(1)
reasonably believed that the dissociated partner was then a partner; and
(2) is deemed not to have knowledge or notice of the dissociation.
62
Dissociation Liability
If the partnership becomes liable for any obligation that the dissociated partner incurs after dissociation, then the dissociated partner will be liable to the partnership for such damages.
63
Dissolution and Winding Up
* Dissolution is the commencement of the winding up process.
* Winding up is the process of settling partnership affairs.
* Termination is the point at which all the partnership affairs are wound up.
64
Mandatory Dissolution
• Dissolution is caused by:
1. the express will of any partner in a partnership at will;
2. termination of the definite term or particular undertaking specified in the partnership agreement:
3. at least half of the remaining partners agree to wind up the partnership business within 90 days after a partner's dissociation by death, bankruptcy or insolvency, incapacity, distribution of all of a trust or estate in the partnership (where the partner is the trust or estate), or termination of a partner that is not an individual, partnership, corporation, trust, or estate; or
(4)
an event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on.
65
Permissive Dissolution
* A partnership can be dissolved at any time by unanimous consent, regardless of any duration specified in the partnership agreement.
* A partnership can also be dissolved on application by a partner or a transferee of a partner's transferable interest, by a judicial determination stating the circumstances render dissolution equitable.
66
Continuance After Dissolution
• A partnership continues after dissolution only for the purpose of winding up the business. The partnership is terminated when the winding up of its business is complete.
67
Effect of Dissolution on Authority of Partner
As to Third Parties
A partnership is bound by a partner's act after dissolution that:
(1) is appropriate for winding up the partnership business; or (2)
would have bound the partnership before dissolution, if the other party did not have notice of the dissolution.
RUPA allows a partner who has not wrongfully dissociated to file a statement of dissolution with the appropriate state agency stating the name of the partnership and that the partnership has dissolved and is winding up its business. A person not a partner is deemed to have notice of the dissolution and limitation on the partners' authority 90 days after the statement of dissolution has been filed
68
As to Co-Partners
* After dissolution, a partner is liable to the other partners for his share of any partnership liability
incurred following dissolution.
* A partner who knows of the dissolution, and incurs a partnership liability by an act that is not appropriate for winding up the partnership business, is liable to the partnership for any damage caused to the partnership arising from the liability.
69
Right to Wind Up
* Generally all the partners who have not wrongfully dissociated (or the legal representative of the last surviving partner) may participate in winding up the partnership's affairs.
* Any partner, his legal representative, or his assignee, upon cause shown, may seek from a court judicial supervision of the winding up.
70
Powers and Duties in Winding Up
A partner winding up a partnership may:
1. preserve the partnership business or property as a going concern for a reasonable time;
2. prosecute and defend actions and proceedings (whether civil, criminal, or administrative);
3) settle and close the partnership's business;
(4) dispose of and transfer the partnership's property;
(5) discharge the partnership's liabilities;
distribute the assets of the partnership;
settle disputes by mediation or arbitration; and
perform other necessary acts.
During winding-up, partners who participate in the winding up continue to have a fiduciary relationship to the partnership and the other partners.
71
Order of Distribution
In winding up the business, the assets of the partnership must be paid in the following order:
(1) first, those owing to creditors (including partners who are creditors, to the extent permitted by law); and
(2)second, those owing to partners (in accordance with their distribution rights).
72
Settlement of Accounts
Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business, Profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners accounts, and the partnership must then make a distribution to each partner in an amount equal to the excess of the credits over the charges in such partner's account.
73
Contribution
Liabilities are satisfied first out of partnership property; if this is insufficient, the partners must contribute the amount necessary to satisfy the liabilities.
74
Limited Liability Partnership
* A limited liability partnership ("LL") is a general partnership that is authorized by a state statute and complies therewith to adopt limited liability for its general partners.
* When a general partnership registers as an LLP, all the partners gain protection from lability for negligence and the negligence of those they supervise.
obligations of the partnership and of other partners, although they remain liable for their own
75
Formation- LLP
* The name of a registered limited liability partnership must contain the words Registered Limited Liability Partnership" or "Limited Liability Partnership," or the abbreviations "L.L.P.* "LLP;""R.L.L.P," or "RLLP."
* In order to become a limited liability partnership, a general partnership must file a registration with the Secretary of State executed by one or more partners. The filed statement provides notice that the partnership is a registered limited liability partnership.
* A general partnership may convert to a limited liability partnership if approved by the affirmative vote or consent necessary to amend the partnership agreement except, in the case of a partnership agreement that expressly addresses obligations to contribute to the partnership, the affirmative vote or consent necessary to amend those provisions.
76
Rights, Duties, and Obligations of Partners- LLP
Partners in an LLP have the same fiduciary duties as partners in a general partnership.
77
Liabilities- LLP
Partners in an LLP are not personally liable for the obligations of the LLP, whether arising from tort, contract, or otherwise, and are personally liable only for their own wrongful acts.
78
Distributions - LLP
An LLP may not make a distribution if, after the distribution, it would not be able to pay its debts, or if the LLP's total assets would be less than the sum of its total liabilities and the amount the LLP would need if it were dissolved to satisfy superior rights of certain partners.
79
Dissolution -LLP
Dissolution of an LLP occurs in the same manner as for general partnerships under RUPA.
80
Uniform Limited Partnership Act
There are several versions of the Uniform Limited Partnership Act ("ULPA"). Most states still follow the 1976 or 1985 Act. Approximately 13 states have adopted the 2001 version.
81
Creation of Limited Partnerships
A limited partnership is a partnership formed by two or more persons having one or more general partners and one or more limited partners.
A general partner manages the business and is personally liable without limitation for partnership obligations A limited partner contributes capital and share in profts, but takes no part in the control or management of the business; a limited partner's liability is limited to his or her contributions.
82
Formation- Limited Partnerships
A limited partnership is formed by executing and filing with the Secretary of State a certificate of
limited partnership, setting forth:
(1) the name of the limited partnership, which must contain the words "limited partnership" or the
abbreviations "LP" or "L.P.";
(2) the address of the designated office, and the name and address of the initial agent for service
(3)the name and address of each general partner;
(4)whether the limited partnership is a limited liability partnership; and
(5)any additional information otherwise required upon merger or conversion.
83
Limited Liability Limited Partnerships
* A limited liability limited partnership ("LLLP") is limited partnership whose certificate of limited partnership states that it is a limited liability limited partnership. In an LLLP, general partners, as well as limited partners, have limited liability.
* The name of an LLLP must contain the words "limited liability limited partnership" or the abbreviation "LLLP" or "L.L.L.P."
84
Doing Business - Limited Partnerships
* A limited partnership may carry on any business that a general partnership is allowed to carry on—i.e., for any lawful purpose.
* A limited partnership must continuously maintain an office and a resident agent for the service of process in the state where it is organized.
* The limited partnership must maintain and make available for inspection and copying by any partner during business hours:
(1) a current list of the names and addresses of all partners;
(2) copies of the certificate of limited partnership and the partnership agreement with any amendments thereto; and
(3) copies of all income tax returns and financial statements for the immediately preceding three years.
Except as provided in the partnership agreement, a partner may lend money to and transact other business with the limited partnership, and has the same rights as a general creditor in the case of an unsecured loan.
85
Contributions - Limited Partnerships
Under ULPA, a limited partner may contribute cash, property, services, or a promissory note. A perform personally,
partner's obligation to contribute is not excused by the partner's death, disability, or other inability d If the partner fails to contribute property or services. he must oay the cash value of property or services at the option of the partnership, unless the partnership certificate provides otherwise.
The obligation of a partner to make a contribution (or to return money or other property paid or distributed in violation of the Act) may be compromised only by consent of all partners.
However, a creditor of a limited partnership that extends credit or otherwise acts in reliance on an obligation by a partner to make a contribution, without notice of any compromise by all partners, may enforce the original obligation.
86
Use of Limited Partner's Name
The name of the limited partnership may contain the name of any partner.
87
Control of Business - Limited Partnerships
A limited partner is not personally liable for partnership obligations beyond his contribution solely by reason of being a limited partner, even if he participates in the management and control of the limited partnership.
Under pre-2001 versions of ULPA, a limited partner could become personally liable for partnership obligations if he participated in the control of the business.
The 1976, and later the 1985, versions of ULPA added a safe harbor list of activities that did not constitute participating in control and limited liability to those who reasonably believed the limited partner was a general partner.
88
Mistaken Status - Limited Partnerships
A person who erroneously, but in good faith, believes himself to be a limited partner is not liable as a general partner if, on learning of his mistake, he:
1. causes an amended certificate of limited partnership to be executed and filed; and
2. withdraws from future equity participation in the enterprise.
He is liable as a general partner, however, to any third party who has transacted business with the enterprise prior to his withdrawal and filing of the amendment, if the third party believed in good faith that he was a general partner.
89
Right to Information -Limited Partners
A limited partner has the right to inspect and copy partnership records and tax returns. A limited partner also has the right to obtain from the general partners from time to time upon reasonable demand:
(1) true and full information as to the financial condition and state of the business of the partnership; and
(2) such other information as is just and reasonable, if the limited partner seeks the information for a purpose reasonably related to the partner's interest as a limited partner.
90
Control of Limited Partnership
A limited partner does not have the right or power to act for or bind the limited partnership.
91
New Limited Partners
A person becomes a limited partner:
(1)as provided in the partnership agreement;
(2)as the result of a conversion or merger; or
(3)with the consent of all the partners.
92
Fiduciary Duties - Limited Partnerships
* A limited partner does not have any fiduciary duty to the limited partnership or to any partner solely because he is a limited partner.
* A limited partner must discharge the duties of the partnership and the other partners under the Act and under the partnership agreement. and exercise any rights consistent with the obligation of good faith and fair dealing. This obligation is not violated merely because the limited partner's conduct furthers his own interest.
93
General Partners - Limited Partnerships
* A general partner in a limited partnership has most of the same rights and powers and is subject to the same restrictions and liabilities as a partner in a general partnership.
* A person becomes a general partner:
1. as provided in the partnership agreement;
2. by the consent of the limited partners following the dissociation of a limited partnership's last general partner in order to prevent dissolution of the partnership;
3. as a result of a conversion or merger; or
4. with the consent of all the partners.
A person may be both a general partner and a limited partner simultaneously, with the rights, powers. and restrictions of a general partner, but, with respect to his contribution, the rights of a limited partner.
94
Personal Property - Transfer of Partnership Interests
* A partnership interest is personal property and is generally transferable.
* A transfer does not dissolve a limited partnership, but a transferee is entitled only to receive the distributions to which his transferor would have been entitled.
A transferor is not released from liability for any knowing false statement in the certificate, or from liability for promised contributions.
95
Excutors, Administrators, and Creditors
* The legal representative of a deceased or incompetent partner may exercise all of that partner's rights, including the power to make a transferee a limited partner.
* A judgment creditor of a partner can obtain a charging order against a partner's interest, and to that extent will be a transferee of the interest.
96
Distributions - Limited Partnerships
Distributions of assets are allocated among the parties on the basis of the value of each partner's contribution. Regardless of the nature of his contribution, a partner has no right to receive his distribution in any form other than cash.
A partner does not have a right to any distribution before the dissolution and winding up of the limited partnership unless the limited partnership decides to make an interim distribution.
• A partner has no right to receive a distribution upon dissociation.
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Dissociation - Limited Partnerships
A limited partner may withdraw at the time, or upon the happening of the events specified in writing in the partnership agreement, provided that a limited partner may not withdraw prior to dissolution and winding up of the limited partnership.
Upon dissociation, the limited partner has no further rights in the limited partnership. However, dissociation as a limited partner does not discharge the person from any obligation to the limited partnership or to the other partners that incurred while a limited partner.
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General Partners - Limited Partnerships
* A general partner may withdraw by voluntary act at any time, rightfully or wrongfully by giving written notice to the other partners.
* A person ceases to be a general partner of a limited partnership upon the occurrence of any of the following events, most of which are the same as for the dissociation of a limited partner:
(1) the partner's voluntary withdrawal;
(2)an event agreed to in the partnership agreement;
(3)being removed in accordance with the partnership agreement;
(4)being removed by unanimous consent of the other partners;
5. being removed by judicial order;
6. death;
(7) distribution of the trust or estate's transferable interest (if the person is a trust or trustee, or an estate or representation of an estate);
(8) the termination of a partner that is not a natural person, trust, partnership, corporation, estate, or limited liability company; or
(9) the limited partnership's participation in conversion or merger.
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Wrongful Dissociation - Limited Partnerships
A dissociation is wrongful if:
(1) it is in breach of an express provision of the partnership agreement; or (2)
it occurs before the termination of the limited partnership, and:
(a)the person withdraws as a general partner by express will;
(b)the person is expelled as a general partner by judicial determination;
(c)the person is dissociated as a general partner by becoming a debtor in bankruptcy; or
(d)in the case of a person who is not an individual, trust, or estate, the person is expelled or otherwise dissociated as a general partner because the limited partnership was willfully dissolved or terminated.
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Effect of Dissociation -Limited Partnerships
Upon dissociation, the general partner's right to participate in management and conduct of the partnership s activities terminates, but obligations incurred while a general partner do not necessarily terminate.
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Events of Dissolution - Limited Partnerships
* A limited partnership is dissolved
(*) upon the occurrence of the events specified in the certificate; or (2)
upon the written consent of all general partners and limited partners owning a majority of the rights to recelve distributions as limited partners at the time the consent is to be effective.
* Dissolution will also occur automatically after the dissociation of a person as a general partner:
(1) If there Is at least one remaining general partner, consent to dissolve the limited partnership is given within 90 days after the dissociation by partners owning a majority of distribution nighis al the time of consent; or
(2) A thore are no remaining general partners, 90 days after the dissociation (unless before the end of the 90-day period):
(a) the limited partners owning a majority of distribution rights as limited partners consent to continue the activities of the limited partnership and admit at least one general partner;
(B) and at least one person is admitted as a general partner.
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Winding Up
Upon dissolution the peneral perters who have net wronghlly disactved the parthership (or, a name, then the amed partnent) may wind up partnership affairs.
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Priority of Liabilities Upon Dissolution - Limited Partnerships
In winding up a limited partnership’s activities, the assets of the limited partnership, including contributions required upon winding up, must be applied in the following order
(1) first, the assets must be applied to satisfy obligations to creditors, including partners that are creditors, and
(2) second, any surplus remaining must be paid in cash as a distribution.
• If limited partnership's assets are insufficient to satisfy all of its obligations upon winding up, each person who was a general partner when the obligation was incurred and was not otherwise released from the obligation must contribute to the limited partnership in proportion to his right to recieve distribution at the time the obligation was incurred.
If any person does not contribute the amount required, the other general partners required to make a payment must contribute the additional amount needed in proportion to their right to receive distributions at the time the obligation was incurred.
