15.20 Partnerships, Limited

15.20.1

In General

Limited partnerships are those in which the liability of some, but not all, members is limited. They are formed under laws permitting an individual to contribute a specified sum to the capital of the firm and then, limit his liability for losses to the extent of that amount, provided compliance is had with certain established requirements.

As is case with the UPA (Uniform Partnership Act), the ULPA (Uniform Limited Partnership Act) is now law in almost all United States jurisdictions, with the notable exception of the state of Louisiana, which still recognizes the "partnership in commendam" form.

Although the ULPA is a more complete statement of partnership law than the UPA, it is supplemented, when necessary by the UPA provisions and by common law rules arising from it.

In August 1976, the National Conference of Commissioners on Uniform State Laws approved and recommended, for enactment in all states, the RULPA. A number of states have enacted the RULPA, (Revised Uniform Limited Partnership Act).

15.20.2

Formation And Amendment Of A Limited Partnership

Section 1 of the ULPA defines a limited partnership as "a partnership formed by two or more persons under the provisions of Section 2, and having as members one or more general partners and one or more limited partners."

Section 2 of the ULPA provides that the "limited partnership is formed if there had been substantial compliance in good faith with the requirements of paragraph (1). "These requirements are:"

  • Two or more persons must sign and swear to (or, as in some states, sign and acknowledge) a certificate covering at least the 14 points prescribed therein.

    • Although the ULPA does not refer to a "partnership agreement" or to "articles of partnership", apparently assuming all important matters will be set forth in the certificate, the Comment to Section 104 of the RULPA recognizes that the basic document in a limited partnership is now the partnership agreement.

    • Under the RULPA, the certificate is clearly intended to serve only two functions: (i) to place creditors on notice of the facts concerning the capital of the partnership and the rules regarding additional contributions to and withdrawals from the partnership, and (ii) to clearly delineate the time at which persons become general and limited partners.

  • The certificate must be filed for record in a central recording office where partnerships records are kept.

    • Some states also require publication of the certificate.
    • Section 201 of the RULPA specifically requires filing the certificate in the office of the Secretary of State. By this, RULPA brings limited partnership organizational procedures more generally into line with corporate organizational procedures.

15.20.3

Certificate Requirements Of A Limited Partnership

The 14 points to be contained in the certificate include the following:

  • The partnership name.

    • The ULPA contains no procedure to regulate the use of names, nor does it provide for the reservation of names.
    • The RULPA makes several changes affecting partnership names:

      • Section 102 requires the proper name of a limited partnership to contain, without abbreviation, the words ?limited partnership.?

      • Additionally, Section 102 provides that the partnership name may not be the same as or deceptively similar to any corporation or limited partnership name organized under the state laws or qualified in the state.

      • Section 103 provides a procedure for the registration of names.

The character of the business.

Section 3 of the ULPA permits a limited partnership, with the exception of any specific activities which may be designated by a particular state (generally banking and insurance), to engage in any business which may be carried on by a partnership without limited partners (a general partnership).

  • Locations of the principal place of business.

    • Section 104 of the RULPA requires a limited partnership to have certain minimum contacts with its state of organization (i.e., an office at which the constitutive documents and basic financial information are kept and an agent for service of process).

  • Name and place of residence of each general and limited partner.

    • While the ULPA requires disclosures of the ?place of residence? of each member of the partnership, the RULPA only requires disclosure of the members business addresses.

    • Foreign corporations serving as general or limited partners may have to qualify to do business as foreign corporations depending upon local law.

  • Term of partnership.

    The RULPA does not reflect the ?term of the partnership? as a certificate requirement.

  • Amount of cash and a description and the agreed value of other property contributed by each limited partner.

  • Additional contributions, if any, agreed to be made by each limited partner and the time at which or events on the happening of which they shall be made.

  • The time, if agreed upon, when the contribution of each partner is returned.

  • The share of profits or other compensation by way of income which each limited partner shall receive by way of contribution.

  • The right, if given, of the partners to admit additional limited partners.

  • The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority. If no priorities are set forth, Section 14 of the ULPA provides that all limited partners stand on equal footing.

  • The right, if given, of the remaining general partner or partners to continue the business on the death, retirement or insanity of a general partner.

  • The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.

15.20.4

Effect Of Failure To File The Certificate Of A Limited Partnership--Defective Formation

It is the act of filing or recording the certificate that creates the limited liability. The certificate is a statutory prerequisite to the creation of a limited partnership, and until it is filed, the partnership is not formed as a limited partnership.

Section 2 of the ULPA does not prescribe any time for filing the certificate. Many problems arise when the certificate remains unrecorded prior to the time third parties have any dealings with the partnership. In this respect, court decisions vary in different jurisdictions.

15.20.5

General Partners Of A Limited Partnership

The general conduct and management of the business of a limited partnership denied to limited partners by virtue of Section 7 of the ULPA are vested in the general partners by virtue of Section 9 of the ULPA.

The rights, powers and duties of a general partner are made (with certain additional restrictions) analogous to those of a partner of an ordinary general partnership.

Without the written consent or ratification of the specific act by all of the limited partners, neither a general partner has nor all the general partners have authority to:

  • Do any act in contravention of the certificate.
  • Do any act which would make it impossible to carry on the ordinary business of the partnership.
  • Confess a judgment against the partnership.
  • Possess partnership property, or assign their rights in specific partnership property for other than a partnership purpose.
  • Admit a person as a general partner.
  • Admit a person as a limited partner, unless the right to do so is provided in the certificate.

15.20.6

Real Property Transactions Involving A Limited Partnership

A limited partnership formed under the ULPA may take and convey title to real property under the same rules as a general partnership.

All limited partners should join in the execution of any real estate instrument, unless:

  • There is authority for less than all of them to act (this authority to be set forth in the partnership agreement).

  • The consent of all the limited partners is required by agreement. (This consent, if necessary, should not be expressed by a joinder of the limited partners in executing the documents. To do so might impair the certain immunity the limited partners enjoy if they do not engage in the management of the partnership affairs.)

In the event the limited partnership conveys all, or substantially all, of the assets of the partnership, the consent of all the limited partners should be required.

Except where inconsistencies exist, the provisions of the Uniform Partnership Act are applicable to limited partnerships.

15.20.7

Qualifications Of A Foreign Limited Partnership

The basic question involving foreign limited partnerships is whether a limited partnership, having been properly formed in one state (the master state), is required to qualify in a foreign state in order to recognized as a limited partnership and to have the limited liability status of its limited partners recognized. ULPA makes no provision for the qualification or recognition of foreign limited partnerships.

Some states have adopted either formal legislation or informal administrative procedures in order to qualify foreign limited partnerships to do business in such state. Some other states have enacted with certain modifications Article 9 of the RULPA.

The revised Uniform Limited Partnership Act of 1976 ("RULPA") contains a specific procedure for the registration of foreign limited partnerships:

  • Section 901 of the RULPA provides as follows:

    "Subject to the Constitution of this State, (1) the laws of the state under which a foreign limited partnership is organized govern its organization and internal affairs and the liability of its limited partners, and (2) a foreign limited partnership may not be denied registration by reason of any difference between those laws and the laws of this State."

  • Section 902 requires the foreign limited partnership to file an application for registration as a foreign limited partnership with the Secretary of State. The application must contain the name of the foreign limited partnership, the state and date of its formation, the general character of its business, the name and address of an agent for service of process and certain other information.

  • Section 907 of the Act provides as follows:

    • "A foreign limited partnership transacting business in this State may not maintain any action, suit, or proceeding in any court of this State, until it has registered in this State.

    • "The failure of a foreign limited partnership to register in this State does not impair the validity of any contract or act of the foreign limited partnership or prevent the foreign limited partnership from defending any action, suit, or proceeding in any court of this State.

    • "A limited partner of a foreign limited partnership is not liable as a general partner of the foreign limited partnership solely by reason of having transacted business in this State without registration.

    • "A foreign limited partnership, by transacting business in this State without registration, appoints the Secretary of State as its agent for service of process with respect to [claims for relief] [causes of action] arising out of the transaction of business in this state."