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LIMITED PARTNERSHIPS (LP) 1 1.

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Presentation on theme: "LIMITED PARTNERSHIPS (LP) 1 1."— Presentation transcript:

1 LIMITED PARTNERSHIPS (LP) 1 1

2 CREATION LP vs. General Partnership
GP By express or implied agreement of two or more persons to carry on business as co-owners for profit LP By written agreement (Certificate of Limited Partnership) of two or more persons to carry on business as co-owners for profit Must include one or more general partners and one or more limited partners File Certificate of Limited Partnership with designated state official 2 2

3 SHARING PROFITS/LOSSES LP vs. General Partnership
By provision in Certificate of LP or In absence of such provision in Certificate, profits and losses shared on basis of percentages of capital contributions EXCEPT: Losses are shared by limited partners only up to capital contributions GP By agreement or In absence of agreement, profits are share equally and losses are shared in same proportion as profits 3 3

4 LIABILITY LP vs. General Partnership
Unlimited personal liability for all general partners Limited partners have limited liability---only liable to extent of agreed capital contribution GP Unlimited personal liability for all partners 4 4

5 CAPITAL CONTRIBUTION LP vs. General Partnership
Set by provision in Certificate of LP May be cash, property, services , or any obligation under Revised ULPA, but other statutes may limit to cash and property GP No minimum or mandatory amount Set by agreement 5 5

6 MANAGEMENT LP vs. General Partnership
By agreement or in absence of agreement, all general partners have equal voice Agents of partnership Limited Partners No voice in day-to-day management Subject to liability if participate in day-to-day management Except may vote an amending the Certificate and on sale or dissolution of partnership Not agents of partnership and no fiduciary duty GP Partners have equal voice unless agree otherwise in writing Partners are agents of partnership with fiduciary duty 6 6

7 DURATION LP vs. General Partnership
By provision in Certificate of LP unless dissolved By operation of law General partners ‘ death withdrawal mental incompetence Illegality By illegality By court decree Death, withdraw, etc. of limited partner does not cause termination unless it was the last limited partner GP By agreement unless dissolved By unilateral withdrawal of partner By operation of law death bankruptcy illegality By court decree 7 7

8 ASSIGNMENT LP vs. General Partnership
Same as General Partnership except In addition to consent of all partners , the Certificate of LP must be amended in order to admit assignee as a partner Upon assignment of all interest, the assigning partner ceases to be a partner GP Partner’s interest can be freely assigned Assignee only as right to assigning partners share of profits Assignee does not have rights of a substituted partner ---without consent of all other partners 8 8

9 PRIORITIES UPON LIQUIDATION LP vs. General Partnership
Order of Priority Outside creditors and Partner creditors Partners and former partners entitled to distributions before withdrawal under the Certificate or RULPA Partners in respect to capital contributions Partners in respect to profits GP Order of Priority Outside creditors Partner creditors Partners in respect to capital contributions Partners in respect to profits 9 9

10 TAXATION LP vs. General Partnership
Same as general partnership GP Individual partners are taxed on their share of partnership income even if no cash is actually distributed to them Partnership pays no tax but must file informational return 10 10

11 LIMITED LIABILITY PARTNERSHIP
(LLP) 11 11

12 CREATION LLP vs. General Partnership
Follow procedure set by statute---for example Texas requires File appropriate application form with state official Pay annual fee ($200 per partner) Maintain professional liability insurance ($100,000 minimum) Add tag to firm name (either “L.L.P.” or “Registered Limited-Liability Partnership) GP By express or implied agreement of two or more persons to carry on business as co-owners for profit 12 12

13 LIABILITY LLP vs. General Partnership
Some limit on liability which protects innocent partner from person liability for negligence, wrongful acts or misconduct of other partners Under RUPA(adopted by >half of states): Partners are not personally liable for either tort or contract debts of partnership, Except Partners are liable for own misconduct. GP Unlimited personal liability for all partners 13 13

14 OTHER CHARACTERISTICS LP vs. General Partnership
Generally the same as general partnership in respect to other characteristics although statutes vary somewhat from state to state---and, of course, not all state have passed LLP statutes GP 14 14

15 LIMITED LIABILITY COMPANY
(LLC) 15 15

16 LIABILITY LLC vs. CORPORATION
Owners (Members) have no personal liability beyond their agreed upon capital contribution (like corporate shareholders) CORPORATION Owners (Shareholders) have no personal liability beyond their agreed upon capital contribution 16 16

17 CREATION LLC vs. CORPORATION
Follow statutory procedure which is generally similar to incorporation procedure, except some states require at least two owners (called “members”) CORPORATION Follow statutory procedure Charter (Articles of Incorporation) issued by state 17 17

18 MANAGEMENT LLC vs. CORPORATION
Owners (members) have choice Manage directly (like general partners) or Elect managers (like corporate board of directors) Participation in management does not jeopardize limited liability CORPORATION Centralized Management Owners (Shareholders) have indirect control of corporation through election of directors Directors set corporate policy and appoint officers who manage the day-to-day operation of the corporation Shareholder may also be director or officer without jeopardizing limited liability 18 18

19 DURATION LLC vs. CORPORATION
Some state statutes limit existence to a period of years (20 years for example)---no perpetual life CORPORATION Can have perpetual existence or continuity of life 19 19

20 TRANSFERABILITY LLC vs. CORPORATION
Although state statutes vary, transfer of interest generally resembles that of a partnership CORPORATION Shares of stock can be freely transferred and purchaser acquires all rights of a substituted shareholder Unless restrictions on transfer are provided for in the Articles of Incorporation and noted on stock certificate 20 20

21 TAXATION LLC vs. CORPORATION
Members van elect to be taxed like a partnership (if 2 or more members) or like a corporation If no election they are taxed as partnership CORPORATION Double Taxation Corporation pays income tax on net profits (with no deduction for dividends paid out to shareholders) and Shareholders pay income tax on the disbursed dividends they receive 21 21

22 OTHER CHARACTERISTICS LLC vs. CORPORATION
In most other respects a LLC resembles a corporation---it is treated as an entity or legal “person” For jurisdictional purposes It is a citizen of every state of which its members are citizens CORPORATION An entity Where is a corporation considered a citizen? 22 22

23 How Do You Choose Between LLCs and LLps
Number of participants Liability Considerations Distributions from the firm Management structure Nature of Business Financial and Personal Relationships


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