1. © 2013 Delmar Cengage Learning
CHAPTER 4
LIMITED PARTNERSHIPS
© 2013 Delmar Cengage Learning

2. An Introduction to Limited Partnerships
LIMITED PARTNERSHIPS DEFINED
A limited partnership is a partnership created by statute with one or more general partners and one or more limited partners.
A limited partnership is usually treated as a separate entity, especially when dealing with matters such as real estate ownership and the capacity to sue.
© 2013 Delmar Cengage Learning

3. An Introduction to Limited Partnerships
LAW GOVERNING LIMITED PARTNERSHIPS
State law—usually based on the Revised Uniform Limited Partnership Act with Amendments (RULPA) or the Uniform Limited Partnership Act (2001)
Common law
The limited partnership agreement
© 2013 Delmar Cengage Learning

4. Partners’ Rights and Responsibilities
General partners’ rights and responsibilities
Substantially the same as the rights and responsibilities of those of any partner in a general partnership
Limited partners’ rights and responsibilities
Right to inspect books of limited partnership
Right to vote on extraordinary matters
No right to participate in management of limited partnership business (in most states)
Rights granted by statute or limited partnership agreement
© 2013 Delmar Cengage Learning

5. Partners’ Rights and Responsibilities
THE RELATIONSHIP BETWEEN GENERAL PARTNERS AND LIMITED PARTNERS
Because limited partners generally do not have the
right to participate in the control and management
of the limited partnership, general partners have a
fiduciary duty to the limited partners.
© 2013 Delmar Cengage Learning

6. © 2013 Delmar Cengage Learning
Advantages and Disadvantages of Doing Business as a Limited Partnership
Advantages
Disadvantages
Limited liability for limited partners
Income tax benefits
Transferability of partnership interest
Business continuity
Diversified capital resources
Unlimited liability for general partners
Prohibition on control of business
Formalities, regulatory and reporting requirements
Legal and organizational expenses
© 2013 Delmar Cengage Learning

7. Organization and Management of a Limited Partnership
MANAGEMENT AND CONTROL
Similar to that of a general partnership
In states that follow the RULPA, only the general partners of the limited partnership have control of the partnership business.
© 2013 Delmar Cengage Learning

8. Organization and Management of a Limited Partnership
LIMITED PARTNERSHIP CERTIFICATE
Filed at the state level to form the limited partnership
Amendment filed whenever pertinent information in the limited partnership certificate changes
State statutes require records and documents be maintained for the inspection of limited partners.
Limited Partnership Agreement = entered into by all general and limited partners
© 2013 Delmar Cengage Learning

9. Changes in the Limited Partnership
ADMISSION OF NEW GENERAL PARTNERS
ADMISSION OF NEW LIMITED PARTNERS
In states following the RULPA, general partners may be admitted with the written consent of all partners, or by another means set forth in the limited partnership agreement.
Additional limited partners may be admitted pursuant to the limited partnership agreement or by the written consent of all partners.
© 2013 Delmar Cengage Learning

10. WITHDRAWAL OF GENERAL PARTNERS WITHDRAWAL OF LIMITED PARTNERS
Changes in the Limited Partnership
WITHDRAWAL OF GENERAL PARTNERS
WITHDRAWAL OF LIMITED PARTNERS
At the time of the withdrawal, there is at least one other general partner, and
provisions of the partnership agreement permit the continuance.
The limited partnership is not dissolved upon the death or withdrawal of a limited partner.
A limited partner may generally withdraw at the time specified in the partnership agreement or in another agreement entered into by the partners
© 2013 Delmar Cengage Learning

11. Financial Structure of a Limited Partnership
Partnership capital contributions
Limited partnership profits and losses
Limited partnership distributions
© 2013 Delmar Cengage Learning

12. Financial Structure of a Limited Partnership
LIMITED PARTNERSHIP DISTRIBUTIONS
Profits are reinvested in the limited partnership or disbursed to the partners pursuant to the limited partnership agreement.
The partnership agreement may provide for mandatory distributions to limited partners or give discretion to the general partners.
© 2013 Delmar Cengage Learning

13. Limited Partnership Dissolution, Winding Up, and Termination
As with the general partnership, once a limited partnership has been dissolved, the partnership does not terminate until the affairs of the limited partnership have been wound up.
The affairs of a dissolving limited partnership are typically wound up by a general partner. However, a limited partner may wind up if necessary.
© 2013 Delmar Cengage Learning

14. Cancellation of certificate of limited partnership
Limited Partnership Dissolution, Winding Up, and Termination
Causes of dissolution
State statutes set forth several causes of dissolution of the limited partnership, including withdrawal of the sole general partner.
Cancellation of certificate of limited partnership
The existence of a dissolving limited partnership must be terminated by filing a cancellation of certificate of limited partnership.
© 2013 Delmar Cengage Learning

15. SETTLEMENT AND DISTRIBUTION OF ASSETS
Limited Partnership Dissolution, Winding Up, and Termination
SETTLEMENT AND DISTRIBUTION OF ASSETS
In most states, assets are paid out until exhausted in the following order:
1. To the creditors, including any partners who are creditors
2. To partners, to satisfy any distributions due to them under the partnership agreement
3. To partners, as a return of their contributions
4. To partners, as a proportionate return of their partnership interest
© 2013 Delmar Cengage Learning

16. Derivative Actions and Family-Limited Partnerships
Derivative actions may be brought by a limited partner in the right of the limited partnership to recover a judgment in its favor.
Family-limited partnerships may be formed by families to help pass family assets or businesses from one generation to the next.
© 2013 Delmar Cengage Learning

17. © 2013 Delmar Cengage Learning
The Paralegal’s Role
Research state law concerning requirements for forming a limited partnership
Research possible licensing requirements for the limited partnership business
Research state law concerning the role of limited partners and restrictions on their participation in the management of the limited partnership
Prepare limited partnership certificate
Assist with drafting the limited partnership agreement
Request federal tax identification number and state tax identification number (if required)
© 2013 Delmar Cengage Learning

18. The Paralegal’s Role (Continued)
Prepare and file a certificate of assumed or fictitious name for limited partnership (if applicable)
Establish and organize a method for retaining limited partnership records
Assist with drafting minutes of limited partnership meetings.
Prepare any required amendments to the limited partnership certificate and agreement
Assist with preparation of the limited partnership’s income tax return and Schedule K-1s for the partners
Assist with winding up and dissolution of the limited partnership
© 2013 Delmar Cengage Learning