1

LIMITED PARTNERSHIPS

(LP)

2

CREATIONLP vs. General Partnership

• 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

• GP– By express or implied

agreement of two or more persons to carry on business as co-owners for profit

3

SHARING PROFITS/LOSSESLP vs. General Partnership

• LP– 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

4

LIABILITYLP vs. General Partnership

• LP– 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

5

CAPITAL CONTRIBUTIONLP vs. General Partnership

• LP– 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

6

MANAGEMENTLP vs. General Partnership

• LP– General Partners

• 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

7

DURATIONLP vs. General Partnership

• LP– 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

8

ASSIGNMENTLP vs. General Partnership

• LP– 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

9

PRIORITIES UPON LIQUIDATIONLP vs. General Partnership

• LP– 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

10

TAXATIONLP vs. General Partnership

• LP– 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

11

LIMITED LIABILITY PARTNERSHIP

(LLP)

12

CREATIONLLP vs. General Partnership

• LLP– 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

13

LIABILITYLLP vs. General Partnership

• LLP– 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

14

OTHER CHARACTERISTICSLP vs. General Partnership

• LP– 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

15

LIMITED LIABILITY COMPANY

(LLC)

16

LIABILITYLLC vs. CORPORATION

• LLC– 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

17

CREATIONLLC vs. CORPORATION

• LLC– 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

18

MANAGEMENTLLC vs. CORPORATION

• LLC– 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

19

DURATIONLLC vs. CORPORATION

• LLC– 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

20

TRANSFERABILITYLLC vs. CORPORATION

• LLC– 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

21

TAXATIONLLC vs. CORPORATION

• LLC– 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

22

OTHER CHARACTERISTICSLLC vs. CORPORATION

• LLC– 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?

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