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Limited Partnerships (LPs).
- A limited partnership is a special type of partnership.
- Requires at least one limited partner and one general partner.
- The limited partner is shielded from liability.
Formation of an LP - Filing.
- To form an LP, one must file a certificate with the state which is signed by all the general partners.
- The filing must include (1) name, (2) designation of LP, (3) in-state address, (4) a statement of duration, and (5) name and address of an in-state agent.
Formation of an LP - Existence.
Once the certificate is filed, the LP comes into existence automatically unless there is a specified date.
Formation of an LP - Estoppel.
- If a certificate of limited partnership is not filed, a person who believes that he is a limited partner will bind third parties who transact with the purported partner when:
- (1) good faith belief that purported partner is a general partner, or
- (2) purported partner knew/should have known that certificate had not been filed.
- A limited partner mistakenly listed as a general partner in the certificate can be exposed to liability if a third party had an actual belief that the partner was a general partner or the partner knew about the mistake.
Formation of an LP - Limited Partners.
- A limited partner is a partner who does not participate in control of the LP.
- The limited partner is not personally liable for the obligations of the LP except when the limited partner participates in control of the LP.
What control isn't
Participating in control does not include (1) being an agent, (2) engaging in consulting, (3) acting as a surety, (4) approving/disapproving amendments to the partnership agreement, or (5) limited voting rights.
Withdrawal of a limited partner
A limited partner can withdraw from the LP with six months written notice or the time specified in the partnership agreement.
Voting rights of a limited partner
Voting rights of the limited partner are defined by the partnership agreement.
- A general partner is a partner who participates in the control of the LP.
- A general partner must be consented to by all general partners and a majority of interests of limited partners.
Withdrawal of a general partner
- A general partner can withdraw from the LP by giving notice.
- A general partner can stop being a partner when (1) he assigns partnership interests, unless permitted by agreement, (2) he is removed by agreement, (3) financial difficulty/bankruptcy, (4) death/incompetence, (5) termination of a partner business entitys status, (6) he files a petition to reorganize/liquidate/dissolve, (7) a partner files a pleading admitting or failing to contest allegations against him, or (8) trustee is appointed for liquidation.
Partner's promise to contribute to the LP
An enforceable right.
Partner's obligation to perform
If a partner is obligated to perform services but cannot due to death/disability, the partner or his estate may have to pay the value of those services to the LP.
Profits, losses and distribution
- Profits/losses allocated based upon contribution unless otherwise agreed upon.
- Distributions allocated based upon profits unless otherwise agreed upon.
Dissolution of an LP.
- (1) occurrence of some event specified in the partnership agreement
- (2) consent of all the partners
- (3) withdrawal of the last general partner
- (4) decree of judicial dissolution when no longer reasonably practical to carry on the business.
Winding Up of an LP.
- Winding up is the wrapping up of the business.
- Generally the responsibility of the general partners unless the only general partner wrongfully dissolved.
- Distributions are made to creditors first, accrued distributions second, contributions third and unaccrued distributions last.
Derivative Action in an LP.
- A limited partner may bring a derivative action on behalf of the limited partnership to force the limited partnership to do or refrain from doing something.
- To bring, the limited partner must make demand which is refused or demonstrate futility, and have standing.
- Recovery goes to the LP, but the limited partner may get reasonable expenses and reasonable attorneys fees.
Standing to Bring LP Derivative Action.
- Must be partner at time of wrongdoing.
- Must be partner at the time of suit, unless terminated by operation of law or by agreement.
Foreign Limited Partnership.
An LP that is out of state must file in MD if conducting business in MD.
Foreign LP's Failure to file
Bar the foreign LP from bringing suit in MD court and subject it to fines and sanctions.