Business Law Chapter 18

Formation of an LP

A limited partnership must have at least one general partner and one limited partner The partners must sign a certificate of limited partnership

Limited Partnership (LP)

A partnership consisting of one or more general partners and one or more limited partners Originated in medieval Europe and have been in existence in the United States since the early 1800s

Member-Managed LLC

All of the members participate in management and decisions are made by majority vote

Flexibility in Taxation

An LLC that has two or more members can choose to be taxed as either a partnership or a corporation An LLC that has only one member cannot be taxed as a partnership

Taxation of LLC

Any unincorporated business with more than one owner is automatically taxed as a partnership; Taxed as a partnership

Distribution of Assets (LP)

Assets are distributed in order of: Creditors' claims Partners and former partners receive unpaid distributions of partnership assets and amounts representing returns of their contributions and amounts proportionate to their shares of the distributions

General Partner

Assumes management responsibility for the partnership and has full responsibility for the partnership and for all its debts

Rights and Duties in an LP

Besides being able to participate in management, limited partners have essentially the same rights as general partners General and limited partners also owe each other a fiduciary duty to exercise good faith in transactions related to the partnership

Limited Partner

Contributes cash or other property and owns an interest in the firm but does not undertake any management responsibilities and is not personally liable for partnership debts beyond the amount of his or her investment

Liabilities of Partners in an LP

General partners are personally liable to the partnership's creditors Limited partners liability is limited to the capital that he or she contributes

Operating Agreement

In a LLC, an agreement in which the members set forth the details of how the business will be managed and operated An LLC's operating agreement can also include provisions governing decision-making procedures Members may also specify in their agreement how voting rights will be apportioned

Articles of Organization Requirements

Include information about: The name of the business (must include the words Limited Liability Company or the initials LLC) Its principal address The name and address of a registered agent The names of the owners Information on how the LLC will be managed

Limited Liability Company (LLC)

Is a hybrid form that combines the limited liability aspects of the corporation and the tax advantages of a partnership

Limited Liability Limited Partnerships (LLLP)

Is a type of a limited partnership that differs from a limited partnership in that a general partner in LLLP has the same liability as the limited partner in a limited partnership The liability of all partners is limited to the amount of their investments in the firm.

Revised Uniform Limited Partnership Act (RULPA)

Is the dominant law governing limited partnerships in the United States

Advantages of LLC

Limited Liability Flexibility in taxation Foreign investors are allowed to become members

Disadvantages of the LLC

State LLC statues are not uniform

Management and Foreign Investors

The LLC form of business is attractive as a way to encourage investment

Dissolution (LLC)

The dissociated member has no right to force the LLC to dissolve In the operating agreement certain events will cause dissolution It can be dissolved by vote

Articles of Organization

The document filed with a designated state official by which a limited liability company is formed

Certificate of Limited Partnership

The document filed with the secretary of state which a limited partnership is formed Requires information such as the name, mailing address, and capital contribution of each general and limited partner

Limited Liability

The liability of members is limited to the amount of their investments

Manager-Managed LLC

The members designate a group of persons to manage the firm (The management group may consist of only members, both members and nonmembers, or only nonmembers) Managers owe fiduciary duties to the LLC and its members

Members

The owners of an LLC

Formation of the LLC

To form a LLC Articles of Organization must be filed with the secretary of state's office

Winding Up (LLC)

To wind up the business, members must collect, liquidate, and distribute the LLC's assets

Management of an LLC

Two types: Member-Managed LLC Manager-Managed LLC

Jurisdictional Requirements

Under the federal jurisdiction statue, a corporation is deemed to be a citizen on the state where it is incorporated and maintains its principal place of business

Distribution of Assets

When all of the LLC's assets have been sold, the proceeds are distributed: To pay off debts to creditors Capital contributions are returned next Any remaining amounts are then distributed to members in equal shares or according to their operating agreement