CASL Ch 4 (limited partnership)

disadvantages of Doing Business as a Limited Partnership

- Every limited partnership must have at least one general partner who is personally liable for the debts and obligations of the limited partners. - Limited Partnerships May Be Subject to State Income Tax in Some States - Under most circumstances, limited partners cannot be involved in the management of the limited partnership - Limited partnerships cannot exist until the proper documentation is filed at the state level. In addition limited partnerships may be subject to various reporting requirements that are not imposed on sole proprietorships and general partnerships. - The legal and organizational expenses associated with forming and maintaining a limited partnership are typically considerably greater than those associated with partnerships and sole proprietorships.

several advantages to forming a limited partnership instead of a general partnership or other form of business

- Limited liability for limited partners - Income tax benefits - Relative ease of transferring interest in limited partnership - Continuity of business (pg 130, a limited partners death or incompetency does NOT dissolve the limited partnership. Instead the deceased or incompetent partner's legal representative will continue to have that partner's right to withdraw from the limited partnership and to be compensated for the partnership interest) - Opportunity of diversified capital resources.(the limited partnership has the ability to raise cash by attracting passive investors.)

advantages of doing business as as a Limited Partnership (explained)

- Limited partners have no personal liability for the debts and obligations of the limited partnership - Limited partnerships are not subject to federal income taxation. Income "flows through" to the partners. - Compared with general partnerships, limited partners have much more freedom to transfer their interests in the limited partnership - In contrast to general partnerships and sole proprietorships, the limited partnership offers much more continuity of business. - Unlike sole proprietorships and general partnerships, limited partnerships have the ability to attract passive investors who accept no personal liability for the debts and obligations of the limited partnership.

general partner

- Synonymous with partner. A partner in a general partnership, or limited partnership who typically has unlimited personal liability for the debts and liabilities of the partnership - A member of a general or limited partnership who shares in the profits and losses of the partnership and may participate fully in the management of the partnership. General partners are usually personally liable for the debts and obligations of the partnership.

assets of dissolving a limited partnership must be paid out in the following priority

- To creditors - To partners to satisfy any distributions due to them under the limited partnership agreement - To partners as a return of their contribution - To partners as a return of their partnership interest in the same proportions in which the partners share distributions

disadvantages of doing business as a limited partnership (listed)

- general partners do not usually have limited liability - limited partnerships may be subject to state income tax - prohibition of control of business - formalities and regulatory and reporting requirements - legal and organizational expenses

advantages of doing business as a limited partnership (listed)

- limited liability for partners - income tax benefits - transferability of partnership interests - business continuity - diversified capital resources

Limited partners v. general partners

LIM PART: - must have at least one general partner and may have a number of limited partners - LP's risk only their investment in the limited partnership - LP's may not participate in the control and management of the limited partnership or the will lose their limited liability status - LP's are considered an entity separate from its partners GEN PART: - All partners are general partners - All partners are personably liable for the debts and obligations of the partnership - all partners have an equal right to manage the partnership business - is considered an entity separate from its partners

derivative action

a derivative action is a lawsuit by a limited partner against another person or entity to enforce claims the limited partner thinks the limited partnership has against that person,

limited partner

a partner who invests in a limited partnership, but does not assume personal liability for the debts and obligations of the partnership. Limited partners do not participate in the management of the limited partnership in most states

limited partnership

a partnership formed by general partners (who run the business and have liability for all partnership debts) and limited partners (who partly or fully finance the business, take no part in running it, and have no liability for partnership debts beyond the money they put in or promise to put in).

limited liability limited partnership

a type of limited partnership permissible in some states in which the general partners have less than full liability for the actions of other general partners

when are limited partners liable?

are not personally liable for obligations of the limited partnership even if they participate in the management and control of the limited partnership -

Who may wind up a partnership?

by any general partner not wrongfully causing the dissolution of the limited partnership

limited partnership certificate

document required for filing at the state level to form a limited partnership