37. Partnerships and Limited Liability Partnerships

limited partner

In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in the management and operation of the business. The limited partner assumes no liability for partnership debts beyond the capital contributed.

general partner

In a limited partnership, a partner who assumes responsibility for the management of the partnership and liability for all partnership debts.

limited partnership (LP)

A partnership consisting of one or more general partners (who manage the business and are liable to the full extent of their personal assets for debts of the partnership) and one or more limited partners (who contribute only assets and are liable only to the extent of their contributions).

information return

A tax return submitted by a partnership that only reports the income earned by the business. The partnership as an entity does not pay taxes on the income received by the partnership. A partner's profit from the partnership (whether distributed or not) is taxed as individual income to the individual partner.

limited liability partnership (LLP)

A form of partnership that allows professionals to enjoy the tax benefits of a partnership while limiting their personal liability for the malpractice of other partners.

joint liability

Shared liability. In partnership law, partners incur joint liability for partnership obligations and debts. For example, if a third party sues a partner on a partnership debt, the partner has the right to insist that the other partners be sued with him or her.

winding up

The second of two stages involved in the termination of a partnership or corporation. Once the firm is dissolved, it continues to exist legally until the process of winding up all business affairs (collecting and distributing the firm's assets) is complete.

dissociation

The severance of the relationship between a partner and a partnership when the partner ceases to be associated with the carrying on of the partnership business.

partnership by estoppel

A judicially created partnership that may, at the court's discretion, be imposed for purposes of fairness. The court can prevent those who present themselves as partners (but who are not) from escaping liability if a third person relies on an alleged partnership in good faith and is harmed as a result.

family limited liability partnership (FLLP)

A limited liability partnership (LLP) in which the majority of the partners are persons related to each other, essentially as spouses, parents, grandparents, siblings, cousins, nephews, or nieces. A person acting in a fiduciary capacity for persons so related could also be a partner. All of the partners must be natural persons or persons acting in a fiduciary capacity for the benefit of natural persons.

limited liability limited partnership (LLLP)

A type of limited partnership. The difference between a limited partnership and an LLLP is that the liability of the general partner in an LLLP is the same as the liability of the limited partner. That is, the liability of all partners is limited to the amount of their investments in the firm.

articles of partnership

A written agreement that sets forth each partner's rights and obligations with respect to the partnership.

partnership

An agreement by two or more persons to carry on, as co-owners, a business for profit.

pass-through entity

Any entity that does not have its income taxed at the level of that entity; examples are partnerships, S corporations, and limited liability companies.

joint and several liability

In partnership law, a doctrine under which a plaintiff may sue, and collect a judgment from, one or more of the partners separately (severally, or individually) or all of the partners together (jointly). This is true even if one of the partners sued did not participate in, ratify, or know about whatever gave rise to the cause of action.

charging order

In partnership law, an order granted by a court to a judgment creditor that entitles the creditor to attach profits or assets of a partner on dissolution of the partnership.

goodwill

In the business context, the valuable reputation of a business viewed as an intangible asset.

buy-sell agreement

In the context of partnerships, an express agreement made at the time of partnership formation for one or more of the partners to buy out the other or others should the situation warrant—and thus provide for the smooth dissolution of the partnership.

confession of judgment

The act of a debtor in permitting a judgment to be entered against him or her by a creditor, for an agreed sum, without the institution of legal proceedings.

buyout price

The amount payable to a partner on his or her dissociation from a partnership, based on the amount distributable to that partner if the firm were wound up on that date, and offset by any damages for wrongful dissociation.

certificate of limited partnership

The basic document filed with a designated state official by which a limited partnership is formed.

dissolution

The formal disbanding of a partnership or a corporation. It can take place by (1) acts of the partners or, in a corporation, of the shareholders and board of directors; (2) the death of a partner; (3) the expiration of a time period stated in a partnership agreement or a certificate of incorporation; or (4) judicial decree.