partnership termination, limited partnerships and LLC's chapter 37

Five choices of LLC

-limited or perpetual (why wouldn't you choose perpetual) -member managed (default) or centralized managed -default is management based on equal vote like partnerships, but may change by agreement - manager management may be centralized or fixed -free transfer ability or limited transfer ability -profits and losses: in MO default is loss and profit -division based on capital contribution but may be changed by agreement -partnership or corporate taxation (partnership is default); S corporation taxation also available

requirements for creation of limited partnership

-must provide required information for certificate of limited partnership, then file it in place specified in statute - MO: filed with secretary of state's office - no existence as and entity for any reason if certificate not issued by the state - if don't have a certificate yet, you have personal liability as ordinary partnership

five rights of limited partners

1. access to partnership books 2. right to an accounting 3. right to participate in dissolution, including selecting a new general partner if the last one withdrew or died 4. right to assign partnership interests, but not management rights of a partner absent agreement 5. receipt of profits when distributions are made by general partners

three acts of partners resulting in dissolution

1. by initial or subsequent agreement 2. by withdrawal of a partner - power, but not right - partnership for a fixed term - right - partnership at will 3. admission of a new partner without consent of others (breach of duty)

three most common causes of dissolution of limited partnership

1. death of a GP 2. bankruptcy of a GP 3. withdrawal of a GP

three types of dissolution by operation of law

1. death of a partner 2. bankruptcy of a partner, or the partnership 3. illegality - ex: illegal liquor partnership - result: no partnership, no accounting

three stages of partnership termination

1. dissolution: ends existence as going concern 2. winding up: liquidation 3. termination: legal existence ends for all purposes

four exceptions to limited partner's protection

1. false statement in certificate of limited partnership - if signed by the LP 2. defective formation: can avoid by renouncing involvement 3. involvement in management with knowledge of third party 4. limited partner's name in firm name

five types of dissolution by decree (happen because of a lawsuit)

1. mental incompetence of a partner 2. permanent incapacity of a partner (disabled from doing job) 3. operation only at loss (impracticality) 4. improper conduct by a partner (gross neglect, failure to return partnership property, violation of "PLANO") 5. dissension B/W (between) partners (deadlock)

three effects of dissolution

1. notice to partners ends actual authority 2. notice to creditors ends apparent authority -actual notice to those who have extended credit to the partnership - publication for others 3. dissolution b/c of a breach changes rights of parties. non-breaching partners may: -sue for damages -buy out breaching partner and continue the business -excluding breaching partner from winding up and get payment for services

six things to consider in a partnership agreement

1. sharing of profits and losses 2. continuation on withdrawal 3. method of purchase on withdrawal (buy-sell agreement) 4. management and method to break deadlocks 5. protection of minority manager: guaranteed term & payment for services 6. statement of purposes

priorities to assets

1. third -party creditors - if there are not enough assets to pay debts? partners are personally liable for partnership debts 2. loans to firm by partners 3. return of capital to partners 4. remainder pro rata as profits or loss

four priorities to partnership assets on dissolution:

1. third party creditors and partner creditors 2. partners owed unpaid profits where there was a past distribution to others 3. return of capital contribution 4. remainder to the partners pro rata as profits contrast with UPA: partners as creditors are equal priority which often means they get nothing

four powers of partners during winding up

1. to complete transactions begun 2. to preserve assets 3. to sell assets 4. to pay debts

Limited Partnerships: comparison with corporations

Disadvantages: - limited partner's limitations: managed by general partners only - taxed on undistributed profits (can remedy by distributing enough to pay tax) - unlimited liability of general partners advantages: -can withdraw income without double tax - can take advantage of (passive) losses without sale - a great form of business for an entrepreneur who wants complete control

Liability of general partner and two ways to avoid the liability

GP personally liable (unlimited) stupid b/c can avoid by: 1. having a corporate general partner 2. having the partnership file as a limited liability limited partnership (LLLP) - LLLP: limited partnerships which register under the LLP statute to allow the general partner to have limited liability - annual registration is required to maintain limited liability

Limited Partnership: definition

a partnership: -formed under limited partnership statute -with one or more general partners and one or more limited partners MO law: RULPA: revised uniform limited partnership act

three categories of dissolution

acts of partners, operation of law and by decree

Winding up

business has ended as a going concern after winding up = termination ( after all debts paid, assets distributed)

consequences of dissolution

ends business as a going concern priorities much different than under UPA

liability of limited partner

general rule: a limited partner is liable only to extent of investment: limited liability for business debts

acts of a limited partner

general rule: acts of a limited partner may generally do not dissolve the company exception: an LP may petition for a decree of dissolution: only if not reasonably practical to carry on business according to the partnership agreement

advantages of LLC

limited liability: an advantage over partnerships and sole proprietorship flexibility: an advantage over all other forms of business organization

limited liability companies terms

not articles of incorporation, but articles of organization not shareholders, but members not stock, but membership interests not bylaws, but an operating agreement must include LLC or equivalent in the company name

filing as a limited liability partnership

ordinary partnership registering as an LLP with the secretary of state requirements and protection: -MO: must register every year failure to register results in unlimited liability