PowerPoint Slides to Accompany
BUSINESS LAW
E-Commerce and Digital Law
International Law and Ethics
5th Edition
by Henry R. Cheeseman
Chapter 33
Limited Partnerships and
Limited Liability
Partnerships
Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA
Copyright © 2004 by Prentice-Hall. All rights reserved.
Entrepreneurial Forms of Conducting Business
Sole
Proprietorship
General
Partnership
Limited
Partnership
Limited Liability
Partnership
Corporation
Limited Liability
Company
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33 - 2
Limited Partnership

A type of partnership that has two types of
partners:
General Partners – who invest capital,
manage the business, and are personally
liable for partnership debts.
 Limited Partners – who invest capital but do
not participate in management and are not
personally liable for partnership debts beyond
their capital contribution.

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33 - 3
Limited Partnership (continued)
Debt or obligation
owed
Limited
Partnership
Third Party
Capital investment
Limited
Partner
Limited
Partner
Liability limited to capital
contribution
No personal liability for partnership’s
debts and obligations
General
Partner
General
Partner
Personal liability for partnership’s
debts and obligations
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33 - 4
Limited Partnership (continued)
A limited partnership must have at least one
general partner and one limited partner.
 There are no restrictions on the number of
general or limited partners allowed in a
limited partnership.
 Any person may be a general or limited
partner.

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33 - 5
The Revised Uniform Limited Partnership
Act (RULPA) 1 of 2

Uniform Limited Partnership Act (ULPA)
Promulgated in 1916
 Contained a uniform set of provisions for the
formation, operation, and dissolution of limited
partnerships
 Most states originally enacted this law

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33 - 6
The Revised Uniform Limited Partnership
Act (RULPA) 2 of 2

Revised Uniform Limited Partnership Act
(RULPA)
A 1976 revision of the ULPA
 Provides a more modern comprehensive law
for the formation, operation, and dissolution of
limited partnerships
 A majority of states have adopted the RULPA

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33 - 7
A Corporation as the Sole General Partner

The RULPA permits a corporation to be the
sole general partner of a limited
partnership.

Shareholders of corporations are liable only
up to their capital contributions.
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33 - 8
Formation of Limited Partnerships
The creation of limited partnerships is formal
and requires public disclosure.
 The entity must comply with the statutory
requirements of the RULPA or other state
statute.
 Certificate of Limited Partnership – a
document that two or more persons must
execute and sign that makes the limited
partnership legal and binding.

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33 - 9
Formation of Limited Partnerships (continued)
Certificate of Amendment – a document
that keeps the certificate of limited
partnership current.
 Limited Partnership Agreement – a
document that sets forth:

The rights and duties of the general and
limited partners; and
 The terms and conditions regarding the
operation, dissolution, and termination of the
limited partnership.

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33 - 10
Formation of Limited Partnerships (continued)
Defective Formation – occurs when:
1. A certificate of limited partnership is not
properly filed,
2. There are defects in a certificate that is
filed, or
3. Some other statutory requirement for the
creation of a limited partnership is not met.
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33 - 11
Formation of Limited Partnerships (continued)

Domestic Limited Partnership – A limited
partnership in the state in which it is formed.

Foreign Limited Partnership – A limited
partnership in all other states than the one in
which it was formed.
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33 - 12
Formation of Limited Partnerships (continued)
Under the RULPA, the law of the state in
which the entity is organized governs its
organization, its internal affairs, and the
liability of its limited partners.
 Certificate of Registration – A document
permitting a foreign limited partnership to
transact business in a foreign state.

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33 - 13
Federal Income Tax Liability of a Limited
Partnership
Limited partnerships are created according to
statutory requirements.
 They are not separate taxpaying entities for
federal income tax purposes.
 The income and losses from the limited
partnership are reported on the personal
income tax returns of the partners.
 A limited partnership must file an informational return with the IRS.

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33 - 14
Liability of General and Limited Partners
General partners of a limited partnership
have unlimited liability for debts and
obligations of the partnership.
 Limited partners are liable only up to their
capital contributions.


As a trade-off for limited liability, limited
partners give up their right to participate in the
control and management of the limited
partnership.
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33 - 15
Permissible Activities of Limited Partners

Being an:
Agent of the limited partnership
 Employee of the limited partnership
 Contractor of the limited partnership
 General partner


Being a consultant or advisor to a general
partner regarding the limited partnership.
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33 - 16
Permissible Activities of Limited Partners
(continued)
Acting as a surety for the limited partnership.
 Approving or disapproving an amendment to
the limited partnership agreement.
 Voting on certain specific partnership
matters.

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33 - 17
Summary: Liability of Limited Partners
General Rule
Limited partners are not individually liable for the
obligations or conduct of the partnership beyond the
amount of their capital contribution.
Exceptions to the General Rule Limited partners are individually liable for the debt,
obligations, and tortious acts of the partnership in
three situations:
1. Defective Formation
2. Participation in Management
3. Personal Guarantee
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33 - 18
Partners’ Rights in a Limited Partnership

The rights, powers, duties, and responsibilities
of the partners in a limited partnership are
specified in the:
Articles of limited partnership or the certificate
of limited partnership
 State’s limited partnership statute
 Common law

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33 - 19
Partners’ Rights in a Limited Partnership
(continued)
The general partners of a limited partnership
have the same rights, duties, and powers as
partners in a general partnership.
 Other rights of partners:
 Share of profits and losses
 Right to information
 Voting rights
 Admission of new partners
 Withdrawal of partners

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33 - 20
Dissolution of a Limited Partnership
1.
2.
3.
4.
Under the RULPA, the following four events
cause the dissolution of a limited
partnership:
The end of the life of the limited partnership as
specified in the certificate of limited partnership
The written consent of all general and limited
partners
The withdrawal of a general partner
The entry of a decree of judicial dissolution
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33 - 21
Decree of Judicial Dissolution

A decree of dissolution that is granted to a
partner whenever it is not reasonably practical
to carry on the business in conformity with the
limited partnership agreement.
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33 - 22
Winding-Up a Limited Partnership
A limited partnership must wind up its affairs
upon dissolution.
 Upon the dissolution and the commencement
of winding up a limited partnership, a
certificate of cancellation must be filed by the
limited partnership with the secretary of state
of the state in which the limited partnership is
organized.

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33 - 23
Distribution of Assets
After the assets of the limited partnership have
been liquidated, the proceeds must be
distributed.
 The RULPA provides the following order of
distribution of partnership assets:
 Creditors of the limited partnership
 Partners with respect to

 Unpaid
distributions
 Capital contributions
 The remainder of the proceeds
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33 - 24
Limited Liability Partnership (LLP)
A special form of partnership where all
partners are limited partners and there are no
general partners.
 None of the partners is personally liable for
the debts and obligations of the partnership
beyond his or her capital contribution.

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33 - 25
Limited Liability Partnership (LLP)
(continued)
Limited
Liability
Partnership
(LLP)
Debt or obligation
owed
Third Party
Capital investment
Limited
Partner
Limited
Partner
Limited
Partner
Limited
Partner
Liability limited to capital
contribution
No personal liability for partnership’s
debts and obligations
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33 - 26
Limited Liability Partnership (LLP)
(continued)
The LLP is taxed as a partnership.
 Each partner’s share of the income or loss
from the partnership is reported on his or her
individual income tax return.
 The LLP is required to file an informational
income tax return with the IRS.

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33 - 27
Limited Liability Partnership (LLP)
(continued)
LLPs are mainly used by professionals such
as accountants and lawyers.
 Many state laws require LLPs to carry a
minimum of $1 million of liability insurance that
covers negligence, wrongful acts, and
misconduct by partners or employees of the
LLP.
 This requirement guarantees that injured third
parties will have compensation to recover for
their injuries.

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33 - 28
LLP: Articles of Partnership
Must be filed with the secretary of state of
the state in which the LLP is organized.
 The LLP is a domestic LLP in the state in
which it is organized.
 The LLP must register as a foreign LLP in
any other state in which it wants to conduct
business.

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33 - 29