PARTNERSHIP AGREEMENT
FOR
WINKEN, BLINKEN & NOD, LLP1
A COLORADO LIMITED LIABILITY PARTNERSHIP
DATED ____________, 2001
Caution, this Partnership Agreement is intended as an exploration of
some of the effects of registering a partnership as a
registered limited liability partnership under the Colorado Uniform
Partnership Act (1997) (“CUPA”).
Rule 265 requires that the name of the professional company contain the words
“professional company,” “professional corporation,” “limited liability company,”
“limited liability partnership,” or “registered limited liability partnership” or
abbreviations thereof such as “Prof. Co.,” “Prof. Corp.,” “P.C.,” “L.L.C.,” “L.L.P.,” or
“R.L.L.P.” that are authorized by the laws of the State of Colorado or the laws of the
state or jurisdiction of organization. In addition, the name of the professional company
shall always meet the ethical standards established by the Colorado Rules of
Professional Conduct (“CRCP”) for the names of law firms. CRCP Rule 7.5(b) and (d)
dealing with the permissable names for a law firm provide:
1
(b) A lawyer in private practice shall not practice under a
trade name, a name that is misleading as to the identity of
the lawyer or lawyers practicing under such a name, or firm
name containing names other than those of one or more of
the lawyers in the firm; provided, the name of a professional
corporation or professional association may contain "P.C.,"
"L.L.C.," "L.L.P.," "P.A." or similar symbols indicating the
nature of the organization, and a legal clinic which meets all
of the criteria of a legal clinic as defined by these rules may
use "legal clinic" in its name.
(d) A firm may use, or continue to include in its name, the
name or names of one or more deceased or retired members
of the firm or of a predecessor firm in a continuing line of
succession.
AGREEMENT OF PARTNERSHIP
OF
WINKEN, BLINKEN & NOD, LLP,
a Colorado limited liability partnership2
This AGREEMENT (the “Partnership Agreement”) of Limited Liability Partnership of
Winken, Blinken & Nod, LLP (the “Partnership”), is entered into and shall be effective as of the
Effective Date (as hereafter defined) by and among Thomas Winken (“Winken”), Richard
Blinken (“Blinken”) and Harold Nod (“Nod”) (collectively with any other person who becomes a
party to this agreement, the “Partners”) pursuant to the provisions of the Act.
RECITALS
A.
Effective as of the Effective Date, Winken, Blinken, and Nod have agreed to
create and become the partners (the “Partners”) of a partnership to be known as Winken, Blinken
& Nod, LLP (the “Partnership”) in the State; and
B.
Winken, Blinken, and Nod have determined to register the Partnership as a
limited liability partnership effective as of the Effective Date.
Now, therefore, for good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in consideration of the mutual covenants herein contained, the
Partners hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Partnership Agreement, the following definitions3 shall apply:
Section 1.1.
“Act” shall mean the Colorado Uniform Partnership Act (1997).
Section 1.2. “All of the Partners” shall mean all of the Partners at the time that the
action is to be taken.
Section 1.3. “Available Cash” shall mean the amount of cash of the Partnership that is
in excess of the amount determined by the Managing Partner to be necessary for current
This agreement is based on an agreement created by a committee of the American Bar
Association Business Law Section Partnership Committee to address issues which arise under a
partnership statute which conforms to the Revised Uniform Partnership Act (1997) (“RUPA”).
2
None of the defined terms other than “Business,” “Partner,” “Partnership,” and “Partnership
Agreement,” set forth in §§ 1.1 through 1.25 duplicate the defined terms set forth in CUPA § 764-101.
3
expenses of the Partnership and a reserve for capital expenditures and other needs of the
Partnership.
Section 1.4. “Bankruptcy Code” means the federal Bankruptcy Code and the
bankruptcy and insolvency statutes of any state.
Section 1.5 “Breaching Partner” shall have the meaning set forth in Article 17.
Section 1.5.
“Business” shall have the meaning set forth in Article 6.
Section 1.6. “Code shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time.
Section 1.7. “Consent” when applied to an action of the Partners shall mean consent
expressed at a meeting of the Partners, in writing without a meeting, or by some Partners at a
meeting and by some Partners in writing.
Section 1.8. “Capital Account” shall mean each Partner’s capital account as maintained
pursuant to Article 13.
Section 1.9. “Dissociated Partner” shall mean (i) the Partner whose Withdrawal,
Expulsion or other event (other than death or permanent disability resulting in the appointment of
a legal representative) causes his or her Dissociation or (ii) the legal representative of a Partner
whose death or permanent disability has resulted in the Partner’s Dissociation.
Section 1.10. “Dissociation” (“Dissociate”)4 shall mean the Withdrawal, Expulsion,
permanent disability, or death of Partner or any other event that causes a person to cease to be a
Partner.
Section 1.11. “Dissociation Amount” shall mean, in the case of any Dissociated Partner,
the amount in such Partner’s Capital Account determined through the Dissociation Date.5
Section 1.12. “Dissociation Date” shall mean, in the case of any Dissociated Partner,
the date of the event resulting in the Partner’s Dissociation.
Section 1.13 “Effective Date” shall mean the earlier of January 1, 2000 or the date
upon which the registration statement is filed with the Secretary of State.
The term used in CUPA is “Dissociation” [CUPA § 7-64-601], which includes all events
causing a partner to cease to be a partner, as opposed to withdrawal, which, in this Partnership
Agreement, is the voluntary dissociation of a partner.
4
Note that this amount will be dramatically different if capital accounts are “booked up” (i.e.,
revalued at fair market value) on the dissociation of the Partner. If the capital accounts are
revalued, the value of all uncollected accounts receivable as of the date of dissociation will be
included in the capital account. In this agreement, capital accounts are not booked up on
dissociation.
5
Section 1.14. “Expulsion” (“Expel” or “Expelled”) shall mean a Partner’s Dissociation
as provided in Sections 15.3 and 21.1.
Section 1.15. “Expelled Partner” shall mean the Partner who has been Expelled.
Section 1.16. “Indemnified Partner” shall mean each Partner and Dissociated Partner
entitled to indemnification by the Partnership pursuant to Article 20.
Section 1.17. “Majority of the Partners” shall mean more than one half of the Partners
(determined Per Capita) at the time that the action is to be taken.
Section 1.18. “Managing Partner” means Winken and any successor managing partner
appointed by the Partners pursuant to Section 8.2 and 8.3 hereof.
Section 1.19. “Other Partners” has the meaning set forth in Section 12.3.
Section 1.20. “Partner” shall mean each individual executing this agreement as a Partner
or subsequently admitted as a Partner. A Partner may transfer its Partnership Interest to a
corporation, partnership, limited liability company or other business entity so long as: (i) such
entity is wholly owned by such Partner, (ii) such individual agrees that any transfer of any
interest in the entity shall be treated as a transfer of entity’s interest in the Partnership, and (iii)
such Partner personally guarantees the obligation of the entity as a Partner, to the extent such
obligation is guaranteed by the individual partners.
Section 1.21. “Partnership” shall mean Winken, Blinken & Nod, LLP.
Section 1.22. “Partnership Agreement shall mean this partnership agreement of Winken,
Blinken & Nod, LLP.
Section 1.23. “Per Capita” shall mean, with respect to any action or obligation, a
percentage, determined by dividing one by the number of Partners at the time the action is be
taken or the obligation is to be performed.
Section 1.24. “Registration Period” shall mean the period during which the Partnership
is a limited liability partnership within the meaning of the Act.6
Section 1.25. “Retirement Age” shall have the meaning set forth in Section 16.1.
Section 1.26. “Rules” shall mean Colorado Rule of Civil Procedure Rule 265, the
Colorado Rules of Professional Conduct and any other rule adopted by any body charged with
the regulation of the practice of law in any jurisdiction in which the Partnership conducts its
Business as such rules may be changed from time to time.
Because the vicarious liability of the partners is different with respect to obligations incurred
while the partnership is a limited liability partnership, the contribution and indemnification rules
will also be different. CUPA § 7-64-306(3) and (4).
6
Section 1.27. “Secretary of State” shall mean the secretary of state of Colorado.
Section 1.28. “Two-Thirds of the Partners” shall mean 66 % of all the Partners
(determined Per Capita) except that in the case of Expulsion of a Partner, the Partner whose
Expulsion is under consideration shall not be counted in determining the number of all the
Partners.
Section 1.29. “Withdrawal (“Withdraw”) shall mean a Partner’s Dissociation as a result
of the Partner’s act as provided in Section 15.2.
Section 1.30. “Withdrawn Partner” shall mean the Partner whose Withdrawal causes his
or her Dissociation.
ARTICLE 2
NAME AND PLACE OF BUSINESS
Section 2.1
Name. The activities and business of the Partnership shall be conducted
under the name of Winken, Blinken & Nod, LLP, in the City and County of Denver, State of
Colorado and under such variations of this name as may be comply with the Rules and may be
necessary to comply with the laws of other states within which the Partnership may do business.7
Section 2.2
Place of Business. The principal place of business and chief executive
office of the Partnership shall be in the City and County of Denver, State of Colorado, but
additional places of business may be located elsewhere.8
CUPA does not impose requirements upon the names of non-LLP partnerships, although Rule
265 and Rule 7.5 CRPC do. CUPA § 7-64-1003(1)(a) details the suffixes which are required for
an LLP.
7
8
CUPA § 7-64-106 provides:
(1) Except as otherwise provided in subsection (3) of this section,
the law of the jurisdiction under which the in which a partnership
is formed governs governs relations among the partners and
between the partners and the partnership;
(2) A partnership is presumed to have been formed in the
jurisdiction in which it has its chief executive office.
(3) The law of this state governs relations among the partners and
between the partners and the partnership and the liability of
partners for an obligation in a partnership that has filed a
registration statement as a limited liability partnership in this state.
It is important to keep in mind that if the partnership will transact business in any foreign
jurisdiction, especially foreign jurisdictions which provide only a partial liability shield, or in
Section 2.3
Address. The mailing address of the Partnership shall be as follows:
ARTICLE 3
FORMATION, EFFECTIVENESS AND TERM
Section 3.1
Formation of Partnership. The Partners do hereby form a general
9
partnership to be registered as a limited liability partnership10 immediately upon the formation of
the Partnership, all pursuant to the Act.11
Section 3.2
Effectiveness. The Partners agree all provisions of the Partnership
Agreement are considered effective on the Effective Date.12
Section 3.3
Term. The term of the Partnership shall commence upon the Effective
Date and shall continue in existence until terminated pursuant to this Partnership Agreement or
by law.13
jurisdictions which limit the permissible activities of an LLP, special consideration must be
given to conflicts of law issues (e.g. Restatement of Conflicts §§ 307, 298) to ascertain whether
the full liability shield will be respected. In cases of significant ambiguity, the LLP may not be
the most appropriate form of business.
9
No state filing is necessary to form a general partnership.
10
Registration as an LLP requires the filing of a registration statement. CUPA § 7-64-1002.
Under CUPA § 7-64-103(j), the provision that the partnership will be governed by the laws of
the jurisdiction in which the statement of registration is filed (CUPA § 7-64-106(3)) may not be
waived or altered in the partnership agreement.
11
Ordinarily, registering an existing partnership as a limited liability partnership will require an
amendment of the partnership agreement to (1) change the name of the partnership, and (2)
modify any indemnification rights, contribution obligations, and statements of liability that might
be included in the agreement so as to avoid inadvertent waiver of the limited liability provided
by the registration.
12
Certain partnerships are organized for a specific term or for a particular undertaking. CUPA §
7-64-406 addresses the continuation of such partnerships beyond that term or specific
undertaking.
13
ARTICLE 4
AGREEMENT TO BE BOUND
The Partners agree that except as provided in the Partnership Agreement,14 the Act and
the laws of Colorado shall govern the internal affairs of the Partnership including the relationship
of the Partners among themselves and the relationship between the Partners and the Partnership.15
Notwithstanding the foregoing, no provision of this agreement that violates the Rules shall be
enforceable.
ARTICLE 5
REGISTRATION AS A LIMITED LIABILITY PARTNERSHIP
Section 5.1. Agreement to Registration. The Partners agree that the Partnership shall
register as a limited liability partnership under the Act, and authorize the Managing Partner to
execute a registration statement and such other document or documents as may be required in
order to register the Partnership in any jurisdiction which the Managing Partners deem
appropriate.16
Section 5.2. Authorization to Execute Statements. The Partners and each of them
hereby agree that the Partnership shall be a registered limited liability partnership and authorize
any one or more of the Managing Partners or any other Partner or Partners designated by the
14
CUPA § 7-64-103(1) gives the partners broad freedom to order their affairs by agreement:
To the extent the partnership agreement does not otherwise
provide, this article governs relations among the partners and
between the partners and the partnership.
CUPA § 7-64-103 provides that the partners may establish their relationship with each other
and with the partnership by agreement, subject to a few limitations set forth in CUPA § 7-64103(2), may not be altered.
15
CUPA § 7-64-1002(1) requires that the registation of a partnership be approved by the partners
necessary to amend the partnership agreement, or if no such consent is set forth in the
partnership agreement, by the consent of all general partners, which, in the absence of a contrary
provision, means unanimous consent. CUPA § 7-64-1002(1) sets froth the matters required to be
included in a registration statement:
16
(a) The domestic entity name of the limited liability partnership or limited liability
limited
partnership;
(b)
The
address
of
its
chief
executive
office;
(c) If its chief executive office is not located in this state, the address of a registered
office and the name and street address of a registered agent for service of process in this
state;
and
(d) A declaration that it is a limited liability partnership or a limited liability limited
partnership,
as
the
case
may
be.
details the requirements of the Statement of Qualifications.
Managing Partners to execute any registration statement, report or other statement required under
the Act or authorized by the partners, and pay appropriate fees therefore necessary or convenient
to the Partnership’s status as a limited liability partnership if and when so directed by the
Managing Partner.17
ARTICLE 6
BUSINESS AND PURPOSE OF THE PARTNERSHIP
The Partnership is organized solely for the purpose of conducting the practice of law (the
“Business”), as permitted by the laws of the State and permitted by the Rules, the Partnership
shall not engage in any other activity or business. The Partnership shall have the powers to do
such things as are incidental, proper or necessary to the operation of the Business, and to the
carrying out of the objects, purposes, powers and privileges herein granted with respect to the
Business, as well as to exercise all those powers expressly conferred on partnerships organized
under the Act, together with all other rights bestowed upon partnerships generally under the laws
of the State, all with respect to the Business.
ARTICLE 7
OTHER BUSINESS OF THE PARTNERSHIP
The Business of the Partnership shall include holding interests in other partnerships,
limited liability companies, corporations and other business entities engaging in business
activities, but only if unanimously approved by the Partners and permitted by the Rules.
ARTICLE 8
MANAGEMENT OF THE PARTNERSHIP
Section 8.1. Management of the Partnership. The management of the day to day
business of the Partnership shall be vested in the Managing Partner. Except to the extent that this
Partnership Agreement requires that an action is to be taken with the Consent of the Partners, the
Managing Partners shall have the authority to make all decisions and take all actions necessary to
conduct the business of the Partnership.18
CUPA § 7-64-105 details execution requirements applicable to the filing of “statements”
(defined at CUPA § 7-64-101(29)) by general partnerships/LLPs. Any statement filed by the
partnership must be signed by at least two partners (CUPA § 7-64-105(3)).
17
Under CUPA § 7-64-401(6), each Partner has equal rights in the management and conduct of
the Partnership business. This provision centralizes day-to-day management authority in the
Managing Partner.
18
Section 8.2. Managing Partner. The Managing Partner shall be a Partner who shall be
elected at each annual meeting of the Partners.19
Section 8.3. Removal of Managing Partner. By the Consent of a Majority of Partners,
the Partners may, with or without cause, remove a Managing Partner at any time and name and
appoint a successor Managing Partner.20
ARTICLE 9
MATTERS REQUIRING CONSENT OF PARTNERS
Section 9.1. Items requiring Consent of All of the Partners. The following actions may
not be taken without the Consent of All of the Partners:
i.
Amendment of the Partnership Agreement;21
ii.
Increase in the principal amount of any indebtedness guaranteed by the
Partners;22
iii.
Mergers with or into other partnerships, corporations, limited liability
companies and other business entities;23 and
The mechanism for electing a managing partner, including the number of votes required,
provisions with respect to whether individual partners vote on a per capital, per capita or other
basis, the term of office and similar matters are open to such modifications as should be desired
by the Partners. The Managing Partner could be a single individual, a committee which is
elected in toto on an annual or other periodic basis, or, as here, a committee with a staggered
membership. In the first year, it may be necessary to elect a committee with individual members
having staggered term expirations.
19
As with the procedures for the election of a Managing Partner, the mechanisms to be used with
respect to the removal of a Managing Partner are open to such provisions as are agreed to by the
Partners. For example, cause or notice followed by opportunity for cure may in some instances
be appropriate.
20
CUPA § 7-64-401(b)(10) provides that an amendment to the Partnership Agreement will
require the consent of all Partners. While it is possible to depart from this rule, as the Partnership
Agreement constitutes the essential bargain between the parties, departing from a rule of
unanimous approval will seldom be appropriate.
21
In certain circumstances, it may be appropriate to set a level above which indebtedness requires
partners’ approval, and approval of increases above that level may be made by a majority or
super-majority, rather than all, partners. The provision of personal liability upon this
indebtedness will impact upon this issue. See section 12.3 hereof.
22
CUPA, unlike the UPL, provides for conversions and mergers of partnerships; the UPL was
silent with respect to the conversion of merger of partnerships. Consequently, under the UPA, in
order to transfer the business of a partnership to another partnership or to another business entity,
23
iv.
Dissolution of the Partnership.24
Section 9.2. Items Requiring Consent of Two-Thirds of the Partners.25 The following
actions may not be taken without the Consent of Two-Thirds of the Partners:
i.
Admission of a new Partner;26
ii.
Waiver of a Partner’s27 obligation to make a capital contribution;
iii.
Admission of a transferee as a Partner28; and
iv.
Expulsion of a Partner.29
Section 9.3. Items Requiring Consent of a Majority of the Partners.30 The following
actions may not be taken without the Consent of a Majority of the Partners:
the transaction had to be structured as an asset transfer. Under CUPA § 7-64-905(3)(a), the
merger of a partnership must be approved by all partners or such differing percentage as is
specified in the partnership agreement for approving a merger.
Under CUPA § 7-64-801(b)(ii), a partnership for a definite term or particular undertaking may
be dissolved upon the express approval of all partners.
24
Note that unless another allocation is provided for in the Partnership Agreement, partners vote
on a per capita (one partner/one vote) basis. CUPA § 7-64-401(b)(10); sections 1.22, 1.26
hereof. The use of two-thirds as a voting threshold for acts which do not require unanimity, but
which should not be left to a simply majority, is not mandated by CUPA, and any threshold
which is negotiated is acceptable. Additional items requiring this higher threshold are a matter
of negotiations in the course of preparation of the Partnership Agreement.
25
Under CUPA § 7-64-401(b)(9), a person may become a Partner only with the consent of all
other Partners. Providing that new Partners be admitted upon the approval of two-thirds of the
Partners is a departure from this provision.
26
CUPA does not contain a provision expressly addressing either the documentation of an
obligation to make a capital contribution or the waiver of such an obligation. The drafter has the
option of providing that the waiver of a contribution obligation shall be by a majority, a
super-majority, or another threshold of the partners.
27
28
See section 15.3 and the comments thereon.
This provision relates to CUPA § 7-64-601(c), which addresses expulsion pursuant to the
partnership agreement. A threshold higher or lower than two-thirds may be utilized. Under
CUPA § 7-64-801, the expulsion of a partner does not lead to the dissolution of the partnership.
29
None of these items is mandated by CUPA, and are the subject of negotiation. The term
“Majority of the Partners” is defined at section 1.17.
30
i.
Except as provided above, creation or expansion of Partnership debt in
excess of $___________;
ii.
Purchase or sale of real estate;
iii.
Entering into or modifying the lease of the Partnership’s space; and
iv.
Establishment of new offices of the Partnership.
ARTICLE 10
MEETINGS AND VOTING31
Section 10.1. Regular Meetings. Regular meetings of the Partners shall be held no less
frequently than quarterly at such time and place determined by the Managing Partners. The first
regular meeting of the Partners each calendar year shall be the annual meeting of the Partners.
Section 10.2. Special Meetings. Special meetings shall be called by the Managing
Partners at the request of any __ (_) or more of the Partners.
Section 10.3. Notice of Meetings. Partners shall be given notice of the meeting, and, to
the extent known, the matters to be discussed at the meeting in writing, by electronic mail, or
verbally, but, except in the case of the annual meeting of the Partners, no defect in notice shall
cause the action taken at such a meeting to be invalid.32
Section 10.4. Election of Managing Partner. In accordance with Section 8.2 hereof, onethird of the Managing Partners shall be elected at the annual meeting of the Partners, with each
CUPA, unlike the Colorado Business Corporation Act (see CRS § 7-107-101 et seq.), does not
contain detailed procedures for calling meetings of the members, rights to call special meetings
and similar matters. The level of detail at which these matters should be addressed in the
partnership agreement will vary with the partnership, its size and the business activity
undertaken.
31
Consider the formality of meetings. Note that partners can consent in writing regardless of
whether a meeting is held (i.e., if there are not enough partners to approve a matter at a meeting,
additional consents may be obtained in writing after the meeting). Because all consents are
determined by reference to all the Partners (rather than a quorum) there is no reason to require a
quorum to conduct business.
32
Partner having one (1) vote for each Managing Partner to be elected. 33 Partners shall be entitled
to vote cumulatively for the Managing Partners.34
Note that partners vote per capita, not per capital. Other methods for allocating voting rights
are permissible.
33
Cumulative voting is not required by or even addressed by RUPA, and there is no mandate that
it be used. If cumulative voting is used in the election of the Managing Partners, consider
whether it should be referenced as well with respect to the removal of the Managing Partners.
34
ARTICLE 11
AUTHORITY OF PARTNERS
No Partner shall have any authority to hold himself or herself out as a general agent of
the Partnership or another Partner in any business or activity other than the Business described in
Articles 6 and 7.35
CUPA § 7-64-301(a) recites the rule that each Partner is an agent of the Partnership for the
purpose of its business, and that each Partner has apparent authority to bind the Partnership with
respect to third parties who do not know or have not received notification that the partner lacks
authority. CUPA § 7-64-301(b) goes on to specify that the act of a Partner not apparently for
carrying on the ordinary business of the Partnership is binding upon the Partnership only to the
extent that the act is authorized by the other Partners.
35
CUPA § 7-64-303 permits a partnership to file a “statement of partnership authority”, as
detailed in Comment 1 thereto, to create:
. . . an optional statement of partnership authority specifying the
names of the partners authorized to execute instruments
transferring real property held in the name of the partnership. It
may also grant supplementary authority to partners, or limit their
authority, to enter into other transactions on behalf of the
partnership. The execution, filing, and recording of statements is
governed by Section 105.
CUPA § 7-64-303 provides:
(a)
A partnership may file a statement of partnership authority,
which:
(1)
must include:
(i)
the name of the partnership;
(ii)
the street address of its chief
executive office and one of office in
this State, if there is one;
(iii)
the names and mailing addresses of
all of the partners or of an agent
appointed and maintained by the
partnership for the purpose of
subsection (b); and
(iv)
the names of the partners authorized
to execute an instrument transferring
real property held in the name of the
partnership; and
(2)
may state the authority, or limitations on the
authority, of some or all of the partners to
enter into other transactions on behalf of the
partnership and any other matter.
(b)
If a statement of partnership authority names an agent, the
agent shall maintain a list of the names and mailing
addresses of all of the partners and make it available to any
person on request for good cause shown.
(c)
If a filed statement of partnership authority is executed
pursuant to Section 105(c) and states the name of the
partnership but does not contain all of the other information
required by subsection (a), the statement nevertheless
operates with respect to a person not a partner as provided
in subsections (d) and (e).
(d)
Except as otherwise provided in subsection (g), a filed
statement of partnership authority supplements the
authority of a partner to enter into transactions on behalf of
the partnership as follows:
(1)
Except for transfers of real property, a grant of
authority contained in a filed statement of
partnership authority is conclusive in favor of a
person who gives value without knowledge to the
contrary, so long as and to the extent that a
limitation on that authority is not then contained in
another file statement. A filed cancellation of a
limitation on authority revives the previous grant of
authority.
(2)
A grant of authority to transfer real property held in
the name of the partnership contained in a certified
copy of a filed statement of partnership authority
recorded in the office for recording transfers of that
real property is conclusive in favor of a person who
gives value without knowledge to the contrary, so
long as and to the extent that a certified copy of a
filed statement containing a limitation on that
authority is not then of record in the office for
recording transfers of that real property. The
recording in the office for recording transfers of that
real property of a certified copy of a filed
ARTICLE 12
PARTNERS’ CONTRIBUTION TO THE PARTNERSHIP GUARANTEE OF PARTNERSHIP
OBLIGATIONS & LIABILITY FOR PARTNERSHIP OBLIGATIONS
Section 12.1. Partners’ Obligation to Contribute in General. Except as expressly set
forth in this Article 12, no Partner or Dissociated Partner shall have any obligation to contribute
to the Partnership. The obligations to contribute as set forth in this Article 12 are solely for the
benefit of the Partners and Dissociated Partners and no creditor or the Partnership or any other
person shall have any right to rely upon or enforce any contribution obligation contained herein.
The Partners reserve the right to amend or waive any contribution obligation of any Partner with
or without consideration at any time.36
Section 12.2. Initial Contributions . Each Partner shall contribute an equal amount of
cash equal to $_________ which represents each Partner’s share of the necessary start up capital
for the Partnership by the Partners.37
cancellation of a limitation on authority revives the
previous grant of authority.
(e)
A person not a partner is deemed to know of a limitation on
the authority of a partner to transfer real property held in
the name of the partnership if a certified copy of the filed
statement containing the limitation on authority is of record
in the office for recording transfers of that real property.
(f)
Except as otherwise provided in subsections (d) and (e) and
Sections 704 and 805, a person not a partner is not deemed
to know of a limitation on the authority of a partner merely
because the limitation is contained in a filed statement.
(g)
Unless earlier canceled, a filed statement of partnership
authority is canceled by operation of law five years after
the date on which the statement, or the most recent
amendment, was filed with the [Secretary of State].
As set forth herein, a vote of only a majority of the partners is required to set aside or
compromise a partner’s contribution obligation. Consideration should be given to whether a
higher threshold is appropriate. If a higher threshold is adopted, consider whether compromise
of a contribution obligation should be included in either of sections 9.1 or 9.2, as appropriate.
36
Note that Schedule 1 provides for a listing of the capital contribution obligations. Of course,
there is no requirement that each partner contribute an equal amount to the partnership. In such a
circumstance, this provision could provide for a schedule listing the partners and their respective
initial capital contributions, as well as such additional amounts that will be contributed and the
events which will give rise to the obligation to make the necessary payment.
37
Section 12.3. Guarantees and Contributions. At the request of the Managing Partner,
each Partner agrees to execute his or her personal guarantee of any indebtedness of the
Partnership not to exceed $_______.38 The Managing Partner shall attempt to structure the
guarantee in such a manner as to require each Partner to only have to guarantee that Partner’s Per
Capita share of the indebtedness. In the event any Partner is required to make any payment with
respect to such indebtedness, the Partnership shall indemnify that Partner for all amounts paid or
incurred with respect to such indebtedness. In the event any Partner (the “Paying Partner”) is
obligated to make a payment in excess of the Paying Partner’s Per Capita share of the
indebtedness, each other Partner (an “Other Partner”) shall be obligated to indemnify the Paying
Partner in an amount equal to the Other Partner’s Per Capita share of the excess of the amount
paid by the Paying Partner over the Paying Partner’s Per Capita share of the indebtedness. This
obligation to contribute shall continue notwithstanding the registration of the Partnership as a
limited liability partnership and notwithstanding Section 12.6 hereof.39
Section 12.4. Contribution to Indemnification with Respect to Obligations Incurred by
the Partnership at a Time Other than During the Registration Period. Each Partner agrees to
contribute an amount equal to that Partner’s Per Capita portion of the excess of (i) the amount
that the Partnership is obligated to pay in Indemnification under Article 20 to an Indemnified
Partner on account of a liability or obligation of the Partnership that was incurred at a time other
than during the Registration Period over (ii) the amount paid or reimbursed to the Indemnified
Partner by the Partnership and under policies of insurance carried by the Partnership.
Section 12.5. Obligation of Partner or Dissociated Partner to Indemnify Partnership.
Any Partner or Dissociated Partner who’s actions have contributed to the creation of a liability or
obligation of the Partnership with respect to which such Partner or Dissociated Partner would not
be entitled to indemnification under Article 20,40 the Partner or Dissociated Partner shall
Under CUPA § 7-64-306(3), obligations incurred by the partnership while it is a LLP are solely
obligations of the partnership, and are not obligations of the individual partners. As such, any
personal guarantee of partnership indebtedness is a contractual waiver of that defense.
38
Contribution among the Partners should be addressed because partners in a limited liability
partnership do not have a default obligation to contribute to the partnership losses as do partners
in an ordinary partnership. In addition, drafters should be cautious if there are obligations to
contribute to the partnership in existence before the registration as a limited liability partnership.
The agreement should clearly state whether the contribution obligation is to survive registration
as an LLP. RUPA (although not CUPA) actually negates pre-existing contribution obligations
unless they are agreed to again at the time of registration.
39
Indemnification among the Partners should be addressed because partners in a limited liability
partnership do not have a default obligation to contribute to the partnership losses as do partners
in an ordinary partnership. In addition, drafters should be cautious if there are obligations to
contribute to the partnership in existence before the registration as a limited liability partnership.
The agreement should clearly state whether the contribution obligation is to survive. RUPA
actually negates pre-existing contribution obligations unless they are agreed to again at the time
of registration.
40
contribute an amount sufficient to indemnify the Partnership against all costs, obligations, and
liabilities of the Partnership arising from such actions (including the obligation to indemnify any
other Indemnified Partner) except to the extent such obligation or liability is paid or reimbursed
under a policy of insurance carried by the Partnership.41
Section 12.6 Liability for Partnership Obligations. Except as specifically provided
herein and to the minimum extent necessary for the Partnership to be in compliance with the
Rules,42 no Partner shall be personally liable or accountable, directly or indirectly (including by
way of indemnification, contribution, assessment or otherwise), for debts, obligations and
liabilities of, or chargeable to, the Partnership, or another Partner or Partners, whether arising in
tort, contract or otherwise, solely by reason of being a Partner or acting (or omitting to act) in
such capacity, which such debts, obligations and liabilities occur, are incurred or are assumed
while the Partnership is a limited liability partnership.43
Note that if the partnership chooses to self-insure, the wrongful partner will have to pay the
entire amount of the obligation (i.e., the contributing partner’s obligation is not reduced by the
amount reserved by the Partnership or funded through a letter of credit).
41
See Rule 265 I.A.4 (providing that the partnership agreement shall provide, and each
of the partners shall agree, that each of them who is a partner at the time of the
commission of any professional act, error, or omission by any of the partners or
employees of the partnership shall be jointly and severally liable to the extent provided
by the Rule 265 for the damages caused by such act, error, or omission; provided,
however, that the partnership agreement may provide that any such partner who has not
directly and actively participated in the act, error, or omission for which liability is
claimed shall not be liable if at the time the act, error, or omission occurs the
partnership has professional liability insurance which meets the certain minimum
standards set forth in the Rule.)
42
43
RUPA § 306(c) provides:
(a)
Except as otherwise provided in subsections (b) and (c), all
partners are liable jointly and severally for all obligations of the
partnership unless otherwise agreed by the claimant or provided by
law.
(b)
A person admitted as a partner into an existing partnership
is not personally liable for any partnership obligation incurred
before the person’s admission as a partner.
(c)
An obligation of a partnership incurred while the
partnership is a limited liability partnership, whether arising in
contract, tort, or otherwise, is solely the obligation of the
partnership. A partner is not personally liable, directly or
indirectly, by way of contribution or otherwise, for such a
partnership obligation solely by reason of being or so acting as a
partner.
This subsection applies notwithstanding anything
inconsistent in the partnership agreement that existed immediately
before the vote required to become a limited liability partnership
under Section 1001(b).
The comments to RUPA § 306 provide:
1.
Section 306(a) changes the UPA rule by imposing joint and
several liability on the partners for all partnership obligations
where the partnership is not a limited liability partnership. Under
UPA Section 15, partners’ liability for torts is joint and several,
while their liability for contracts is joint but not several. About ten
States that have adopted the UPA already provide for joint and
several liability. The UPA reference to “debts and obligations” is
redundant, and no change is intended by RUPA’s reference solely
to “obligations.”
Joint and several liability under RUPA differs, however, from the
classic model, which permits a judgment creditor to proceed
immediately against any of the joint and several judgment debtors.
Generally, Section 307(d) requires the judgment creditor to
exhaust the partnership’s assets before enforcing a judgment
against the separate assets of a partner.
2.
RUPA continues the UPA scheme of liability with respect
to an incoming partner, but states the rule more clearly and simply.
Under Section 306(a), an incoming partner becomes jointly and
severally liable, as a partner, for all partnership obligations, except
as otherwise provided in subsection (b).
That subsection
eliminates an income partner’s personal liability for partnership
obligations incurred before his admission as a partner. In effect, a
new partner has no personal liability to existing creditors of the
partnership, and only his investment in the firm is at risk for the
satisfaction of existing partnership debts. That is presently the rule
under UPA Sections 17 and 41(7), and no substantive change is
intended. As under the UPA, a new partner’s personal assets are at
risk with respect to partnership liabilities incurred after his
admission as a partner.
3.
Subsection (c) alters classic joint and several liability of
general partners for obligations of a partnership that is a limited
liability partnership. Like shareholders of a corporation and
members of a limited liability company, partners of a limited
liability partnership are not personally liable for partnership
obligations incurred while the partnership liability shield is in
place solely because they are partners. As with shareholders of a
corporation and members of a limited liability company, partners
remain personally liable for their personal misconduct.
In cases of partner misconduct, Section 401(c) sets forth a
partnership’s obligation to indemnify the culpable partner where
the partner’s liability was incurred in the ordinary course of the
partnership’s business. When indemnification occurs, the assets of
both the partnership and the culpable partner are available to a
creditor. However, Sections 306(c), 401(b), and 807(b) make clear
that a partner who is not otherwise liable under Section 306(c) is
not obligated to contribute assets to the partnership in excess of
agreed contributions to share the loss with the culpable partner.
(See Comments to Sections 401(b) and 807(b) regarding a slight
variation in the context of priority of payment of partnership
obligations.) Accordingly, Section 306(c) makes clear that an
innocent partner is not personally liable for specified partnership
obligations, directly or indirectly, by way of contribution or
otherwise.
Although the liability shield protections of Section 306(c) may be
modified in part or in full in a partnership agreement (and by way
of private contractual guarantees), the modifications must
constitute an intentional waiver of the liability protections. See
Sections 103(b), 104(a), and 902(b). Since the mere act of filing a
statement of qualification reflects the assumption that the partners
intend to modify the otherwise applicable partner liability rules, the
final sentence of subsection (c) makes clear that the filing negates
inconsistent aspects of the partnership agreement that existed
immediately before the vote to approve becoming a limited
liability partnership. The negation only applies to a partner’s
personal liability for future partnership obligations. The filing
however has no effect as to previously created partner obligations
to the partnership in the form of specific capital contribution
requirements.
Inter se contribution agreements may erode part or all of the effects
of the liability shield. For example, Section 807(f) provides that an
assignee for the benefit of creditors of a partnership or a partner
may enforce a partner’s obligation to contribute to the partnership.
The ultimate effect of such contribution obligations may make
each partner jointly and severally liable for all partnership
obligations - even those incurred while the partnership is a limited
liability partnership. Although the final sentence of subsection (c)
negates such provisions existing before a statement of qualification
is filed, it will have no effect on any amendments to the
partnership agreement after the statement is filed.
The connection between partner status and personal liability for
partnership obligations is severed only with respect to obligations
incurred while the partnership is a limited liability partnership.
Partnership obligations incurred before a partnership becomes a
limited liability partnership or incurred after limited liability
partnership status is revoked or canceled are treated as obligations
of an ordinary partnership. See Sections 1001 (filing), 1003
(revocation), and 1006 (cancellation). Obligations incurred by a
partnership during the period when its statement of qualification is
administratively revoked will be considered as incurred by a
limited liability partnership provided the partnership’s status as
such is reinstated within two years under Section 1003(e). See
Section 1003(f).
When an obligation is incurred is determined by other law. See
Section 104(a). Under that law, and for the limited purpose of
determining when partnership contract obligations are incurred, the
reasonable expectations of creditors and the partners are
paramount. Therefore, partnership obligations under or relating to
a note, contract, or other agreement generally are incurred when
the note, contract, or other agreement is made. Also, an
amendment, modification, extension, or renewal of a note,
contract, or other agreement should not affect or otherwise reset
the time at which a partnership obligation under or relating to that
note, contract, or other agreement is incurred, even as to a claim
that relates to the subject matter of the amendment, modification,
extension, or renewal. A note, contract, or other agreement may
expressly modify these rules and fix the time a partnership
obligation is incurred thereunder.
For the limited purpose of determining when partnership tort
obligations are incurred, a distinction is intended between injury
and the conduct causing that injury. The purpose of the distinction
is to prevent unjust results. Partnership obligations under or
relating to a tort generally are incurred when the tort conduct
occurs rather than at the time of the actual injury or harm. This
interpretation prevents a culpable partnership from engaging in
wrongful conduct and then filing a statement of qualification to
sever the vicarious responsibility of its partners for future injury or
harm caused by conduct that occurred prior to the filing.
Note that liabilities incurred before the partnership became an LLP or after revocation of
that status are treated as obligations of an ordinary partnership. See RUPA §§ 1001, 1003 and
1006. If an LLP registration is administratively resolved, but reinstated within two years (RUPA
§ 1003(e)), liabilities incurred during the period of revocation are treated as obligations of an
LLP.
ARTICLE 13
CAPITAL ACCOUNTS
Section 13.1. Account. An individual Capital Account shall be established and
maintained for each Partner. Each Partner’s Capital Account (a) shall be increased by (i) the
amount of money and fair market value of property contributed to the Partnership and (ii) the
Partner’s allocable share of income and gain allocated pursuant to this Partnership Agreement,
and (b) shall be decreased by (i) the amount of money and fair market value of property
distributed to that Partner and (ii) that Partner’s allocable share of deductions and loss allocated
pursuant to this Partnership Agreement.44 No Partner shall have a deficit Capital Account at the
end of any Partnership year.45
44
Under RUPA § 401(a):
Each partner is deemed to have an account that is:
(1) credited with an amount equal to the money plus the
value of any other property, net of the amount of any liabilities, the
partner contributes to the partnership and the partner’s share of the
partnership profits; and
(2) charged with an amount equal to the money plus the
value of any other property, net of the amount of any liabilities,
distributed by the partnership to the partner and the partner’s share
of the partnership losses.
45
Consider the need for a qualified income offset provision.
Section 13.2. Adjustments to Account. The Capital Accounts of the Partners shall be
increased or decreased to reflect a revaluation of the assets of the Partnership adjusted to reflect
the fair market value of the assets upon the admission of a Partner or the liquidation of the
Partnership. The Capital Accounts shall not be so adjusted on the Dissociation of a Partner. For
purposes of making adjustments pursuant to this Section 13.2, the gross fair market values of
Partnership assets shall be determined as follows: (i) accounts receivable shall be valued at percent (- %) of face amount and (ii) all other assets shall be valued at their respective fair
market values prior to the event causing such adjustment.
ARTICLE 14
SHARING OF DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
Section 14.1. Distribution of Available Cash. The Available Cash of the Partnership
shall be distributed not less frequently than monthly in the proportions determined by the
Managing Partners.46 All Distributions which, when made, exceed the recipient Partner’s basis
in his or her interest in the Partnership shall be considered advances or drawings against the
Partner’s share of taxable income or gain. To the extent it is determined at the end of the
Partnership year that the recipient Partner has not been allocated taxable income or gain that
equals or exceeds the total of such advances or drawings for such Partnership year, such Partner
shall be obligated to recontribute any such advances or drawings to the Partnership.
Notwithstanding the foregoing sentence, a Partner will not be required to recontribute such
advances or drawings to the extent that, on the last day of the Partnership year, such Partner’s
basis in his or her interest in the Partnership has increased from the time of such advance or
drawing.
Section 14.2. Allocations of Losses. Losses, deductions, and credits of the Partnership
shall be allocated to the Partners in proportion to their Capital Accounts.
Section 14.3. Allocations of Profits. Profits, gains, and income of the Partnership shall
be allocated to the Partners:
i.
First, to the Partners who have been allocated losses and deductions of the
Partnership until they have been allocated profits, gain and income equal
to the losses and deductions so allocated;
ii.
Second, to the Partners in the same proportions as Available Cash is
distributed during the same Partnership year.
ARTICLE 15
DISSOCIATION OF PARTNERS
Such mandatory distributions are not mandated by RUPA, and should be the subject of
negotiation. Note that, as drafted, the distribution is not necessarily pro rata or in proportion to
capital accounts.
46
Section 15.1. Effect of Dissociation. The Dissociation47 of a Partner shall neither result
in the dissolution of the Partnership nor require the winding up of the Partnership business,48 and
the rights of the Dissociated Partner and remaining Partners shall be determined under this
Partnership Agreement.
47
“Dissociation” is defined at section 1.10.
As noted in RUPA § 102(a), a partnership is an entity distinct from its partners. This treatment
of the partnership as an entity, rather than an aggregate of its partners, has implications for many
aspects of RUPA, including those dealing with the dissociation of a partner. The official
comment to § 102 states:
48
RUPA embraces the entity theory of the partnership. In light of the
UPA's ambivalence on the nature of partnerships, the explicit
statement provided by subsection (a) is deemed appropriate as an
expression of the increased emphasis on the entity theory as the
dominant model. But see Section 306 (partners' liability joint and
several unless the partnership has filed a statement of qualification
to become a limited liability partnership).
Giving clear expression to the entity nature of a partnership is
intended to allay previous concerns stemming from the aggregate
theory, such as the necessity of a deed to convey title from the
“old” partnership to the “new” partnership every time there is a
change of cast among the partners. Under RUPA, there is no
“new” partnership just because of membership changes. That will
avoid the result in cases such as Fairway Development Co. v. Title
Insurance Co., 621 F. Supp. 120 (N.D. Ohio 1985), which held
that the “new” partnership resulting from a partner's death did not
have standing to enforce a title insurance policy issued to the “old”
partnership.
Subsection (b) makes clear that the explicit entity theory provided
by subsection (a) applies to a partnership both before and after it
files a statement of qualification to become a limited liability
partnership. Thus, just as there is no “new” partnership resulting
from membership changes, the filing of a statement of qualification
does not create a “new” partnership. The filing partnership
continues to be the same partnership entity that existed before the
filing. Similarly, the amendment or cancellation of a statement of
qualification under Section 105(d) or the revocation of a statement
of qualification under Section 1003(c) does not terminate the
partnership and create a “new” partnership. See Section 1003(d).
Accordingly, a partnership remains the same entity regardless of a
filing, cancellation, or revocation of a statement of qualification.
Section 15.2. Withdrawal of a Partner. A partner may withdraw from the Partnership at
any time upon notice in writing, addressed to the Managing Partners.49 Unless otherwise
mutually agreed50 between the Partnership (acting as determined by the Managing Partners) and
the withdrawing Partner, the withdrawing Partner shall cease to be a Partner 51 and shall be
dissociated from the Partnership ninety days after the notice.52
Section 15.3. Expulsion of a Partner. Any Partner may be Expelled upon the Consent of
Two-Thirds of the Partners.53 Such Expulsion shall be effective regardless of whether the
Expelled Partner is given notice of the consideration of the Partner’s Expulsion or whether the
Expulsion is for cause.54 Upon Expulsion, the Partner shall be dissociated from the Partnership.
Section 15.4. Death, Disbarment or Permanent Disability of a Partner or Assignment of
a Partner’s Interest. A Partner shall cease to be a Partner and shall be dissociated from the
Partnership on the Partner’s death, disbarment, permanent disability,55 or upon any purported
assignment of the Partner’s interest in the Partnership whether voluntary, involuntary or by
operation of law.56
A partner may unilaterally dissociate from the partnership under CUPA § 7-64-601(1)(a). The
Partnership Agreement may not vary the power to dissociate except to require that the notice of
intent to dissociate be in writing. CUPA § 7-64-103(2)(f).
49
In this case, because dissociated partners are receiving back only their capital accounts, it is
probably appropriate to avoid taxing them on the amount of the distribution. If amounts in excess
of capital accounts were to be distributed, it might make sense to allocate some payments as
taxable to the dissociating partner and deductible to the partnership under Code § 736(a) and to
agree that the Partner will not take an inconsistent position with respect to the payments.
50
Under CUPA §7-64-704(1), either a dissociating partner or the partnership may file a Statement
of Dissociation. The filing requirements and procedures are set forth at CUPA § 7-64-105.
51
A person who is not a party is deemed to be on notice of the Statement of Dissociation ninety
days after filing. CUPA § 7-64-704(3).
52
Under RUPA § 601(3), a partner may be expelled upon the terms set forth in the partnership
agreement. Under RUPA § 601(4), regardless of other provisions of the partnership agreement,
a partner may be expelled by a unanimous vote of the other partners upon certain events. The
departure from the rules of unanimity is permitted by RUPA § 103(a).
53
Alternatively, the agreement could provide for notice of a basis for expulsion and a cure period,
expulsion only for cause, or other formulas negotiated by the Partners.
54
Under CUPA § 7-64-601(g), the death (§ 7-64-601(g)(I)), appointment of a guardian or
conservator (§ 7-64-601(g)(II)) or judicial determination that “the partner has otherwise become
incapable of performing the partner’s duties under the partnership agreement” (§ 764601(7)(III)) dissociates a partner.
55
This provision is a small departure from RUPA. Under CUPA § 7-64-503(1)(b), the transfer of
a partner’s interest in the partnership “does not by itself cause the partner’s dissociation or a
56
ARTICLE 16
RIGHTS OF DISSOCIATED PARTNERS
Section 16.1. Payments to Deceased Partners, Partners Who Become Permanently
Disabled and Partners Who Dissociate After Retirement Age. Any Dissociated Partner whose
Dissociation is the result of the Dissociated Partner’s death or permanent disability or who
otherwise Dissociates for any reason after reaching Retirement Age, shall be entitled to receive
an amount equal to the Dissociation Amount57 to be paid without interest in four equal
installments, the first to be paid on or before 30 days after the end of the Partnership Year in
which the Dissociation occurs, the remaining payments to be made on or before the first, second
and third anniversaries of the Dissociation Date for the Dissociated Partner.58
Section 16.2. Payments to Other Dissociated Partners. Any Dissociated Partner not
described in subsection 16.1, shall be entitled to receive an amount equal to seventy percent
(70%) of the Dissociation Amount to be paid without interest in ten equal annual installments
commencing on the first anniversary of the Dissociation Date for the Dissociated Partner.59
Section 16.3. Payments Reduced for Amounts Owing from Dissociated Partners. The
payments due to Dissociated Partners under this Article 16 may be reduced for amounts owing
by the Dissociating Partner to Partnership, including any damages owing as a result of any
breach of this Partnership Agreement.60
dissolution and winding up of the partnerhip business.” Under RUPA § 7-64-601(1)(d)(II), upon
the unanimous vote of the partners, a partner who has transferred “all or substantially all of that
partner’s interest in the partnership” is expelled. This provision in effect waives the vote
requirement of RUPA § 7-64-601(d)(II) and directs the expulsion upon the transfer.
57
Defined at section 1.11.
58
Consider issues such as security, priority, a form of promissory note and interest.
The provision that the amount of the payment will be 70% of the Dissociation Amount, that it
will be paid out over ten years, etc., are all matters of agreement among the partners, and are not
mandated by RUPA. A higher or lower percentage of the Dissociation Amount, payment over a
shorter or longer term, and other terms, are matters for negotiation. Matters such as security,
priority, a form of promissory note, etc. should be considered.
59
CUPA § 7-64-602(2) sets forth the events of wrongful dissociation, while CUPA § 7-64-602(3)
provides in part “A partner who wrongfully dissociates is liable to the partnership and to the
other partners for damages caused by the dissociation.” RUPA § 7-64-602(2) provides:
60
A partner's dissociation is wrongful only if:
(a) It is in breach of an express provision of the partnership agreement; or (b) In
the case of a partnership for a definite term or particular undertaking, before the
expiration of the term or the completion of the undertaking:
(I) The partner withdraws by express will, unless the withdrawal follows
within ninety days after another partner's dissociation by death or
Section 16.4. Tax Treatment of Payments to Dissociated Partners. Payments to
Dissociated Partners under this Section 16 shall be treated as paid for the Dissociated Partner’s
interest in Partnership property other than property described in Section 736(b)(2) of the Code.
Section 16.5. Interest in Partnership Assets. No Dissociated Partner shall have any
interest in any accounts receivable, rights of the Partnership to receive or collect cash, or other
assets of the Partnership.
Section 16.6. Rights and Duties of Dissociated Partner Under the Partnership
Agreement . Except with respect to provisions concerning contribution and indemnification and
rights to payments under this Article 16, a Dissociated Partner shall cease to have rights and
duties under this Partnership Agreement as of the Dissociation Date.61
otherwise under section 7-64-601 (1) (f) to (1) (j) or wrongful dissociation
under this subsection (2);
(II) The partner is expelled by judicial determination under section 7-64601 (1) (e);
(III) The partner is dissociated under section 7-64-601 (1) (f); or
(IV) In the case of a partner who is not an individual, trust other than a
business trust, or estate, the partner is expelled or otherwise dissociated
because it willfully dissolved or terminated.
61
Under CUPA § 7-64-603(2)(a), a partner’s right to participate in the management and conduct
of the partnership’s business terminates upon the partner’s dissociation. CUPA § 7-64-603(2)(b)
and (2)(c) detail the impact of dissociation upon a partner’s duties of loyalty and care, providing:
(2)
(b)
(3)
Upon a partner's dissociation:
***
the partner's duty of loyalty under Section 7-64-404(1)(c) terminates; and
the partner's duty of loyalty under Section 7-64-404(1)(a),
(1)(b) and (2) and duty of care under Section 404(c)
continue only with regard to matters arising and events
occurring before the partner's dissociation, unless the
partner participates in winding up the partnership's business
pursuant to Section 7-64-803.
As noted in the commentary to RUPA § 603(c):
Subsection (b)(2) and (3) clarify a partner's fiduciary duties upon
dissociation. No change from current law is intended. With respect
to the duty of loyalty, the Section 404(b)(3) duty not to compete
terminates upon dissociation, and the dissociated partner is free
immediately to engage in a competitive business, without any
further consent. With respect to the partner's remaining loyalty
duties under Section 404(b) and duty of care under Section 404(c),
a withdrawing partner has a continuing duty after dissociation, but
it is limited to matters that arose or events that occurred before the
ARTICLE 17
CONSEQUENCES OF VIOLATION OF COVENANTS
In the event a Partner (a “Breaching Partner”) breaches any provision of this Partnership
Agreement, then, in addition to all other rights and remedies available to the Partnership, the
Breaching Partner shall be liable in damages, without requirement of a prior accounting, to the
Partnership for all costs and liabilities that the Partnership or any Partner may incur as a result of
such breach, including reasonable attorneys fees incurred in connection with the breach and in
connection with recovery of damages from the Breaching Partner.62 The Partnership may apply
any distributions otherwise payable to the Breaching Partner to satisfy any claims it may have
against the Breaching Partner.
ARTICLE 18
DUTIES OF PARTNERS TO THE PARTNERSHIP63
partner dissociated. For example, a partner who leaves a brokerage
firm may immediately compete with the firm for new clients, but
must exercise care in completing on-going client transactions and
must account to the firm for any fees received from the old clients
on account of those transactions. As the last clause makes clear,
there is no contraction of a dissociated partner's duties under
subsection (b)(3) if the partner thereafter participates in the
dissolution and winding up the partnership's business.
Drafters may want to consider additional, more detailed provisions to address post-dissociation
obligations.
CUPA § 7-64-602(2) details what circumstances give rise to a wrongful dissociation, a subset
of the circumstances which could give rise to a claim for damages under this Article 17.
62
This Agreement does not repeat in full the duties of care and loyalty imposed upon partners as
set forth in CUPA § 7-64-404. These duties are subject to only minimal modification. (CUPA §
7-64-103(2)(c) - (e); duty of loyalty and obligation of good faith may not be eliminated, and duty
of care may not be unreasonably reduced). CUPA § 7-64-404 provides:
(1) The duties a partner owes to the partnership and
the other partners, in addition to those established elsewhere
in this article, include the duties to:
63
(a) Account to the partnership and hold as
trustee for it any property, profit, or benefit derived by the
partner in the conduct and winding up of the partnership
business or derived from a use by the partner of partnership
property, including the appropriation of a partnership
opportunity;
Each Partner agrees that he or she will devote substantially full time to the Partnership
Business until he or she Dissociates.64 In addition, each Partner agrees that, prior to Dissociation
he or she shall not compete with the Partnership and that he or she shall offer all matters that
might constitute opportunities for the Partnership to the Partnership.65 After Dissociation, each
(b) Refrain from dealing with the partnership
in the conduct or winding up of the partnership business as
or on behalf of a party having an interest adverse to the
partnership; and
(c) Refrain from competing with the
partnership in the conduct of the partnership business before
the dissolution of the partnership.
(d) Comply with the provisions of the
partnership agreement.
(2) A partner’s duty of care to the partnership and the
other partners in the conduct and winding up of the
partnership business is limited to refraining from engaging
in grossly negligent or reckless conduct, intentional
misconduct, or a knowing violation of law.
(3) A partner shall discharge the duties to the
partnership and the other partners under this [Act] or under
the partnership agreement and exercise any rights
consistently with the obligation of good faith and fair
dealing.
(4) A partner does not violate a duty or obligation
under this [Act] or under the partnership agreement merely
because the partner’s conduct furthers the partner’s own
interest.
A provision such as this requiring the devotion of full time services to the partnership may or
may not be appropriate depending upon the circumstances. For example, in a professional
practice, such a provision would likely be appropriate for most partners. However, a special
provision may need to be made for those in an “of counsel” or similar capacity. In other factual
situations, such as holding rental real estate, such a provision will likely not be appropriate.
64
RUPA § 404(b)(1) requires that a partner, as part of the duty of loyalty, “account to the
partnership and hold as trustee for it any property, profit, or benefit derived by the partner . . .
derived from a use by the partner of a partnership property, including the appropriation of a
partnership opportunity.” Application of the business opportunity doctrine to partnerships, as it
does with all forms of business, will require a facts and circumstances review of that business to
determine its scope, and from there to determine whether an opportunity falls within that scope.
While references to the “business of the partnership” in the partnership agreement (e.g. Article 6
65
Dissociating Partner shall agree to maintain all business information with respect to the
Partnership in confidence, and agrees not to use or disclose any business information, trade
secrets, processes or confidences of the Partnership.66
ARTICLE 19
TITLE TO PROPERTY
All real and personal property shall be owned by the Partnership as an entity. 67 No
Partner shall have any ownership interest in the Partnership property in his or her own individual
name or right.68 Each Partner’s interest in the Partnership shall be personal property for all
purposes.69
hereof) will be the starting point for this analysis, they will not be determinative if a course of
conduct evidences a wider business activity.
A confidentiality provision such as this is not mandated by RUPA. Upon dissociation, a
partner’s duty of loyalty is governed by CUPA § 7-64-602(2).
66
This article repeats the rule of CUPA § 7-64-203. CUPA § 7-64-204 addresses when property
becomes partnership property.
67
68
CUPA § 7-64-501 provides:
A partner is not a co-owner of partnership property and has no
interest in partnership property which can be transferred, either
voluntarily or involuntarily.
As noted in RUPA § 502, a partner’s share of the profit and losses is personal property. It
follows that the balance of the partnership interest (defined at RUPA § 101(9)) is personal
property as well.
69
ARTICLE 20
INDEMNIFICATION
The Partnership shall indemnify each Partner and Dissociated Partner (an “Indemnified
Partner”) with respect to any Partnership debt, obligation or liability of, or chargeable to, the
Partnership or such Indemnified Partner, whether arising in tort, contract or otherwise, which
such debts, obligations and liabilities occur, are incurred or are assumed in the course of the
Partnership’s business and in accordance with the provisions of this Partnership Agreement
while the Partnership is a limited liability partnership. Notwithstanding the foregoing sentence,
no Partner or Dissociated Partner shall be entitled to indemnification hereunder for any
Partnership obligation resulting from the Indemnified Partner’s grossly negligent or reckless
conduct, intentional misconduct, or knowing violation of the law, except to the extent such
obligation or liability is paid or reimbursed under a policy of insurance carried by the
Partnership.70
ARTICLE 21
RESTRICTIONS; NEW PARTNERS
Section 21.1 No Assignment. No Partner shall directly or indirectly sell, transfer,
assign, or encumber such Partner’s interest in the Partnership, nor shall such Partner permit such
interest in the Partnership to be directly or indirectly sold or transferred.71 An attempted sale or
other assignment of a Partner’s interest in the Partnership shall not render the purchaser or
assignee a Partner. Moreover, any sale or assignment of all of a Partner’s interest in the
Partnership shall result in such Partner’s immediate Expulsion as a Partner without further action
by the Partners.72
An alternative, adopted by the UPA, would be to provide for indemnification unless the
obligation resulted from the Indemnified Partner’s grossly negligent or reckless conduct,
intentional misconduct, or knowing violation of law.
70
Under CUPA § 7-64-502, a partner’s share of profits and losses and the right to receive
distributions are transferable. The right to participate in management, as well as other rights
arising from the partner’s interest in the partnership (defined at CUPA § 7-64-101(i)), and not
transferable. Because only lawyers may be partners, this agreement prohibits transfers of any
kind.
71
Note that this provision is applicable only if the Partner transfers all, but not less than all, of the
Partner’s interest; the drafter should consider and address the transfer of less than all of a
partner’s interest. The expulsion of the Partner who has made an impermissible transfer of all
interest in the Partnership serves to prevent the risk of multiple constituency issues, namely a
“partner” with no economic rights, and a transference with no management rights. The
expulsion of the former partner eliminates his/her voice in management and one of the potential
constituencies.
72
Section 21.2 New Partners. No person shall become a Partner of the Partnership except
with the Consent of Two-Thirds of the Partners.73
ARTICLE 22
DISSOLUTION
Section 22.1. Events of Dissolution.74
The Partnership shall be dissolved and its
affairs wound up upon the occurrence of any of the following events:75
(a)
The written consent of the Partners;76
(b)
The sale, transfer or assignment of substantially all of the assets of the
Partnership;
See section 9.2(i) hereof, but not always. The admission of a new partner and the admission of a
transferee give rise to similar considerations as they relate to the question of “who are your
partners” - in either situation, current partners must determine whether the new partner is
compatible with the partnership. The nature of the partnership (e.g., professional practice versus
holding large real estate portfolio) will impact upon the degree of concern with this issue.
73
There is, however, a significant distinction between the admission of a transferee member
and the admission of a new partner, and that is the economics of the transaction. The admission
of a transferee does not alter the relative economic rights of the partners (i.e., no partner’s
percentage share is reduced). The admission of a new partner has an economic impact in that the
percentage interest of each pre-existing partner is reduced.
Under CUPA § 7-64-802(1), a partnership continues after dissolution through a winding up
phase to termination. CUPA § 7-64-802(2) allows a partnership, by a vote of all partners who
have not wrongfully dissociated, to waive the dissolution. If that waiver takes place, winding up
ceases, and “the partnership resumes carrying on its business as if dissolution had never
occurred”. CUPA § 7-64-802(2)(a).
74
Note that CUPA § 7-64-802(2)(b) uses the term “resumes”. The resumption of normal
business activities does not “look back” to the date of dissolution in the same way as RMBCA §
14.02(e), which provides:
When the revocation of dissolution is effective, it relates back to
and takes effect as of the effective date of the dissolution and the
corporation resumes carrying on its business as if dissolution had
never occurred.
75
CUPA § 7-64-801 defines the events triggering the dissolution of a partnership.
76
See section 9.1(iv) hereof.
(c)
(i) The adjudication of the Partnership as insolvent within the meaning of
insolvency in either bankruptcy or equity proceedings; (ii) the filing of an
involuntary petition in bankruptcy against the Partnership (which is not
dismissed within 90 days); (iii) the filing against the Partnership of a
petition for reorganization under the Federal Bankruptcy Code or any state
statute (which is not dismissed within 90 days); (iv) a general assignment
by the Partnership for the benefit of creditors; (v) the voluntary claim (by
the Partnership) that it is insolvent under any provisions of the Bankruptcy
Code (or any state insolvency statutes); or (vi) the appointment for the
Partnership of a temporary or permanent receiver, trustee, custodian, or
sequestration and such receiver, trustee, custodian, or sequestration is not
dismissed within 90 days; or
(d)
As otherwise required by law.77
Section 22.2 Conclusion of Partnership Affairs.78 In the event of the dissolution of the
Partnership for any reason, the Managing Partners79 shall proceed promptly to wind up the
affairs80 of and liquidate the assets of the Partnership81 and to file a Statement of Dissolution.82
Except as otherwise provided in this Agreement, the Partners shall continue to share distributions
and tax allocations during the period of liquidation in the same manner as before the dissolution.
For example, the partnership may be judicially dissolved in accordance with CUPA §§ 7-64801(e) (in the case of an application by a partner) or (f) (in the case of an applicatio by an
assignee).
77
78
As noted in Comment 2 to RUPA § 801 (which is the basis for CUPA § 7-64-801):
Under RUPA, “dissolution” is merely the commencement of the
winding up process. The partnership continues for the limited
purpose of winding up the business. In effect, that means the
scope of the partnership business contracts to completing work in
process and taking such other actions as may be necessary to wind
up the business. Winding up the partnership business entails
selling its assets, paying its debts, and distributing the net balance,
if any, to the partners in cash according to their interests. The
partnership entity continues, and the partners are associated in the
winding up of the business until winding up is completed. When
the winding up is completed, the partnership entity terminates.
Under CUPA § 7-64-803(1), any partner who has not wrongfully dissociated may participate in
the winding up - this provision restricts that participation to the Managing Partners.
79
80
Under CUPA § 7-64-803(3):
A person winding up a partnership's business may preserve the
partnership business or property as a going concern for a
reasonable time, prosecute and defend actions and proceedings,
Section 22.3 Liquidating Distributions. After paying or providing for the payment of all
debts or liabilities and obligations of the Partnership and all expenses of liquidation, the proceeds
whether civil, criminal, or administrative, settle disputes, settle and
close the partnership's business, dispose of and transfer the
partnership's property, discharge or provide for the partnership
obligations, distribute the assets of the partnership pursuant to
section 7-64-807, and perform other necessary acts.
CUPA § 7-64-807 addresses the contribution obligations of partners upon
dissolution.
Under CUPA § 7-64-802, existence of the partnership continues after its dissolution, but only
for the purpose of winding up its business, after which the partnership is terminated.
81
A Statement of Dissolution, authorized by CUPA § 805, has no UPA counterpart. The
Statement of Dissolution serves to modify or cancel provisions of any Statement of Partnership
Authority filed pursuant to RUPA § 303. RUPA § 803(b). Such cancellation is binding upon
third parties ninety days after filing. CUPA § 7-64-805(3). CUPA § 7-64-805 provides:
82
(1) After dissolution, a partner who has not wrongfully
dissociated may deliver to the secretary of state for filing a
statement of dissolution stating the name of the partnership,
or the domestic entity name if the partnership has filed a
statement of partnership authority pursuant to section 7-64303 or is a limited liability partnership, and that the
partnership has dissolved and is winding up its business.
(2) A statement of dissolution cancels a filed statement of
partnership authority for purposes of section 7-64-303 (4)
and is a limitation on authority for purposes of section 7 -64303 (5).
(3) For purposes of sections 7-64-301 and 7-64-804, a
person not a partner has notice of the dissolution and the
limitation on the partners' authority as a result of the
statement of dissolution ninety days after it is filed.
(4) Notwithstanding dissolution or the filing or recording of
a statement of dissolution, a partnership may deliver to the
secretary of state for filing and, if appropriate, record a
statement of partnership authority which will operate with
respect to a person not a partner as provided in section 7 -64303 (4) and (5) in any transaction, whether or not the
transaction is appropriate for winding up the partnership
business.
of the liquidation and any other assets of the Partnership shall be distributed to or for the benefit
of the Partners in accordance with the Partners’ positive capital accounts.83
Section 22.4 Termination. Upon completion of the winding up of the affairs of the
Partnership and the distribution of all Partnership assets, the Partnership shall terminate,84 and the
Managing Partners shall thereupon be authorized to execute and file [a] such additional
[Statement ] Statements of Dissolution and any and all other documents required to effectuate the
dissolution and termination of the Partnership.
ARTICLE 23
GENERAL PROVISIONS
Section 23.1 Amendment. This Partnership Agreement may not be amended, modified,
altered, or changed in any respect whatsoever, except by a further Partnership Agreement in
writing, duly executed by all of the Partners.85
Section 23.2. Binding on Heirs, Successors, and Assigns. Except as provided herein to
the contrary, this Partnership Agreement shall be binding upon and inure to the benefit of the
parties signatory hereto (as well as to all future parties who are admitted as Partners in this
Partnership), their respective spouses, heirs, executors, legal representatives and permitted
successors and assigns.
Section 23.3. Books and Records. The Partnership’s books and records, together with all
of the documents and papers pertaining to the business of the Partnership, shall be kept at the
principal place of business of the Partnership,86 and at all reasonable times shall be open to the
inspection of, and may be copied and excerpts taken therefrom by, any Partner or his or her duly
Under CUPA § 7-64-401(1), as a default rule, the partnership is required to maintain an
“account” for each partner and is required to liquidate in accordance with those accounts. RUPA
§ 807(2). This regime is similar to that of Code § 704(b) and the Treasury Regulations
promulgated thereunder which provide that the allocation of income tax items will be respected
if the income and loss of the partnership are credited or charged to the partners’ capital accountas
and distributions are made in accordance with positive capital accounts. The complex capital
account maintenance rules are not normally as important in a personal services partnership where
there are not generally not significant losses or capital expenditures.
83
84
See CUPA § 7-64-802(1).
85
See also section 9.1(i).
Under RUPA § 403(a), the partnership must keep its books and records at the chief executive
office. Note that RUPA § 403 describes only where the records will be retained and a right of
access to the retained records - it does not mandate that records be retained. See RUPA § 403,
comment 1. An accounting, and not a claim against the other partners, is the appropriate remedy
for a failure to retain necessary records.
86
authorized representative for any proper purpose.87 The books and records of the Partnership
shall be kept on a calendar-year basis88 in accordance with the cash method of accounting
required for federal income tax purposes, consistently applied,89 and shall reflect all Partnership
transactions and be appropriate and adequate for the Partnership Business.90
Section 23.4 Construction. This Partnership Agreement shall be construed in its
entirety according to its plain meaning. The parties hereby agree that this Partnership Agreement
shall be construed as an agreement negotiated at arms length between equally sophisticated
business-persons, each represented and advised by separate counsel of such party’s choosing,
and this Partnership Agreement shall not therefore be construed against the party who provided
or drafted all or any portion of this Partnership Agreement.
Section 23.5 Counterparts. Any number of counterparts of this Partnership Agreement
may be executed, and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
Section 23.6. Entire Agreement. This Partnership Agreement constitutes the entire
agreement between the Partners and supersedes all prior agreements, representations, warranties,
statements, promises and understandings (whether oral or written) with respect to the subject
matter hereof.
Section 23.7. Further Actions. Each party hereto agrees to do all acts and things and to
make, execute and deliver such written instruments as shall from time to time be reasonably
required to carry out the terms and provisions of this Partnership Agreement.
Section 23.8. Notices. All notices under this Partnership Agreement shall be in writing
and shall be served upon the other parties at the addresses set forth in the books and records of
the Partnership.
Comment 2 to RUPA § 403 provides that inspection is not conditional on a proper purpose
(contrast RMBCA § 16.02(c)(1)); the addition of a “proper purpose” requirement should be
carefully considered. Still, under RUPA § 103(b)(2), reasonable restrictions are permissible.
Even absent a “proper purpose” requirement, abuse of this right could violate obligations of good
faith and fair dealing. (RUPA §§ 404 and 405). The partnership agreement may not
unreasonably restrict the right of inspection. RUPA § 103(b)(2). Former partners have a
continuing right of inspection for records from the time they were partners. RUPA § 403(b).
87
Partnerships with entity partners not using a calendar year will use a fiscal year that conforms
to Code § 706(b).
88
Partnerships engaged in certain businesses will be required to maintain tax records on the
accrued basis. See Code § 448.
89
Partnerships maintaining different books for tax and financial purpose need to define which
books shall control in the event Partnership interest needs to be valued, or upon the death of a
partner.
90
Section 23.9. Severability. If any provision of this Partnership Agreement shall be found
by a court of competent jurisdiction to be illegal, in conflict with any law of the State or
otherwise unenforceable, the validity and enforceability of the remaining provisions shall not be
affected, and the rights and obligations of the parties shall be construed and enforced as if this
Agreement did not contain the particular provision found to be illegal, invalid or otherwise
unenforceable.
Section 23.10 Situs. It is the intention of the Partners that the laws of the State should
govern the validity of this Partnership Agreement, the construction of its terms, the interpretation
of the rights and duties of the Partners and other matters.91
Section 23.11. Waiver. No consent or waiver, express or implied by a Partner or the
Partnership, to the breach or default by any Partner in the performance of his or her obligations
under this Agreement shall be deemed or construed to be a consent or waiver to any other breach
or default.
IN WITNESS WHEREOF, the partners have executed this Partnership Agreement as of
______________________, _______, _____________.
[Names, typewritten, and signatures of all partners]
Under CUPA § 7-64-103(j), the provision that the partnership will be governed by the laws of
the jurisdiction in which the statement of registration is filed (CUPA § 7-64-106(3)) may not be
waived or altered in the partnership agreement.
91
SCHEDULE 1
Schedule of Capital Contributions (Name of partner, amount of
contribution, and date of contribution).
2910578_1.DOC