Sign California Assignment of Partnership Interest Secure

Document type sign assignment of partnership interest california secure

in this session we're going to talk about two new business forms limited partnerships or LPS and limited liability limited partnerships or LLL Pease just like the other business forms we've studied there is a uniform law that has been adapted by the majority of the states that governs the creation and operation of limited partnerships and limited liability limited partnerships that uniform law is the Uniform Limited Partnership Act of 2001 or ALPA ULP a a limited partnership is a unique business form because it has two completely different types of owners there are two owners of a limited partnership and both owners must be present in order to form this kind of a business entity there are general partners and there are limited partners the general partners are much like general partners of a general partnership they contribute money to the business they manage it they share in its profits and they have unlimited personal liability for the obligations of the business limited partners on the other hand are much more similar to a passive investor limited partners contribute capital of the business and share on the profits of the business but they have absolutely no management power and their personal liability is limited to their investment in the business so this is a type of business form that is used by general partners who want to raise a lot of capital but don't want their investors to have any say in how the business is operated so a limited partnership is used when there's a group of general partners that want management centralized in themselves with passive investors who put up their money but they have very little control over how the business is conducted and once they've invested their money they have very limited rights to ever withdraw that money from the partnership so the money is there and it can't be taken back how our limited partnerships formed a limited partnership like a limited liability company is a creature of state law and it can only be formed by complying with the law of the state in which it is formed generally speaking a limited partnership is formed when a certificate of limited partnership is signed by all of the general partners and then filed with the Secretary of State of the state in which the company is being formed just like we saw with limited liability companies the name selected for the limited partnership must reflect in the name the type of business entity that it is therefore the name of the limited partnership must include the words limited partnership or the abbreviation LP or the abbreviation L period P period and once again the reason for this requirement is to put creditors and the people dealing with the company on notice of the type of business entity is so they are aware that there is some limited liability at least on the part of some of the owners now finally an executed certificate of limited partnership with the secretary of state is all that is necessary to form a limited partnership however best practices are and most limited partners have not all limited partnerships also have a separate limited partnership agreement that does not get filed with the Secretary of State it's a private document that addresses how the business is going to be operated how the general partners might be compensated how the parties are going to share in profits and win and other relationships between the owners of the business the rights and liabilities of the partners vary depending on whether the partner is a general partner or whether the partner is a limited partner there are some rights of my abilities that both of them share but there are some rights and liabilities that are very different as I've said with respect to general partners they have management rights similar to partners in a general partnership usually the general partner our general partners share equally in the right to manage the business in the absence of an agreement to the contrary a general partner has no right to receive compensation beyond his or her share of the profits and we're gonna see later that the share of the profits is determined by how much money the partner has contributed to the business so if the general partner is going to be spending a lot of time managing the limited partnership this is something that the general partner is going to want to change by agreement usually the general partner wants additional compensation for performing all of the management responsibilities of the business but unless there's an agreement that provides for that they don't get that their compensation without an agreement is limited to simply sharing in the profits of the business a general partner owes fiduciary duties to the limited partnership and all of the other partners the same types of fiduciary duties that we've talked about before also just like a general partner in a general partnership general partners in limited partnerships have unlimited personal liability to the creditors of the limited partnership their personal assets are at stake now there are two things that a limited partnership can do to try to minimize the one limited personal liability of at least the human beings involved in the limited partnership the first thing that can be done is to make the general partner not a human not an individual but to make the general partner a corporation or a limited liability company and while the corporation or the limited liability company will have unlimited liability to the creditors the human owners of the corporation or the limited liability company will not so recommended always if you form a limited partnership you make sure that your general partner is either a corporation or a limited liability company in order to protect the individual owners from unlimited personal liability the second thing that can be done to reduce this unlimited personal liability or excuse me to eliminate this unlimited personal liability is in the states that permit them to be formed to use the entity of a limited liability limited partnership an L ll P the problem for us here in California is that California does not recognize this form of business you cannot create a limited liability limited partnership in California but in those states that permit them the limited liability limited partnership adds a lot of protection for the general partner you a limited liability limited partnership or an L LLP is a limited partnership that has elected limited liability status for all of its partners including the general partners so with the limited liability limited partnership no partner has unlimited personal liability to the creditors of the company the business form of a limited liability limited partnership is currently recognized in approximately 27 States unfortunately California is not one of them however if a limited liability limited partnership is properly formed in one of the 27 states that recognizes them California will recognize that business form when they are doing business in the state of California so you can't form one here but if you form one in another state that allows them California will recognize that business form other than the difference of providing limited liability for the general partner limited partnerships and limited liability limited partnerships are identical that is the only difference but it's a big difference so if you are able to form a limited liability limited partnership in a state that recognizes that entity you should definitely do it for the protection from unlimited personal liability of the general partner if you cannot form a limited partnership in one of those states that recognizes the lllp then your next best option is to make your general partner either a corporation or a limited liability company what are the rights and liabilities of the limited partners limited partners have very few rights they have a right to share on the profits of the business and they have a right to be informed about partnership affairs however a limited partner has absolutely no say in how the business is operated they have no management rights whatsoever on the other hand they have limited liabilities once the limited partnership is established and the limited partner has contributed all of his or her promised capital contributions that limited partner generally has no further liability for partnership losses or obligations so the risk of a limited partners exposure is the amount of capital limited partner has invested in the business also a limited partner owes absolutely no fiduciary duties to the limited partnership or the other partners in large contrast to the general partner so as we've stated the limited partner is essentially a passive investor they put in their money after that they have no obligations for the we have no liability for the obligations of the partnership they have no management rights and they don't owe any fiduciary duties so the partnership or the other partners there are some rights and liabilities that are shared by both the general partner and the limited partners with respect to both categories of partners these partners the default rule is that they share the profits and losses of the business on the basis of the value of each partners capital contribution now here's where the limited partnership is very different from the business entities that we studied so far if you remember with respect to partnerships and limited liability companies the default rule if there's no written agreement to the kind of there's no agreement to the contrary the default rule for those entities is that profits and losses are shared equally regardless of the amount of money you've put into the business and regardless of how much labor you contribute to the business the limited partnership is different and make sure your notes are clear on this a limited partnership the default rule is profits and losses are based on the proportion of capital contributed to the business so let's take an example if John Mary and Susan are partners in a limited partnership and John contributes fifty thousand dollars and mary and susan each contribute twenty-five thousand dollars the default rule is that John will receive 50 percent of the profits or be responsible for 50 percent of the losses and Mary and Susan will each receive 25 percent of the profits so as an example if the limited partnership has profits of ten thousand dollars John will receive $5,000 fifty percent of ten thousand Mary will receive $2,500 25% of 10,000 and Susan will also receive $2,500 again 25% of 10,000 so the one entity where the default rule is different for how the owners share profits and losses other rights and liabilities shared by all partners of a limited partnership all partners are obligated to make their promised capital contributions whatever you promised to put into the business you have to go forward and honor that commitment and this is an obligation that may be enforced not just by the limited partnership but also by third parties so this is illustrated by problem 9 that was assigned for you to answer in problem 9 Brookside Realty was a limited partnership whose limited partners had not paid all of their required assessments and the required assessments just means the amount of money that they had promised the amount of capital that they promised to invest in the business Brookside failed to pay one of its creditors and the creditor in addition to suing Brookside sued the individual limited partners to the extent of what they had promised to put in the business but had not done so so the question is were the limited partners liable to pay to the third party creditor the amount of money they had promised to put in the limited partnership but had not yet done so and the answer in this case was yes the limited partners were obligated to make their promised capital contributions and if they had not done so that obligation can be enforced by a third party creditor so in this case whatever they had promised to put into the limited partnership and had not done so they were required to pay over to the creditor the other characteristic that is different very different for limited partnerships his limited partnerships were set up and intended to be entities that lasted for a very long time and when the laws were created creating this business where laws were passed trade in this business form one of the assurances the law wanted to give to the general partners was that once a limited partner had invested the money in the business they weren't going to be able to take it out they wanted to give the general partners the financial security of knowing once they had a commitment for this investment into this company it was going to stay there so in order to accomplish that the limited partnership law is greatly restrict a partner both the general partner and a limited partners ability to withdraw from the limited partnership in fact the ULP a gives the partners absolutely no right to withdraw now we talked before about the difference between the power to withdraw and the right to withdraw we don't force people to stay in a business they don't want to be in however with respect to limited partnership partnership if you do withdraw you have violated your duties to the limited partnership and you can be liable for the damages you caused to it as a result that a partner has no right to withdraw from a limited partnership if a partner does withdraw they have no right to receive the value of their partnership interest unless an until the limited partnership dissolves so you might withdraw but you might very well have to wait 25 or 30 years or longer to be paid your partnership interest so the law makes it very difficult for partner to withdraw for the reason that they intended these limited partnership entities to they basically have a perpetual duration because limited partnerships were intended to have perpetual duration the UL PA also makes it more difficult for a limited partnership to dissolve the default rule under the UL PA is that a limited partnership may dissolve only if all general partners a hundred percent of there's more than one and a majority of the limited partners vote to dissolve if that vote is not obtained the limited partnership has no right to dissolve if a limited partnership does successfully vote to dissolve it goes into the same winding up phase that we've talked about before with respect to partnerships with respect to limited liability companies that is that it enters into a winding up period where the business of the limited partnership is wrapped up and then the assets of the partnership are liquidated and then that look those liquidated assets are distributed the way the assets get distributed upon the dissolution of a limited partnership is to first pay all the creditors once again creditors are always in the first position then the balance balance of the assets that are left after the creditors are paid are distributed to the partners in the same proportion that they share in profits so this would be the proportion of their investment in the limited partnership if we have a limited partnership and the liquidated assets are insufficient to pay all of the creditor obligations then the general partners must pay those creditors because of the unlimited personal liability of the general partner exception to number three would be if this were a limited liability limited partnership in that case with a limited liability limited partnership if there were insufficient assets to pay the creditors the creditors would be out of luck because all partners would be protected from personal liability to the creditors finally the uniform life Limited Partnership Act does give flexibility they make it difficult for a limited part our partners to withdraw and they make it difficult for limited partnerships to dissolve however because of this they do make it possible for a limited partnership to become another business form and it does so in two ways it permits limited partnerships to combine with some other form of business this would be called a merger or it permits the limited partnership to convert to another business form like for example a limited liability company converting to another business form is what we call a conversion so the difference between a me ger and a conversion is that a merger is a common combining with another business whereas a conversion is just the limited partnership itself changing to another business form and we saw the general partners try to do that in the case of Lac versus Manowar LLC which was assigned for briefing in Lac versus man-of-war the parties had a limited partnership agreement which stated that a new general partner could not be added without all partners agreeing Lac was a limited partner and yet the way the limited partnership agreement was for was written said all limited partners also had to agree to the addition of a new general partner and lactic declined to agree and she was the only holdout and again as I've mentioned in class this is one of the problems with drafting an agreement that requires unanimous consent one person then has veto power and they can prevent the business from going forward with something that every other owner wants to do and that's what happened in this case she was the one holdout she was a limited partner who typically would not be involved in management decisions at all but they had drafted the agreement to give her this power so she declined and under the limited partnership agreement that meant that they could not add a new general partner so to try to get around this the general partners then voted that they were going to convert to a limited liability company and they would provide with a limited liability company that the majority of the owners would control and they also said that unless all of the owners signed off on the fact that this restructuring was kosher they would have zero voting rights in the new form of business in the limited liability company so they tried to undo their limited partnership agreement by converting to a limited liability company and then providing that that company could be controlled by the majority of the owners and lacked challenged this and said you can't use this conversion power to take away my right to nix whatever the other owners want to do and the court agreed with lack the court held that it was a breach of the general partners fiduciary duty to lack remember the general partners fiduciary duties to the limited partner to seek to convert the limited partnership into a limited liability company with the purpose of cutting off lakhs right to veto the addition of a new general partner so that's an illustration of a limited partnership trying to convert to a limited liability company but in that case because they were doing it for a wrongful purpose to take away someone's buta our then been granted under the limited partnership agreement the court held that that was a breach of fiduciary duty and the court ordered the limited liability company to be unwound and for the entity to go back to being a limited partnership requiring unanimous vote of all partners to add a new general partner so again a good illustration of why it's always dangerous to require unanimous vote and your agreement regardless of what kind of business form you might have giving one power when party the power to hold up what everyone else wants to do so that concludes our discussion of limited partnerships and limited liability limited partnerships