ࡱ> qsr` 1bjbj *R6)v!!!8!,"TMhb"b"("""e#e#e#fMhMhMhMhMhMhM$OOhQMH$e#e#H$H$M""M(-(-(-H$""fM(-H$fM(-(-H M"V" !!<%<rKN2M4M0MKJGRx&LGR MGR M(e#"#(-##e#e#e#MM,de#e#e#MH$H$H$H$   Chapter 7 Limited Partnerships: Managers and Investors Working Together Introduction This chapter introduces the limited partnership. Limited partnerships are designed to protect investors from personal liability for the debts and obligations of a partnership business. Investors, who serve as limited partners, do not bear any risk beyond their investment, because they do not participate in the management and operations of the partnership business. However, as you review these materials, keep in mind that management and control create liability. Thus, if a limited partner participates in the management and control of the business, that person may forfeit his or her limited liability protections. Lecture Notes Limited Partnership Defined A limited partnership is an association of two or more persons or entities carrying on business as co-owners for profit with one or more general partners (managers) and one or more limited partners (investors) Advantages relative simplicity of organization limited liability for investors continuation upon withdrawal or incapacity of limited partner(s) Disadvantages unlimited personal liability of general (managing) partners involuntary termination upon the death, withdrawal, or bankruptcy of one or more general partners, absent agreement for continuation General Partners 1. manage partnerships 2. personally liable for partnership obligations Limited Partners = Investors 1. no management/participation rights 2. no personal liability for partnership debts (Liability is limited to investment in partnership.) Key: If a limited partner participates in partnership management, he or she loses liability protections. Formation Register an assumed business name. File a notice of partnership association, if required by state law. Obtain the required business or professional licenses and permits. Draft a comprehensive partnership agreement. Review taxation filings. Apply for sales tax permit, if goods will be sold. Apply for a tax identification number with the IRS, the state, or both. Establish employee withholding as well as unemployment and workers compensation coverage. Plus, limited partnerships must Include designation Limited Partnership in partnership name. File a certificate of limited partnership with secretary of state. Address limited partnership in partnership agreement. File an application for foreign limited partnership if transacting business in foreign jurisdiction. Name Requirements for Limited Partnerships 1. Name must include designation Limited Partnership. Purpose: notifies creditors that not all partners are personally liable for partnership obligations 2. Name may not include surname of limited partner. Rationale: limits apparent authority of limited partners Certificate of Limited Partnership A certificate of limited partnership must be filed with the secretary of state in order for limited partners to have liability protections. Rationale: The certificate of limited partnership puts third parties (e.g., creditors) on notice of limited liability of limited partners. Taxation Pass-through taxation Caveat: Although no taxes are due, partnerships must file an informational tax return with IRS, which is used for tracking the profits and losses assignable to partners. Changes in Partnership Association Admission of New Partners General Partners General partners may be admitted to the partnership by unanimous written consent of all partners. Unanimous consent is required because the admission is a change in management. Note: This change in partnership association is a dissolution of the existing partnership and the creation of a new partnership. Limited Partners Additional investors may be admitted without dissolution. Rationale: additional capital investments in the partnership without a change in management Termination of Limited Partnership Limited partnerships may terminate when 1. All partners agree. 2. Partnership agreement has ending date. 3. Duration or purpose of partnership is complete. 4. Court orders dissolution. 5. General partner withdraws or dies. General Partners Withdrawal = dissolution The admission or withdrawal of a general partner is a dissolution of the existing partnership and the creation of a new partnership. Limited Partners Withdrawal does not require dissolution, because limited partners are not active participants in the partnership. Comment: In this way, limited partners are like corporate shareholders (investors). Answers to Study Questions in Review How is a limited partnership different than a general partnership? In a general partnership, all partners have the right to participate in the management of the partnership. However, in limited partnerships, there are two types of partners: those who manage (general partners) and those who invest (limited partners). Explain the distinction between a general partner and a limited partner. A general partner participates in the management of the partnership, and a limited partner invests in the partnerships business venture. What is a limited partners liability for the debts and obligations of the partnership? A limited partners liability for partnership obligations is limited to the amount of his or her investment in the partnership. How does a partnership notify the public of its status as a limited partnership? The partnership name must include the designation Limited Partnership. Does a limited partnership dissolve automatically if a limited partner leaves? No. The withdrawal of a limited partner generally does not cause the dissolution of the partnership, because limited partners are not involved in the management and operations of the partnership. Can a limited partnership continue if a general partner withdraws? Explain your answer. Yes. The Revised Uniform Limited Partnership Act provides that a limited partnership can continue after the withdrawal of a general partner if (1) the partnership agreement provides for the continuation of the partnership or (2) if the partners agree in writing, within 90 days following the withdrawal, that the partnership will continue. What does it mean for a partnership to wind up? The winding up of a partnership is the termination of its business. Before the business can end, the business must liquidate its assets, pay its creditors, and distribute any remaining partnership assets to the partners. Is a limited partnership required to notify the secretary of state of its termination? Yes. Limited partnerships are creatures of statute and are created by filing a formal notice of their existence and are terminated by canceling their limited partnership certificate. Can a limited partnership use the same partnership agreement as a general partnership? No. A limited partnership agreement should contain additional provisions regarding the rights and duties of the limited partners. What types of businesses should consider forming limited partnerships? Businesses that require a lot of investment capital (e.g., real estate leasing) but do not have significant liability concerns should consider forming limited partnerships. Answers to Case Studies in Review Ashley and Rebecca own a small floral shop known as Daisys Bouquet. They became business partners two years ago when they opened their shop in downtown San Francisco. The shop was an instant success and a favorite of the Embarcadero businesses. Ashleys parents always knew that their daughter had great artist talent, so when she asked them for financial backing for her business, they were happy to provide it. Ashley told her parents that they wouldnt need to be involved in the business; in exchange for their investment, she offered to pay them 25 percent of the businesss monthly receipts. Ashleys parents dont participate in her business, although her mother often stops by to order flowers. Ashley and Rebecca have never made any formal arrangements with Ashleys parents. Are Ashleys parents limited partners in this partnership? Explain your answer. No. In order for a limited partnership to be created, the partnership must apply or register its status with the secretary of state. This puts the state, and theoretically the public, on notice that all of the partners do not have the authority to make management decisions for the partnership. Five years ago, David and Stephen started a childrens book publishing company. In order to start up their business, they needed $50,000.00. Although both David and Stephen had a lot of publishing know-how, neither one had any money in the bank. David asked his best friend, a Hollywood producer, to invest in his business idea. His friend gave David the entire $50,000.00 to start the publishing company, on the condition that his name be listed first in the partnerships name. David asks your firm, which is preparing the partnership agreement, for advice on his friends request. What would you tell your advising attorney regarding this matter? The name of a limited partnership generally may not contain the surname of a limited partner. Therefore, it would not be appropriate for David to agree to include his friends name in the partnerships name. Project Applications Jason Ice and his friend Carsey Cavern want to open an ice-skating rink in their hometown. Jason and Carsey own the buildingworth $25,000.00for the ice rink, but they need additional financial backing. The friends convince the owner of a local hotel and restaurant located near the ice rink that his business would increase if they opened an ice rink. The owner agrees with Jason and Carsey and agrees to contribute the remaining $75,000.00 needed for the opening of the ice rink to be called the Ice Cavern, located at the hottest mall in townSouthfront Mall, Anytown, (your state) 55555. The owner deposits the money into Jason and Carseys bank, First Mountain Exchange, 789 Brooks, Anytown, your state) 59801. They dont have an accountant to handle the books, but they think that they are going to hire Carseys sister, Barbara. In exchange for his investment, the hotel manager wants the partnership agreement to reflect that he is to receive 35 percent of the net receipts from the rink. Your supervising attorney has asked you to prepare the limited partnership agreement for Jason and Carsey. The file contains the following: Jason Ice Carsey Cavern 987 Bitterroot Drive 789 Seven Mile Road Anytown, (your state) 59833 Anytown, (your state) 59833     PAGE 1 PAGE 5 ____________________________________________________________Limited Partnership  GHIUVW  s  ʘ}sjdZsdZsKhV6B*CJ0\]phhV56CJ] hVCJhVCJ\]hV6CJ\]hV5CJ\ hVCJhV56CJ\]hV56CJ] hV5hVCJaJhVCJ]aJhVCJ]hhV6CJh hV]hV6CJ]hV56CJ\]hV6CJ8\]hV6CJ0\] hVCJ0\  HIVW r s ^ & F &d P ]  ]  ]^$a$$a$611  Z [ j k , - @ A Y ;<h^hh^h TL^T`L ^`^` [ \ k + , - @ A B E K ] n ;<@wy}͵ͤ͛͂zhV6\] hV6\hV56CJhVCJ\]hV6CJ\ hV5CJhV56\] hV5\ hV6CJhV56CJ] hV5CJhVB*CJ(ph hVCJh hVCJhV5CJ]hhV56CJh-<\xyR & F h^` & FZ`Zh^h & F h^ & F` & F$^a$ ^ $]^a$p^p^^ ^` |^`|$ & F$ >]^`>a$ '13<=ISTZ$Q6B02VW9Nghʽ񝦝hVCJ\]hV56CJ hV5CJ hV6CJhVhV5CJ] hV6] hV6\hV56CJ]hV6CJ] hVCJ hV5CJ hVCJ\=123<=ST$%?@QR^'*$d%d&d'dNOPQ^*h^h & F & F^^ & F$^a$012VW89:;h^h & F'*$d%d&d'dNOPQ^*^p^p;LMghstd#$d%d&d'dNOPQh^h^'*$d%d&d'dNOPQ^* )*+st|}1z\-v5 h E!!S"",# $B$C$'(V+&,(,=,r.z...0111315161߯߯߯߯߯߯߯߯߯߯hV hVh h ph h pCJhhV5CJhhV5CJ\]h hV6CJhV5CJ\h hVCJh hVCJ\hV6CJ\] hV5CJ hVCJhV56CJhVCJ\]hV6CJ\261z\-v5 h E!!S"",#s# $B$C$#$d%d&d'dNOPQ & Fdd & FdC$'(V+&,(,=,>,%0000051618191;1<1>1 ^``d`,$d%d&d'd-DM .NOPQdd & Fd617191:1<1=1?1@1B1C1I1J1K1L1M1O1P1V1W1X1Y1Z1111 hVCJhFS0JmHnHuhVhV0JmHnHu hV0JjhV0JUh1?1A1B1M1N1O1Z11111dh]h&`#$ (/ =!"#$% 8@8 Normal_HmH sH tH L@L Heading 1$@&^`CJhH@H Heading 2$$d@&a$5CJH@H Heading 3$$d@&a$6CJ<@< Heading 4$@&5CJ `@` Heading 5,$$ @ @ d@&^@ `a$5CJ0B@B Heading 6$$@&a$5CJ B@B Heading 8$$@&a$6CJ(DA@D Default Paragraph FontViV  Table Normal :V 44 la (k(No List HC@H Body Text Indent ^666  Footnote Text4 @4 Footer  !.)@!. Page Number4@24 Header  !4>@B4 Title$a$5CJ0FB@RF Body Text$]a$ 56CJPR@bP Body Text Indent 2 ^6CJRYrR  Document Map-D M OJQJ^JB'@B Comment ReferenceCJaJ4@4  Comment TextH@H  p Balloon TextCJOJQJ^JaJ)R HIVWrsZ[jk,-@AY;<\xy R    1 2 3 < = S T  $ % ? @ Q R 012VW89:;LMghst61z\-v5hES,s BC V#&$($=$>$%(((((5)6)8)9);)<)>)?)A)B)M)N)O)Z))))0000x00I0I0I0I0I0I0I0Ix0x0 0000000000000000000000008000000000 00 0 0 0 0 0 0 0 0000 0 0 0 000$ 0000000000000$ 0000000 00000000 00 000000000000000 00000000000000000000000000000 00 00 00 00 00 00 00 00 00 0 000 00 00000000000000ي0000ي0000ي0000ي00000000@0@000ي00H )ي0ۊ0ۊ0ي0$$ي0ۊ0  uuux 611 $' <;C$>11!"#%&(1  "x!!8@0(  B S  ?I))8*urn:schemas-microsoft-com:office:smarttagsCity9*urn:schemas-microsoft-com:office:smarttagsplace W$]$$$%%a&k&r&y&&&&&&&i'q'((((()))6)6)8)8)9)9);)<)>)?)A)B)))sv%ktEK]g4Abi""& '6)6)8)8)9)9);)<)>)?)A)B)))333333333333333333qqkk++,,EEFF]]^^<<GGOO~~66  yy~~  R R S S [ [ k k s s { { * * 1 1    + + 3 3 V V c c 3 = = B B I I T U U  Q Q R //2W8899LLNNaaiijjooddllvvvvwwuu  $ $ !!!!!!y$y$$$$$l%l%&&a&a&&&''(()4)6)6)8)8)9)9);)<)>)?)A)B)L)M)Z))))&&6)6)8)8)9)9);)<)>)?)A)B)))$M3:uh {2{ca+,q f :u {   n gWD M$ _M%Ȱ^S4& O q)ê?y\2+bbx: /;y3[M%8 q~sL@ *q Wbx:<~|,q y\2+/w'Y C@rz{nkmR M$ nbAWy`3[<.$f M3$$-h        B        X@X                                            FS pV)A)))@&&&&)`@UnknownGz Times New Roman5Symbol3& z Arial5& zaTahoma;Wingdings?5 z Courier New"1hkkӒ&#J&#J 4d!)!) 2QHP? p2Limited PartnershipsValued Sony Customer Delmar User$                           ! " # Oh+'0 $ D P \ ht|Limited PartnershipsValued Sony Customer Normal.dot Delmar User2Microsoft Office Word@F#@@9@dZ!@dZ!&#՜.+,0 hp|   J!) Limited Partnerships Title  !"#$%&'()+,-./013456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[]^_`abcefghijknRoot Entry F`8!pData *1Table2RWordDocument*RSummaryInformation(\DocumentSummaryInformation8dCompObjq  FMicrosoft Office Word Document MSWordDocWord.Document.89qRoot Entry F1G"uData *1Table2RWordDocument*R  !"#$%&'()+,-./013456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[]^_`abctSummaryInformation(\DocumentSummaryInformation8tCompObjq  FMicrosoft Office Word Document MSWordDocWord.Document.89q՜.+,D՜.+,@ hp|   J!) Limited Partnerships Title4 $,