Transcript No Slide Title
LIMITED PARTNERSHIPS ( LP )
1
CREATION LP vs. General Partnership
• LP – By written agreement (Certificate of Limited Partnership) of two or more persons to carry on business as co-owners for profit •
GP
– By express or implied agreement of two or more persons to carry on business as co owners for profit – Must include • one or more general partners and • one or more limited partners – File Certificate of Limited Partnership with designated state official 2
SHARING PROFITS/LOSSES LP vs. General Partnership
• LP – By provision in Certificate of LP • or – In absence of such provision in Certificate, profits and losses shared on basis of percentages of capital contributions – EXCEPT: Losses are shared by limited partners only up to capital contributions •
GP
– By agreement • or – In absence of agreement, profits are share equally and losses are shared in same proportion as profits 3
LIABILITY LP vs. General Partnership
• LP – Unlimited personal liability for all general partners – Limited partners have limited liability- -only liable to extent of agreed capital contribution •
GP
– Unlimited personal liability for all partners 4
CAPITAL CONTRIBUTION LP vs. General Partnership
• LP – Set by provision in Certificate of LP – May be cash, property, services , or any obligation under Revised ULPA, but other statutes may limit to cash and property •
GP
– No minimum or mandatory amount – Set by agreement 5
MANAGEMENT LP vs. General Partnership
• LP – General Partners • By agreement or in absence of agreement, all general partners have equal voice • Agents of partnership – Limited Partners • No voice in day-to-day management – Subject to liability if participate in day-to-day management – Except may vote an amending the Certificate and on sale or dissolution of partnership • Not agents of partnership and no fiduciary duty •
GP
– Partners have equal voice unless agree otherwise in writing – Partners are agents of partnership with fiduciary duty 6
DURATION LP vs. General Partnership
• LP – By provision in Certificate of LP unless dissolved • By operation of law – General partners ‘ • death • withdrawal • mental incompetence – Illegality • By illegality • By court decree – Death, withdraw, etc. of limited partner does not cause termination unless it was the last limited partner •
GP
– By agreement unless dissolved • By unilateral withdrawal of partner • By operation of law – death – bankruptcy – illegality • By court decree 7
ASSIGNMENT LP vs. General Partnership
• LP – Same as General Partnership except • In addition to consent of all partners , the Certificate of LP must be amended in order to admit assignee as a partner • Upon assignment of all interest, the assigning partner ceases to be a partner •
GP
– Partner’s interest can be freely assigned – Assignee only as right to assigning partners share of profits – Assignee does not have rights of a substituted partner ---without consent of all other partners 8
PRIORITIES UPON LIQUIDATION LP vs. General Partnership
• LP – Order of Priority • Outside creditors and Partner creditors • Partners and former partners entitled to distributions before withdrawal under the Certificate or RULPA • Partners in respect to capital contributions • Partners in respect to profits •
GP
– Order of Priority • Outside creditors • Partner creditors • Partners in respect to capital contributions • Partners in respect to profits 9
TAXATION LP vs. General Partnership
• LP – Same as general partnership •
GP
– Individual partners are taxed on their share of partnership income even if no cash is actually distributed to them – Partnership pays no tax but must file informational return 10
LIMITED LIABILITY PARTNERSHIP (LLP)
11
CREATION • LLP
LLP vs. General Partnership
•
GP
– Follow procedure set by – By express or implied statute---for example agreement of two or Texas requires more persons to carry • File appropriate application on business as co form with state official owners for profit • Pay annual fee ($200 per partner) • Maintain professional liability insurance ($100,000 minimum) • Add tag to firm name (either “L.L.P.” or “Registered Limited-Liability Partnership ) 12
LIABILITY LLP vs. General Partnership
• LLP – Some limit on liability which protects innocent partner from person liability for negligence, wrongful acts or misconduct of other partners – Under RUPA (adopted by >half of states): • • Partners are
not
personally liable for either tort or contract debts of partnership,
Except
Partners are liable for own misconduct.
•
GP
– Unlimited personal liability for all partners 13
OTHER CHARACTERISTICS
LP vs. General Partnership
• LP – Generally the same as general partnership in respect to other characteristics although statutes vary somewhat from state to state---and, of course, not all state have passed LLP statutes •
GP
14
LIMITED LIABILITY COMPANY
(LLC)
15
LIABILITY
LLC vs. CORPORATION
• LLC – Owners (Members) have no personal liability beyond their agreed upon capital contribution (like corporate shareholders) •
CORPORATION
– Owners (Shareholders) have no personal liability beyond their agreed upon capital contribution 16
CREATION
LLC vs. CORPORATION
• LLC – Follow statutory procedure which is generally similar to incorporation procedure, except some states require at least two owners (called “members”) •
CORPORATION
– Follow statutory procedure – Charter (Articles of Incorporation) issued by state 17
MANAGEMENT
LLC vs. CORPORATION
• LLC – Owners (members) have choice • Manage directly (like general partners) – or • Elect managers (like corporate board of directors) – Participation in management does not jeopardize limited liability •
CORPORATION
– Centralized Management • Owners (Shareholders) have indirect control of corporation through election of directors • Directors set corporate policy and appoint officers who manage the day-to-day operation of the corporation – Shareholder may also be director or officer without jeopardizing limited liability 18
DURATION
LLC vs. CORPORATION
• LLC – Some state statutes limit existence to a period of years (20 years for example)-- no perpetual life •
CORPORATION
– Can have perpetual existence or continuity of life 19
TRANSFERABILITY
LLC vs. CORPORATION
• LLC – Although state statutes vary, transfer of interest generally resembles that of a partnership •
CORPORATION
– Shares of stock can be freely transferred and purchaser acquires all rights of a substituted shareholder • Unless restrictions on transfer are provided for in the Articles of Incorporation and noted on stock certificate 20
TAXATION • LLC
LLC vs. CORPORATION
•
CORPORATION
– Members van elect to be – Double Taxation taxed like a partnership (if • Corporation pays 2 or more members) or income tax on net like a corporation profits (with no deduction for dividends • If no election they are taxed as partnership paid out to shareholders) – and • Shareholders pay income tax on the disbursed dividends they receive 21
OTHER CHARACTERISTICS LLC vs. CORPORATION
• LLC – In most other respects a LLC resembles a corporation---it is treated as an entity or legal “person” – For jurisdictional purposes It is a citizen of every state of which its members are citizens •
CORPORATION
– An entity – Where is a corporation considered a citizen?
22
How Do You Choose Between LLCs and LLps • Number of participants • Liability Considerations • Distributions from the firm • Management structure • Nature of Business • Financial and Personal Relationships