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Agency and Partnership Disclosure
In dealing with its partners and with third parties, limited partnerships have to follow certain disclosure requirements. These disclosures primarily pertain to the identities of the partnership and the partners, as well as information regarding the state of activities and financial status of the business.
A limited partnership is allowed by the Uniform Limited Partnership Act (2001) to acquire a limited liability status. It can thus become a limited liability limited partnership. While allowing this, the law requires the partnership to disclose its character to the public. The reason is that third parties need to know the extent to which the partnership can be held liable for obligations. Thus, limited partnerships which do not have the limited liability status are obliged to include the phrase "Limited Partnership", or the abbreviations "L.P." or "LP". Similarly, limited liability limited partnerships must include the phrase "Limited Liability Limited Partnerships" or the abbreviations "L.L.L.P" or "LLLP". The law also requires organizations to maintain their basic organizational documents at their respective designated offices. These include the directory of the general and limited partners, a copy of the initial certificate of limited partnership, copies of amendments to or restatements of the certificate, and a copy of the partnership agreement.
A limited partner, in contrast to the general partners, is not liable for the obligations of a limited partnership. However, the liability shield may be compromised if he or she participates in the control of the business. If a person transacting with a limited partner is reasonably convinced that the limited partner is a general partner, then the limited partner may become liable to that person. To avoid such circumstance, a limited partner must fully disclose his or her identity when dealing with other people.
Disclosure of information on the state of activities and financial status of the business requires a balance between providing partners the access to information and safeguarding vital business information. This balancing act is better explained in the context of fiduciary duties. Limited partners do not have fiduciary duties of care and loyalty to the limited partnership or to other partners, by virtue of the limited powers vested on them. In contrast, these fiduciary duties rest heavily on the general partners. These duties oblige the general partners to protect information which are confidential to the limited partnership or otherwise unfit for dissemination. Thus, a partner's requests for information are thoroughly evaluated such that only information that is reasonably within the partner's interests are provided to him or her.
National Conference of Commissioners on Uniform State Laws (2001) Uniform Limited Partnership
National Conference of Commissioners on Uniform State Laws (1985) Uniform Limited Partnership
Act (1976) with 1985 amendments.
2. Business Associations > Agency and Partnership > Special rules
concerning limited partnerships > The control limitation
Limited partners are generally not liable to third parties. However, they may lose this shield from liability if they participate in the control of the business. This concept came from the original Uniform Limited Partnership Act of 1916. It was carried over to the Revised Uniform Limited Partnership Act of 1976 (RULPA(1976)). It was also adopted in the Revised Uniform Limited Partnership Act of 1976 with 1985 Amendments (RULPA(1985)).
However, there was a recognition in the 1976 version of the difficulty of drawing the line between controlling and not controlling. It was in this version that "control limitations" or "control rules" were introduced. Control limitations define actions of limited partners which do not qualify as participation in the control of the business. While these have been defined in the 1976 version, the protections accorded to limited partners were complicated by counteracting rules. The 1985 version attempted to address these complications, and further defined the control limitations. The result is a wider elbow room for a limited partner's engagement in the business without exposing himself or herself to obligations to third parties. Thus, to protect himself or herself from liability, a limited partner must be aware of the control limitations.
If a limited partner holds positions or interests in a corporation that serves as a general partner in the business, this does not make the limited partner a manager of the business. Consulting with and providing advise to a general partner does not constitute control of the partnership. A limited partner is free to request and attend partners' meetings. He or she may also propose, approve or disapprove matters such as the dissolution and winding up of the limited partnership, change in the nature of the business, and admission or removal of partners. The rest of these control limitations can be found in Section 303(b) of the RULPA(1985).
With the introduction of the Uniform Limited Partnership Act of 2001, the limited partner is now provided with a full coverage of the shield against liabilities and obligations. In contrast to the 1985 version, this act provides the full protection “even if
the limited partner participates in the management and control of the limited partnership."
As a consequence, the control limitations or rule have become irrelevant and have been eliminated in this most recent act. With this status, the limited partner becomes at par with the members of a limited liability company, the partners in a limited liability partnership, and the shareholders of a corporation.
National Conference of Commissioners on Uniform State Laws
(2001) Uniform Limited Partnership
National Conference of Commissioners on Uniform State Laws
(1985) Uniform Limited Partnership
with 1985 amendments.
3. Business Associations > Agency and Partnership > Special rules
concerning limited partnerships > Economic rights of limited partners
By the nature of the organization, limited partners are generally considered as passive shareholders who have minimal participation in the management and control of the business enterprise. As a result, the economic rights of limited partners in a limited partnership are significantly less than those of members of limited liability companies and shareholders of corporations. However, the Uniform Limited Partnership Act of 2001 has practically removed the barriers for the participation of limited partners in management. In such cases where limited partners become more involved in decision-making, they also broaden the coverage of their economic rights. The economic rights of limited partners, as stated explicitly by law, encompass primarily that of the right to information and the right to distributions.
The right to information is an economic right. A limited partner needs to know the state of the activities and financial condition of the limited
partnership as bases for his or her future plans and decisions. With regard to this right, the law tries to harmonize countervailing concerns. On one hand is the need of limited partners for access to necessary information. And on the other, the need of the limited partnership to
safeguard confidential business information and other intellectual property.These two concerns are resolved by providing only the information that is reasonably relevant to the interest of the limited partner, and by a clear procedure on how to request information and on how to respond to such requests. For the case of dissociated limited partners, they may only request information that is covered by the period in which he or she is a limited partner. Through these measures, information is made readily accessible, while ensuring the integrity of the limited partnership.
A limited partner is entitled to a share of the limited
partnership's transferable interest. This share will be based on the value of the partners' respective contributions to the limited partnership. Generally, limited partners are not entitled to any distribution prior to the dissolution and winding up of the limited partnership. However, the limited partnership may otherwise decide to make interim distributions. And while limited partners cannot demand to receive a distribution in forms other than cash, they have the right to receive assets in kind whose value is equivalent to the partners' share of distribution.
Consequently, a partner entitled to a distribution attains the status of a creditor of the limited partnership. Likewise, he or she is entitled to all remedies of a creditor. A limited partner may also transfer his or her own share of the distribution to another person.