Limited Partnership

 General Concept – is one formed by two or more persons having as members one or more general partners
and one or more limited partners.
 The limited partners as such shall not be bound by the obligations of the partnership;
 Only general partners are supposed to be involved in the management of the partnership. What is the
consequence if the limited partner gets involved in the partnership? Liable as a general partner;
 A limited partner can only contribute money or property and never industry.

Formation of Limited Partnership

 Substantially comply in good faith with the following requirements:

o Sign and swear to a certificate which shall state the stipulations provided for under a Certificate of
Limited Partnership;
o File for record the Certificate in the SEC.
 Effect of false statement – if the certificate contains a false statement, one who suffers loss by reliance on
such statements may hold liable any party to the certificate who knew the statement false.
 Limited Partnership Agreement –This document sets forth the rights and duties of general and limited
partners, the terms and conditions regarding the operation, termination and dissolution of the partnership.
 Defective Formation occurs when:
o A certificate of limited partnership is not filed with the SEC;
o There are defects in a certificate that is filed which cannot be considered as substantial compliance;
o Some other statutory requirement is not met.

Partnership Name of a Limited Partnership

 The surname of a limited partner shall NOT APPEAR in a partnership name unless:
o It is also the surname of a general partner;
o Prior to the time when the limited partner became such, the business has been carried on under a
name in which his surname appeared.

Liability of General and Limited Partners in a Limited Partnership

 General partners of a limited partnership are liable even up to their personal properties for the debts and
obligations of the limited partnership;
 Limited Partners of a limited partnership are liable only for the debts and obligations of the limited
partnership up to their capital contributions. A limited partner shall not become liable as a general partner. A
stipulation as to such is VOID.
o Exceptions:
 If the limited partner takes part in the control of the business;
 When the Limited Partner agrees to contribute industry or his services only;
 A limited partner whose surname appears in a partnership name contrary is liable as a
general partner to partnership creditors who extend credit to the partnership without actual
knowledge that he is not a general partner (the creditor didn’t know that he is not a general
partner).
Rights of a General and Limited Partner

 A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a
partner in a partnership without limited partners;
 A Limited Partner shall have the same rights as a general partner:
o To have the partnership books kept at the principal place of business of the partnership and at a
reasonable hour to inspect and copy them;
o To demand true and full information of all things affecting the partnership and a formal account of
partnership affairs whenever circumstances render it just and reasonable;
o To have the right to receive a share of the profits or compensation by way of income and to the
return of his contribution in case of dissolution.
 Limitation to ANY partner’s right to income or compensation: if partnership liabilities are in excess of its
assets, in other words, the partnership is insolvent.

 Loan to the Partnership

o A limited Partner also may loan money and to transact other business with the partnership.
Restrictions:
 Cannot receive or hold as collateral security any partnership property;
 Receive from a general partner or the partnership any payment, conveyance or release from
liability if at the time the assets of the partnership are not sufficient to discharge partnership
liabilities to persons not claiming as general or limited partners.
 If the foregoing prohibitions are violated, the violations would be considered as fraud on the
creditors of the partnership.

 Assignment of Interest o A limited partner’s interest is assignable. However, the assignee may or may not
become a substituted limited partner.

o A Substituted Limited Partner is a person admitted to all the rights of a limited partner who has died
or has assigned his interest in a partnership;
o Requisites before an assignee can become an SLP:
 All the partners consent;
 The assignor (Limited Partner), being thereunto empowered by the certificate, gives the
assignee that right.
 The SLP has all the rights and powers and is subject to all the restrictions and liabilities of his
assignor except those liabilities of which he was ignorant at the time he became a limited
partner, and which could not be ascertained from the certificate.
 The substitution of the SLP as such does not release the original limited partner from liability
to the partnership.
 If the assignee does not become an SLP, he has no right to require any information or
account of the partnership books; he is only entitled to receive the share of the profits or
other compensation by way of income or the return of his contribution to which his assignor
would otherwise be entitled; The assignee is still an OUTSIDER to the Partnership.