LIMITED PARTNERSHIP

1843 – A limited partnership Is one formed by two or more persons under the provisions of the
following article, 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.

Concept
 Limited partnership – used to designate joint ventures and partnerships limited only in respect
of the nature and scope of the business to be carried on.
o Confines it to form of business association composed of one or more general partners
and one more special partners, the latter not being personally liable for the partnership
debt.
 A limited partner is composed of two classes of partners - general and limited
 It is called limited partnership because the liability to third persons of one or more of its
members referred to as limited or special partner is limited to the a fixed amount, their capital
contributions or the amount they have invested in the partnership.
 Limited liability is the key characteristic of the limited partnership

Characteristics of limited partnership

 A limited partnership is formed by compliance with the statutory requirements (1844)
 One or more general partners control the business and are personally liable to the creditors
(1848,1850)
 One or more limited partners contribute to the capital and share in the profits but do not
participate in the management of the business and are not personally liable for partnership
obligations beyond the amount of their capital contributions (1845, 1848, 1856)
 The limited partners may ask for the return of their capital contributions under the conditions
prescribed by law (1844h,1857)
 The partnership debts are paid out of common fund and the individual propertied of the general
partners

General Partners – treated by law much like a partner in an ordinary partnership

 Typically those who know how to manage the business

Limited Partners – usually those who put money for the business
 Mere investors
 Their limited liability is an exception to rule that all partners, including industrial partners, are
liable pro rata with all their property for partnership debts (1816)
 A limited partner has the same type of liability as the stoke holder in a corporation

Business reason and purpose of statutes authorizing limited partnerships

 Secure capital from others for one’s business and still retain control – men in the business
often desire to secure capital from others. There are at least three classes of contracts which
can be made with those from the capital is secured
o Ordinary loan on interest
o Loan where a lender, in lieu of interest, takes a share in the profits of the business (no
risk of being held as a partner)
 o Those cases in which the person advancing the capital secures, besides a share in the
profit, some measure of control over the business (has serious risk of being liable for
the debts of the business as a partner)
 Share in profits of a business without risk of personal liability – policy os to bring into the trade
and commerce funds of those not inclined to engage in that business, who are disposed to
furnish capital upon such limited liability with a view to the share of profits which might be
expected to result to them from its use.
 Associate as partners with those having business skill – purpose is to encourage those having
capital to become partners with those having skill, by limiting the liability of the former to the
incidental amount actually contributed by them. The object of such a statute is to furnish
reasonable protection to those dealing with the concern by requiring acts to be done and public
notice thereof given o that all who desire may know the essential features of the arrangements

Differences between a general partner/partnership and a limited partner/partnership

General Limited
Partner is personally liable for the partnership Liability extends only to his capital contribution
obligations (1816) (1845,1848,4856)
When manner of management has not been Has no share in the management of the limited
agreed upon, all of the general partners have an partnership, his right being limited to those
equal right in the management of the business enumerated in 18511, such that he renders
(1802, 1810(3)), whether or not the general himself liable to creditors as a general partner if
partner has made any capital contribution he takes part in the control of the business (1848)
Partner may contribute money, property or Must contribute cash or property to the
industry to the partnership (1767) partnership but not service or industry (1845)
All are party to action against the partnership Partner is not a proper party to a proceeding by
or against a partnership unless he is also a
general partner (1853), or where the object of
the proceeding is to enforce a limited partner’s
right against, or liability to, the partnership
(1866)
Partners interest in the partnership amy be Interest is freely assignable, with the assignee
assigned as to make the assignee a new partner acquiring all the rights of the limited partner
without the consent of the other partners (1813) subject to certain qualifications (1859)
although he may associate a third person with
him in his share (1804)
Name of general partner may appear in the firm’s General Rule: limited partner must not
name (1815)

1
1851 – a limited partner shall have the same rights as a general partner to:
1. Have the partnership books kept at the principal place of business of the partnership, and at a
reasonable hour to inspect and copy any of them
2. Have on 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
3. Have dissolution and winding up by decree of court
A limited partner shall have the right to receive a share of the profits or other compensation by way of
income, and to the return of his contribution as provided in 1856 and 1857
 General partner is prohibited from engaging in There is no such prohibition in case of limited
business which is of the kind of business in which partner who is considered as a mere contributor
the partnership is engaged, if he is a capitalist to the partnership (see 1866)2
partner (1808) or in any business for himself if he
is an industrial partner (1789)
Retirement, death, insanity, or insolvency of a It does not have the same effect, for executor or
general partner dissolves the partnership (1860 administrator shall have the rights of a limited
1830 1831) partner for the purpose of selling his estate
(1861)
General partnership, general rule, may be Limited partnership is created by the members
constituted in any form by contract or conduct of after compliance with the requirements set for by
the parties the law
Must operate under a firms name Followed by the word “limited”
Dissolution and winding up are governed by
different rules
 a limited partnership, unless prohibited by law, may carry on any business which could be
carried on by general partnership

Article 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited partners
being respectively designated;
(e) The term for which the partnership is to exist;
( f ) The amount of cash and a description of and the agreed value of the other
property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each limited partner and the
times at which or events on the happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each limited partner is to be
returned;
(i) The share of the profits or the other compensation by way of income which each
limited partner shall receive by reason of his contribution;
( j) The right, if given, of a limited partner to substitute an assignee as contributor in
his place, and the terms and conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over other
limited partners, as to contributions or as to compensation by way of income, and the
nature of such priority;
(m) The right, if given, of the remaining general partner or partners to continue the
business on the death, retirement, civil interdiction, insanity or insolvency of a general
partner; and
(n) The right, if given, of a limited partner to demand and receive property other than
cash in return for his contribution.

2
1866 – A contributor, unless he is a general partner, is not a proper party to proceedings by or against a
partnership, except where the object is to enforce a limited partner’s right against or liability to the partnership
 (2) File for record the certificate in the Office of the Securities and Exchange Commission.
A limited partnership is formed if there has been substantial compliance in good faith with the
foregoing requirements.

Limited Partnership not created by mere voluntary agreement

 it can only be created if permitted by statute – REASON – allows a person to share in profits
without becoming personally liable
 creation of a limited partnership is a formal proceeding, the requirements of the stature must
be followed
o Reason – public notice be given to all who desire to know the essential features of the
partnership
 Substantial compliance with the requirements – limited partnership is formed
o Otherwise – limited partner will be treated as a general partner

Requirements for formation of limited partnership

 2 essential requirements
o Certificate or articles of the limited partnership which states the matters enumerated in
the article, signed and sworn to
o Certificate must be filed for record in the Office of SEC
 Purpose of filing with the SEC – to give actual or constructive notice to potential creditors or
persons dealing with the partnership
 No time is fixed, a reasonable time is allowed depending on the circumstances of the particular
case

Execution of the prescribed certificate

 Certificate must contain the matters enumerated in the article
 Limited partnership cannot be constituted orally
 Purpose of specific requirements
o Name, Contributions of Limited Partners, and Duration – for protection of those who
deals with the firm, must be strictly observed
o Certificate need not contain anything concerning the amounts to be contributed by the
general partners

When GENERAL PARTNER needs consent/ratification of ALL LIMITED PARTNERS:

1. Do any act in contravention of the certificate
2. Do any act which would make it impossible to carry on the ordinary business of the partnership
3. Confess judgement against partnership
4. Possess partnership property/assign rights in specific partnership property other than for partnership
purposes
5. Admit person as general partner
6. Admit person as limited partner - unless authorized in certificate
7. Continue business with partnership property on death, retirement, civil interdiction, insanity or
insolvency of gen partner unless authorized in certificate

SPECIFIC RIGHTS OF LIMITED PARTNERS:

1. Right to have partnership books kept at principal place of business
2. Right to inspect/copy books at reasonable hour
3. Right to have on demand true and full info of all things affecting partnership
4. Right to have formal account of partnership affairs whenever circumstances render it just and
reasonable
5. Right to ask for dissolution and winding up by decree of court
6. Right to receive share of profits/other compensation by way of income
7. Right to receive return of contributions provided the partnership assets are in excess of all its
liabilities

LOAN AND OTHER BUSINESS TRANSACTIONS WITH LIMITED PARTNERSHIP

1. Allowed
a. Granting loans to partnership
b. Transacting business with partnership
c. Receiving pro rata share of partnership assets with general creditors if he is not also a general partner
2. Prohibited
a. Receiving/holding partnership property as collateral security
b. Receiving any payment, conveyance, release from liability if it will prejudice right of 3rd persons

REQUISITES FOR RETURN OF CONTRIBUTION OF LIMITED PARTNER:

1. All liabilities of partnership have been paid/if not yet paid, at least sufficient to cover them
2. Consent of all members has been obtained
3. Certificate is cancelled/amended as to set forth withdrawal /reduction of contribution

DISSOLUTION OF LIMITED PARTNERSHIP

Priority in Distribution of Assets:

1. Those due to creditors, including limited partners
2. Those due to limited partners in respect of their share in profits/compensation
3. Those due to limited partners of return of capital contributed
4. Those due to general partner other than capital & profits
5. Those due to general partner in respect to profits
6. Those due to general partner for return of capital contributed

AMENDMENT/CANCELLATION OF CERTIFICATE
Cancelled:
1. Partnership is dissolved other than by reason of expiry of term
2. All limited partners cease to be such

Amended:
1. Change in name of partnership, amount/character of contribution of ltd. partner
2. Substitution of ltd. partner
3. Admission of additional ltd. partner
4. Admission of gen. partner
5. Death, insolvency, insanity, civil interdiction of gen. partner & business is continued
6. Change in character of business
7. False/erroneous statement in certificate
8. Change in time as stated in the certificate for dissolution of partnership/return of contribution
9. Time is fixed for dissolution of partnership. Return of contribution if no orig. time specified
10. Change in other statement in certificate