the secretary of state. As mentioned with LLCs, while each state may have unique requirements, the following are common requirements:
Certificate of Limited Partnership
Limited Partnership Name: As with the other entities, check on name availability with the secretary of state and remember that there are separate trademark requirements.
General Character of Business: “General character” is another way of saying “business purpose.” You need not be too specific in most states (i.e., you can describe the general character of the partnership as “to conduct any legal form of business in that state”).
Name and Address of Resident Agent: As discussed throughout the book, it is important to list a registered agent that will be in business next year.
Name and Address of General Partner: Some states also require the names and addresses of all limited partners.
Amounts of Contributions: Not all states require this and for good reason. Not many investors want it on the public record that they put $10 million into Wild Oats, LP. That kind of information is better kept within the company.
Duration: Some states limit a Limited Partnership to only 30 years’ duration. You must specify a termination date.
Events of Termination/Dissolution: Some states require the certificate of Limited Partnership to state what triggers dissolution or termination.
Limited Partnership Agreement
The Limited Partnership Agreement, like the LLC’s Operating Agreement and a Corporation’s bylaws, sets out the road map for operations. Common provisions include:
Management by General Partner: The agreement will set out the duties of the general partner. Unless limited by the Partnership Agreement, the general partner(s) will have broad authority to obligate and operate the partnership. It is important to consider these issues when drafting the agreement. You may want to limit the authority of the general partner(s).
Limited Partners’ Role: The rights, powers and voting rights of the limiteds will be set out in the Partnership Agreement. Again, you may draft the agreement according to your own strategy and procedure, subject to the overall foundational requirement that limiteds do not get involved with management. Nevertheless, flexibility is allowed, as evidenced by Nevada’s law that:
“The partnership agreement may grant to all or certain identified general partners the right to vote on a per capita or any other basis, separately or with all or any class of the limited partners, on any matter.” (NRS 88.465) and
“… the partnership agreement may grant to all or a specified group of the limited partners the right to vote on a per-capita or other basis upon any matter.” (NRS 88.425)
Restrictions on Transfers/Distributions to Partners: As is true for LLCs, partnerships can be fairly complex with regard to these issues. Oftentimes partners are restricted from selling their interests to an outside third party. These issues should be dealt with in great detail in the Partnership Agreement.
Events of Termination/Dissolution: Because Limited Partnerships generally have a fixed duration (e.g. 30 or 99 years) the provisions for termination and dissolution should be detailed.
Charging Order: As with LLCs, you may want to provide that a charging order is a creditor’s exclusive remedy. Again, this is the most effective way to keep LP assets out of the reach of would-be creditors.
Frequently Asked Questions
What are some of the issues to be considered when forming an LLC or an LP?
The following issues should be reviewed when forming any entity:
• Business Continuity.
• Formation Costs.
• Time for Formation.
• Federal Taxation.
• State Taxation.
• Tax Consequences of Formation.
• Tax Consequences Upon Sale or Transfer.
• Management and Control.
• Liability of Owners.
• Transferability of Interest.
• Ability to Raise Capital.
• Estate Planning Opportunities.
When does the LLC/LP come into existence?
In most states existence for an LP or LLC occurs upon filing of the Certificate of Limited Partnership or Articles of Organization, respectively. Most states also provide that a certified copy of such documents from the secretary of state’s office is conclusive evidence of formation.
What are the consequences of a rejected filing?
The secretary of state’s office may reject a filing of articles or a certificate for a number of reasons. These include a failure to pay the filing fee, entity name already in use and failure to provide a resident agent. Generally, the state will send back the paperwork and identify the problem.
The consequence of this is that until those documents are properly prepared and filed the members or partners are personally liable for all business debts. As such, it is best to have your accepted and certified paperwork from the state in hand before you begin obligating the business, or yourself.
Is an LLC required to have an Operating Agreement or an LP to have a Partnership Agreement?
These agreements are not required in some states and may be oral in others. New York requires written agreements. Follow their lead. The better practice is to have a written agreement defining the operation of the entity.
Are all of the members/partners of an LLC/LP required to sign the Operating/Partnership Agreement?
Some states require that all members/partners adopt the agreement. However, in states where this is not required, those members/partners who do not sign the agreement may not be bound by its terms. It is far better practice to have each member/partner sign the agreement and consent to be bound by it.
How are Articles of Organization or Certificates of Limited Partnership amended?
Most states provide that these documents may be amended at any time. In some cases, such as a change of name or duration, they must be amended. The procedure involves an authorized person(s) filing a certificate of amendment with the secretary of state’s office.
It is important to note that an amendment to a provision that originally required, for example, a 75 percent vote of the members or limiteds, must be approved and amended by at least a 75 percent vote of the members or limiteds. Please also note that some states require a unanimous vote to amend the filings.
How are an Operating Agreement and a Partnership Agreement amended?
Operating Agreements and Partnership Agreements are amended by a vote of the members or partners. Again, some states require a unanimous vote to amend these agreements.
Why would you amend an Operating Agreement or a Partnership Agreement?
There are a number of reasons to amend these agreements. For example, you may want to change the existing procedures for admission of new members/partners or removal of a manager or general partner. You may want to add a new procedure for the review of major acquisition decisions. The key is that if you want to change the agreement, a vote of the members/partners is needed.
What does a registered or resident agent do?
The purpose of a registered or resident agent (they are the same thing) is to accept service of process (lawsuits) in their state of residence. A registered agent, whose office is the registered office and which may be separate from the entity’s business headquarters, is required so that claimants can easily locate and serve corporate, LLC, LP and other entities.