Chapter 4 - Limited Partnership
1. Definition and Formation:
Definition: "A limited partnership is one formed by two or more persons
having as members one or more general partners and one or more limited
partners."
Formation Requirements: Compliance in good faith with statutory
requirements.
o Signing and swearing to a certificate that includes:
Name of the partnership (including the word "Limited").
Character of the business.
Location of the principal place of business.
Names and residences of general and limited partners.
Term for which the partnership exists.
Amount of cash and description/agreed value of other
property contributed by each limited partner.
Conditions for additional contributions by limited partners.
Time when contribution of the limited partner is to be
returned.
Share of profits or other compensation of each limited
partner.
Right of a limited partner to substitute an assignee in their
place.
Right of partners to admit additional limited partners.
Right to prioritize limited partners over other limited
partners.
Right of remaining general partners to continue the
business after death, retirement, etc.
Right of a limited partner to demand and receive property
other than cash for their contribution.
Filing the certificate in the Office of the Securities and
Exchange Commission (SEC).
o Writing Requirement: "As compared to general partnership which
can be verbal, a limited partnership must always be in writing
(certificate of limited partnership)."
o Consequences of Non-Compliance: "There is no limited
partnership in case of non-compliance with the above-
requirements. However, there can be a general partnership." A
partnership transacting business with third persons is presumed to
be a general partnership if it does not meet the requirements for a
limited partnership.
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2. Characteristics of Limited Partnerships:
Control: One or more general partners control the business and are
personally liable to creditors.
Contribution and Profit Participation: One or more limited partners
contribute capital and share in the profits, but do not participate in the
management of the business.
Liability: Limited partners are generally not personally liable for
partnership obligations beyond their capital contributions.
Return of Contributions: Limited partners may ask for the return of their
capital contributions.
Contribution types: Contributions of a limited partner may be cash or
property. A limited partner cannot contribute services.
3. Rights of Limited Partners:
Access to partnership books for inspection.
Demand true and full information of all things affecting the partnership.
Right to dissolution and winding up by decree of court.
Receive a share of the profits or other compensation by way of income.
Receive the return of their contribution in assets.
A limited partner shall have the same rights as a general partner to:
o 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.
o 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; and
o Have dissolution and winding up by decree of court.
4. Liabilities of Limited Partners:
General Rule: Limited partners are only liable to the extent of their capital
contributions.
Exceptions: False Statement in Certificate: "If the certificate contains a
false statement, one who suffers loss by reliance on such statement may
hold liable any party to the certificate who knew the statement to be false."
(Art. 1847)
Taking Control of the Business: "A limited partner shall not become
liable as a general partner unless, in addition to the exercise of his rights
and powers as a limited partner, he takes part in the control of the
business." (Art. 1848)
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Surname Appears in Partnership Name: “A limited partner whose
surname appears in a partnership name contrary to the provisions of the
first paragraph 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.” (Art. 1846)
5. General-Limited Partner:
A person may be both a general partner and a limited partner at the same
time, provided this fact is stated in the certificate. They have the rights of
a general partner and the liabilities of a general partner up to the extent
of his separate property, while with respect to his contribution as a limited
partner, he is bound to other limited partners.
6. Transactions with the Partnership:
A limited partner can loan money to and transact other business with the
partnership, unless they are also a general partner. In this case, they can
only receive collateral security or partnership property, or receive from a
general partner any conveyance, if the assets of the partnership are
sufficient to discharge liabilities.
Prohibited transactions for a limited partner: Receiving or holding as
collateral security and partnership property or receive conveyance from
the partnership in order to discharge liabilities to person not claiming as
general or limited partners.
7. Assignment of Interest and Substituted Limited Partners:
A limited partner's interest is assignable.
"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."
For an assignee to become a substituted limited partner, all the partners
must consent, and the certificate of limited partnership must be amended
and registered with the SEC.
8. Dissolution and Winding Up:
The death, retirement, insolvency, or civil interdiction of a general partner
dissolves the partnership unless the business is continued by the remaining
general partners: Under a right so to do stated in the certificate, or with the
consent of all members.
"The certificate shall be cancelled when the partnership is dissolved or all
limited partners cease to be limited partners." (Art. 1864)
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Order of priority of payment in settling accounts after dissolution:
o Creditors
o Limited partners with respect to income
o Limited partners with respect to capital
o General partners other than for capital or profits
o General partners in respect to capital.
On the death of a limited partner his executor or administrator shall have all
the rights of a limited partner for the purpose of settling his estate, and such
power as the deceased had to constitute his assignee a substituted limited
partner.
– End –
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