- Online Edition
- Print Edition
- Donahue Lecture Series
- Archived Mastheads
In his article, The New Limited Partner Liability Shield, Professor Carter Bishop begins with a very useful history of the control rule, which ULPA (2001) has eliminated. He then suggests two sets of circumstances in which, despite the elimination of the control rule, a limited partner might face general-partner-like liability for the debts of a limited partnership. With all respect to my co-author, co-reporter, and friend, this proposition is far more interesting as a concept than substantial as a practical danger.
According to Professor Bishop, the limited partner’s danger has two aspects. The first is that a limited partner’s “participation in management and control” might cause the limited partner to be ”deemed” a general partner and thereby subject to general partner liability for all the debts of the limited partnership. In Professor Bishop’s view, this danger has two sources in the new Act. First, the new Act blurs the line between general and limited partners by permitting a person to become a general partner without being so designated in the limited partnership’s certificate of limited partnership and without having the written consent of the partners. Second, by eliminating the control rule, the new Act encourages or at least enables limited partners to participate so fulsomely in the management of the limited partnership as to appear to be general partners de facto through the partners’ implied consent. . . .
Over the past few years, the number of limited liability companies (LLCs) has grown prodigiously. As a result of the favorable tax treatment of organizations treated as partnerships, unincorporated business organizations in general—and LLCs in particular—are being used in many types of business formally served by corporations. While the tax benefits have been the factor drawing people toward the use of unincorporated business organizations, the ability of the owners to order their relationship by agreement has been an attractive characteristic of unincorporated businesses. The essence of an unincorporated business organization such as a general partnership, limited partnership, or LLC (collectively in this article, an “organization”) is that its internal structure can be established by the partners or members (collectively, ”owners”) as reflected in the partnership agreement or operating agreement (collectively, ”organic agreements”). . . .
Partnership law throughout most of the 20th century was centered upon the interrelated statutes of the Uniform Partnership Act and the Uniform Limited Partnership Act. Rules relating to general partners of general partnerships or of limited partnerships were contained in the former act. That is, the relationships among general partners in a limited partnership were governed by the Uniform Limited Partnership Act. In the promulgation of the Revised Uniform Partnership Act (RUPA) in the early 1990s, the National Conference of Commissioners on Uniform State Laws (NCCUSL) Drafting Committee responsible for that statute, with the concurrence of the American Bar Association advisors, elected to ”de-link” the “general” partnership act from the limited partnership act. Thus, the need for a self-contained limited partnership act was born. . . .
In a previous article, we stated that the drafters of unincorporated organization statutes, including the Uniform Limited Partnership Act (2001) (ULPA) and the Uniform Limited Liability Company Act (ULLCA), should proceed from a clearly articulated theory when structuring information access and disclosure provisions, and correlative fiduciary duties. One purpose of business organization law is to mediate the inherent conflict occurring when autonomous and self-interested individuals associate to carry on a collective business, and we identified three overarching theories that showed some promise in developing legal structures affecting participants in unincorporated business organizationsparty autonomy, communitarianism, and structuralism. In our view, the drafters of unincorporated business organization legislation should adopt what we termed the structural approach in defining owner and manager fiduciary duties and information disclosure rights. This approach would consider the actual relationships among the firms owners and would recognize that members can have different participation levels in the organization. Under the structural approach, when ownership and management authority converge the law should assume greater information disclosure rights and increased fiduciary duties, and when there is little or no convergence between ownership and management authority, the law should assume reduced information rights and reduced fiduciary duties. . . .
The analysis of ”entity proliferation” is complex, primarily because there are serious problems of definition and classification. It is often difficult to decide whether a modification or change in a specific business form should be viewed as the creation of a genuine
“new” business form or whether it is the same as or a “minor variation of” an older business form, perhaps with just a new wrinkle or two. If it is only “somewhat” different from an existing business form, should it be counted as a new business form at all and thus part of the process of “entity proliferation”?
A similar problem also arises under modern statutes—those involving both corporations and various types of modern unincorporated business forms. These modern business forms give considerable discretion to the organizers of a business to select the rights, powers, relationships, and limitations that the new business entity is to have. They also may have the power to resolve the fundamental question of how the income of the business entity should be taxed under the Internal Revenue Code. Consider, for example, the alternatives open to a newly-formed, plain-vanilla, closely held corporation: it may elect to be taxed as an S corporation, under which it is treated essentially as a partnership for tax purposes; or it may elect to be taxed as a C corporation, under which it is treated essentially as a corporation for income tax purposes. If we assume that there are two essentially identical closely held corporations, one of which has elected to be taxed under subchapter C and the other of which has elected to be taxed under subchapter S, should they be counted as two different business forms for purposes of “entity proliferation”? Essentially, the same issue might also arise in a limited liability company or in a limited partnership with a corporate general partner where similar elections exist. In a single person limited liability company, however, the choice is more limited: it may elect to be taxed as a corporation; or it may be treated as a nothing for tax purposes so that its income is reported on the members personal income tax return. There is no other intermediate choice. Each of these variations involving corporations or limited liability companies (LLCs) may be viewed as creating ’different” business forms; if that is accepted and extended over the entire economy and across all fifty states with their numerous variations, then we truly have ”entity proliferation” on a massive scale, and the number of “different” entities, while not infinite, would certainly be very large. . . .
Fiduciary duties of general and limited partners in limited partnerships have generated a significant number of recent cases. The most important issue has been the relationship between the partners’ default duties and detailed provisions of the partnership agreement relating to partner duties. The law has developed under the 1916, 1976 and 1985 versions of the Uniform Limited Partnership Act (ULPA), which, in turn, apply the general fiduciary duty provision of the Uniform Partnership Act (UPA). Many recent cases have been decided in Delaware under a statutory provision that explicitly makes the agreement controlling. . . .
Limited partnerships are an important entity alternative for a segment of businesses that can be categorized as family businesses. Family businesses have many of the same needs as other operating businesses, on one hand, and special purpose asset protection devices on the other. Family businesses, however, often present unique business succession and control issues reflecting family dynamics and intergenerational wealth transfer concerns. The primary purpose of this article is to analyze the new Uniform Limited Partnership Act, ULPA (2001), for its fitness under the federal wealth transfer taxes. It will also briefly identify some of the unique concerns common to many family businesses in conjunction with ULPA (2001).
Federal taxation of intergenerational wealth transfers is, of course, an important part of planning for the family business and, indeed, the almost exclusive focus of this article. Increases in the unified credit, however, make wealth transfer tax issues of little relevance in the vast majority of estate plans. Even though it is a mistake to overestimate the role taxation plays in family business planning relative to other planning considerations, tax planning is the focus of this article, in part, because a funny thing happened to the Uniform Limited Partnership Act (2001) (ULPA (2001)) on the way to the forum of this symposium: two events have occurred which potentially change the federal wealth transfer tax. One change was statutory and took place when the Economic Growth and Tax Relief Reconciliation Act (EGTRA) became law in 2001, the same year the Uniform Laws Commission’s two-year drafting project culminated in the “new” promulgation of the limited partnership act. . . .
This Symposium Issue is the brainchild of Professor Daniel S. Kleinberger at the William Mitchell College of Law and of course the Reporter for the Uniform Limited Partnership Act (2001) (ULPA 2001) adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The Issue is dedicated to the late Martin I. Lubaroff, an American Bar Association Advisor to the ULPA 2001 Drafting Committee whose tireless efforts to promote the understanding of partnership law was legendary long before his passing and will remain even longer. His silent footprints are scattered among ULPA 2001’s many innovations that include the first uniform limited partnership act to exist independently of general partnership law, to set forth express limited liability limited partnership provisions, and to provide a full corporate-styled liability shield for limited partners regardless of the magnitude and scope of participation in the control of the business. . . .
Since time immemorial, philosophers, theologians, mathematicians, and members of the bar have been fascinated with the concept of cause and effect. Indeed, since at least the days of the Scottish philosopher David Hume, there has been an exhaustive attempt to adequately define the nexus or link between the antecedent, the cause, and the subsequent, the effect. This search for a nexus, what some have called the ”relating relation” between cause and effect, or causation, has proven difficult, especially in the area of tort law.
At first blush, the issue of cause and effect and the relational issue of causation, would appear to be rather straightforward, however, “[a]lthough it sounds simple, ’causation is an inscrutably vague notion, susceptible to endless philosophical argument, as well as practical manipulation.'” Indeed, the element of cause-in-fact (as well as proximate cause) has proven especially troublesome in legal malpractice matters specifically and in tort matters generally. In legal malpractice matters more particularly, the judiciary and scholars alike seem rather perplexed over the element of cause-in-fact and the burdens plaintiffs have to demonstrate cause-in-fact and the value of the underlying claim, defense, or position that was allegedly lost at the hands of the negligent former attorney. For illustrative purposes, consider the issue of cause-in-fact and the plaintiff’s burdens of proof with regard to causation and damages in the following two legal malpractice scenarios, imaginatively referred to as scenario A and scenario B. . . .
Section 1983 of the Civil Rights Act permits individuals to bring private actions against state actors for “deprivation of any rights, privileges, or immunities secured by the Constitution and laws.” Courts, however, have continually refused to recognize § 1983 actions to enforce the Family Educational Rights and Privacy Act of 1974 (FERPA), which prohibits federal funding of schools that have a ”policy of denying . . . the parents of students the right to inspect and review the education records maintained by the State educational agency.” When reviewing a § 1983 suit, courts must determine whether the statute in question creates an individual right sufficient to support a § 1983 action. In Gonzaga University v. Doe, the United States Supreme Court considered whether a student may sue a private university under § 1983 to enforce provisions of FERPA when the university releases the student’s educational records to unauthorized persons. The Court determined that no right to private enforcement exists under § 1983 because § 1983 only enforces individual rights and FERPA confers only collective rights. . . .