New Mexico Partnerships and Limited Partnerships
General partnerships, limited partnerships and limited liability partnerships are forms of organization that can be used to pursue social objectives and are recognized as statutory entities under New Mexico law. Until the advent of limited liability companies in New Mexico in 1993, partnerships were the most oft-used alternative to a nonprofit corporation.
General partnerships provide almost unlimited flexibility in governance and management. Profits and losses are allocated according to the capital contributions of each partner but unlike limited liability companies and nonprofit corporations, the total assets of each partner in a general partnership are at risk, not just the capital that has been put into the enterprise. Limited partnerships changed this by permitting the creation of a special class of partners, known as “limited” partners, who provide capital but do not participate in management. In limited partnerships, the limited partners are shielded from liability beyond their capital contributions, but the general partner—who manages the affairs of the limited partnership—does not have this liability protection. Limited partnerships are often used as financing vehicles and are most useful when investors are to have no role in management and a simple or flexible governance structure is needed.
Limited liability partnerships (LLPs) function like general partnerships but provide extra protections for the general partners. Such protections include personal immunity for liability arising from the negligence and wrongful acts of other partners, unless the other partners were under their direct supervision. Thus, a partner’s loss with respect to the LLP is usually limited to his/her investment in the partnership.
In New Mexico, general partnerships are goverened under the Uniform Partnership Act ("UPA') [Chapter 54, Article 1A NMSA 1978]. The formation of a general partnership does not require a formalized agreement by the partners. Rather, a general partnership is formed simply by the association of two or more persons to carry on as co-owners a business for profit, whether or not the persons intend to form a partnership. Once formed a gneral partnership is an entity distinct from its partners.
In determining whether a general partnership is formed, the following rules apply: (1) joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property; (2) the sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived; and (3) a person who receives a share of the profits of a business is presumed to be a partner in the business.
The UPA governs relations among the partners and between the partners and the partnership and the liability of partners for an obligation of a general partnership. Under the UPA: all partners by default have equal rights in the management of the partnership; each partner is entitled to an equal share of the partnership profits; a partnership shall reimburse a partner for payments made and indemnify a partner for liabilities or for an advance to the partnership beyond the amount of capital the partner agreed to contribute; each partner has equal rights; a partner may use or possess partnership property only on behalf of the partnership; a partner is not entitled to remuneration for services, except for reasonable compensation for services rendered in winding up the business of the partnership; a person may become a partner only with the consent of all of the partners; a difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners.
In New Mexico, limited partnerships are governed by the Uniform Revised Limited Partnership Act (“URLPA”) [Chapter 54, Article 2A NMSA 1978]. A limited partnership is an entity composed of one or more general partners and one or more limited partners. The general partners are personally liable for partnership obligations whereas the limited partners generally are only liable for their agreed upon contributions to the limited partnership, even if the limited partners participate in the management and control of the limited partnership. The limited partnership is different from the general partnership both because the limited partnership is purely a statutory creation and because of the limited liability afforded the limited partners. The term “limited partnership” also includes a limited liability limited partnership (LLLP).
In order for a limited partnership to be formed, a certificate of limited partnership must be delivered to the New Mexico Secretary of State for filing. The certificate must state: the name of the limited partnership; the street and mailing address of the intial designated office and the name and street and mailing address of the initial agent for service of process; the name and street and mailing address of each general partner; and if the limited partnership wishes to be a limited liability limited partnership, a statement to that effect. A limited partnership is formed when the secretary of state files the certificate of limited partnership. The filing of a limited partnership certificate establishes that all conditions precedent to the formation of the limited partnership have been satisfied.
A general partner owes the limited partnership limited fiduciary duties of care and loyalty. A general partner shall exercise any of his or her rights consistent with the obligation of good faith and fair dealing. However, a general partner does not violate his or her fiduciary duties merely by engaging in conduct that furthers his or her own interest.
A limited partner generally owes no fiduciary duty to the limited partnership. However, a limited partner must still discharges his or her duties to the partnership and the other partners consistent with the obligation of good faith and fair dealing. A limited partner does not violate a duty or obligation pursuant to URLPA or pursuant to the partnership agreement merely because the limited partner’s conduct furthers the limited partner’s own interest.
Limited Liability Partnerships (LLPs)
A limited liability partnership (LLP) is simply a general partnership that has filed a statement of qualification under the Uniform Partnership Act and does not have a similar statement in effect in any other jurisdiction. LLPs continue to be governed by the rules set forth for general partnerships in the UPA except that the general partners are no longer personally liable for the obligations of the partnership whether such obligations arise in contract, tort or otherwise. That said, however, a partner continues to be personally liable for his or her own wrongful acts.
New Mexico Uniform Partnership Act [Chapter 54, Article 1A NMSA 1978]
New Mexico Uniform Revised Limited Partnership Act [Chapter 54, Article 2A NMSA 1978]