Ohio Partnerships and Limited Partnerships
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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 Ohio law. Until the advent of LLCs in , partnerships were the most oft-used alternative to a nonprofit corporation.
Partnerships provide almost unlimited flexibility in governance and management. Profits and losses are allocated according to the capital contributions of each partner but unlike LLCs 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. General Partnerships
The Ohio Uniform Partnership Act (“OUPA”)
governs the formation of general partnerships in Ohio. OUPA is in the process of replacing the Ohio Uniform Partnership Law (“OUPL”). OUPL has been phased out extensively, and is set to expire in full on January 1, 2010. The following article contains helpful information regarding the transition from OUPL to OUPA: http://www.jonesday.com/files/Publication/86d38ba7-41f3-4e6c-85ef-e47e6fe83b37/Presentation/PublicationAttachment/2d8234bf-f274-4c94-8699-e5e6d279defb/Ohio%20Uniform%20Act.pdf
Under OUPA, a general partnership is formed when any association of two or more persons carry on as co-owners of a for-profit business. A general partnership is ordinarily, but not necessarily, undertaken pursuant to a partnership agreement. The partnership agreement governs relations among the partners and between the partners and the general partnership. The OUPA governs relations among the partners and between the partners and the partnership when the partnership agreement does not provide otherwise.
General partnerships may elect to file a statement of partnership authority with the Secretary of State. An example statement of partnership authority form can be accessed at the following address: http://www.sos.state.oh.us/SOS/Upload/business/forms/535.pdf
Although filing a statement is discretionary, it is advisable to do so. At least one general partner must sign the statement. The Secretary of State charges $125 for the filing of the statement. The statement must contain the following information:
- The name of the general partnership;
- The street address of the general partnership’s chief executive office and that of one office in Ohio, if an office exists in Ohio;
- The names and mailing addresses of all of the partners or of an information agent;
- The name and address of the agent for service of process and the signed acceptance of appointment.
- Each partner acts as an agent for the general partnership. Generally, acts that partners take in the ordinary course of the general partnership’s business bind the general partnership. However, such acts do not bind the general partnership when: (1) the partner has no authority to act for the general partnership with respect to the transaction; and (2) the person with whom the partner was dealing knew the partner lacked such authority. Subject to any agreement between them, each partner is entitled to an equal share of the general partnership’s profits. Likewise, each partner assumes a share of the general partnership’s losses that is directly proportional to the partner’s share of the profits. Each partner has equal rights in the management and conduct of the general partnership’s business. A person may become a partner only with the consent of all the partners.
A general partnership must keep its books and records, to the extent there are any, at its chief executive office. A general partnership must provide partners, their agents, and their attorneys with access to its books and records. Furthermore, the general partnership must provide former partners, their agents, and their attorneys with access to books and records pertaining to the period during which the former partners were partners. Limited Partnerships
A limited partnership is a partnership formed by two or more persons under the laws of Ohio, having as members one or more limited partners and one or more general partners. In a limited partnership, a general partner is a person who has been admitted to the partnership as a general partner in accordance with the partnership agreement. To form a limited partnership, a certificate of limited partnership must be filed with the secretary of state. It must be on a form provided by the secretary of state and must include the following:
- The name of the limited partnership;
- The address of the principal place of business;
- The name and address of each general partner; and
- Any other matters that the general partners determine to include in the certificate.
In a limited partnership, general partners manage the business and have unlimited liability. Limited partners contribute only investment capital without participating in the business and they have no liability beyond the capital invested. A partnership interest in a limited partnership is personal property. Limited Liability Partnerships (LLPs)
Section 1782 of the Ohio Revised Code governs the formation of limited liability partnerships (“LLPs”). A LLP is a partnership that is: (1) formed by two or more people; and (2) comprised of one or more general partners and one or more limited partners. The basic purpose of a LLP is to limit the liability of certain partners. As a requirement of formation, LLPs must execute and file a certificate of limited partnership with the Secretary of State. The filing fee for the certificate is $125. The certificate must contain the following information:
- The LLP’s name, which must include “Limited Partnership,” “L.P.,” “Limited,” or “Ltd.”;
- The address of the LLP’s principal place of business;
- The name and business or residence address of each general partner;
- The signatures of all general partners.
Generally, a limited partner is immune from liability for the LLP’s obligations. The main exceptions to this rule occur when either: (1) the limited partner is also a general partner; or (2) the limited partner participates in the control of the business beyond the exercise of the limited partner’s rights and powers as a limited partner. Yet, even when the limited partner participates in the control of the business, the limited partner is liable only to persons who have actual knowledge of the limited partner’s participation in the control of the business.
A partnership agreement should provide in writing the manner in which the LLP’s profits, losses, income, gains, deductions, credits, etc. are allocated among the partners and classes of partners. A promise by a limited partner to contribute to the limited partnership is not enforceable unless it is set out in a writing signed by the limited partner. If the agreement does not so provide, such allocations are made on the basis of the value of each partner’s contributions. The value of a partner’s contributions is determined in accordance with the records that LLPs are required to keep.
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