Washington Partnerships and Limited Partnerships
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 Washington law. Until the advent of LLCs, 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 in Washington are governed by the Revised Uniform Partnership Act (“WRUPA”). WRUPA defines a partnership as an association of two or more persons to carry on as co-owners a business for profit.
No formal agreement or filing is required to form a partnership. A partnership may be created by written or oral agreement or by the conduct of the parties. Unless the partnership agreement delegates certain duties to particular partners, each general partner is entitled to participate in the partnership’s management. Partners are personally liable for the obligations of the partnership unless the partnership elects to be treated as a limited liability partnership (discussed below). Partners do remain liable for their own personal misconduct. Pursuant to RCW 25.05.110, a partnership may elect to file a statement of partnership authority with the Secretary of State, which must include (i) the name of the partnership; and (ii) the street address of its chief executive office and of one office in Washington, if one exists. The statement of partnership authority may also include the names of all the partners, the names of the partners authorized to execute an instrument transferring real property held in the name of the partnership, and the authority or limitations on authority of some or all of the partners to enter into other transactions on behalf of the partnership. Unless it is cancelled earlier, a statement of partnership authority is cancelled by operation of law five years after its filing date.
If any partner ceases to be associated with the business of the partnership, he or she has dissociated from the partnership. Dissociation does not necessarily cause dissolution of the partnership. Partners owe fiduciary duties of loyalty and care to the partnership and the other partners. WRUPA does not require particular Washington partnerships to retain particular records. However, partners to a partnership have a general right of access to the books and records of the partnership.
Limited partnerships in Washington are governed by the Washington Limited Partnership Act (RCW 25.10 et seq.), which is based on the Revised Uniform Limited Partnership Act of 1976 (“WRULPA”).
Unlike general partnerships, a limited partnership is created under specific statutory authority. The main distinction between a general partnership and limited partnership in Washington is that a limited partnership consists of two classes of partners: general and limited. General partners control the management of the partnership and are personally liable for the partnership’s obligations. In contrast, the general rule is that limited partners do not participate in management and are personally liable for the partnership’s obligations only to the extent of their investment in the partnership. A limited partner may not participate in management without losing the liability protection afforded to them as limited partners. Limited partners do remain liable, however, for their personal misconduct.
A Washington limited partnership may be formed by one or more general partners and one or more limited partners. It is formed upon the filing of a certificate of limited partnership with the Secretary of State, setting forth (i) the partnership name; (ii) the name and address of the agent for service of process; (iii) the name and business address of each general partner (the names of limited partners need not be included); and (iv) the latest date upon which the limited partnership is to dissolve. Each of the general partners must sign the certificate of limited partnership. Upon the filing of a certificate of limited partnership, the secretary of state collects a filing fee of $180. The LLP must file an annual report to update this information.
The name of the partnership must include the words “limited partnership” or the abbreviation “L.P.” or “LP.” The name must be distinguishable from the name or reserved name of a limited liability company, limited partnership, limited liability partnership, corporation, or not-for-profit organization which is organized in Washington or authorized to conduct business in the state, or the fictitious name adopted by a foreign corporation under RCW 23B.15.060. The name may not contain the name of a limited partner unless it is also the name of a general partner or the business of the limited partnership has been carried on under that name before the admission of that particular limited partner. Finally, the name may not contain any of the following words or phrases: “bank”, “banking”, “banker”, “trust”, “cooperative”, any combination of the words “industrial” and “loan” or any combination of any two or more of the words “building”, “savings”, “loan”, “home”, “association” and “society.”
Once formed, the limited partnership is governed by its limited partnership agreement and the Washington statute.
Each limited partnership must maintain continuously an office at which it keeps the records required by statute (described below). The office must be at a specific geographical location in Washington (i.e., not a post office box number or other nongeographic address). Each limited partnership must maintain the following records at the registered office: (i) a current list of the full name and last known address of each partner, specifically identifying the general and limited partners; (ii) a copy of the certificate of limited partners and any powers of attorney pursuant to which any certificate has been executed; (iii) copies of the limited partnership’s federal, state and local tax returns and reports for the three most recent years; (iv) copies of written partnership agreements in effect and any financial statements for the three most recent years; and (v) unless otherwise set forth in the partnership agreement, a written statement of (a) the amount of cash and a description of the agreed value of other property or services contributed by each partner; (b) the times at which any additional contributions are to be made; (c) any right of a partner to make or receive distributions to a partner which would include a return of all or party of that partner’s contribution; and (d) a list of the events upon which the limited partnership is to be dissolved. A limited partnership must also maintain an agent in the State of Washington to receive service of process.
Limited Liability Partnerships (LLPs)
As discussed above, Washington has adopted the Revised Uniform Partnership Act (the “WRUPA”), which defines a partnership as an association of two or more persons to carry on as co-owners a business for profit. The WRUPA also permits the formation of limited liability partnerships, which are distinctive from general partnerships in that the partners of an LLP are not personally liable for the LLP’s obligations. Partners do remain liable, however, for their personal misconduct.
A Washington general partnership may elect to be treated as an LLP. It is formed upon the filing of a statement of qualification with the Secretary of State or upon the effective date set forth in the statement of qualification. The statement of qualification must include (i) the name and address of the partnership; (ii); the number of partners; (iii) a statement of the business in which the partnership engages and any other matters that the partnership determines to include; (iv) a statement that the partnership elects to be an LLP and (v) a deferred effective date, if any. At least two partners must sign the statement of qualification. The name of the partnership must include the words “limited liability partnership” or the abbreviation “L.L.P.” or “LLP.” Upon the filing of a statement of qualification, the Secretary of State collects a filing fee of $180. The LLP must file an annual report to update this information.
The partners of an LLP may, but are not required to, adopt a formal written partnership agreement. In the absence of a written agreement, the LLP will be governed by the Washington statute. WRUPA does not require particular Washington partnerships to retain particular records. However, partners to a partnership have a general right of access to the books and records of the partnership.
Washington Partnership Law and Practice Handbook. RCW 25.05 et seq.; RCW 25.10 et seq.; RCW 25.05.500