Colorado 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 Colorado law. Partnerships provide great 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, each partner’s loss with respect to the LLP is usually limited to his/her investment in the partnership.
In Colorado, two statutes govern partnership formation. A partnership formed before January 1, 1998 is governed by the Uniform Partnership Law (UPL). A partnership formed after December 31, 1997 or that elects to be so covered, is governed by the Colorado Uniform Partnership Act (CUPA). This article will focus on the more recent of the two statutes, the CUPA, but entities formed before 1997 should recognize the existence of UPL and conduct further research accordingly.
General Partnerships (GPs)
Under both the UPL and CUPA, a general partnership is defined as an association of two or more persons to carry on, as co-owners, a business for a profit, but excluding an association formed under any other statute.
Unlike corporations or even some partnerships such as a limited liability partnership, general partnerships need take no formal action to organize. When two persons carry-on as owners of a business for profit, they form a general partnership regardless of whether they intend to do so.
General partnerships may file a “statement of partnership authority” that (i) shall contain: (1) the domestic entity name of the partnership; (2) the street address of its chief executive office and of one office in Colorado, if there is one; (3) the names and addresses of all of the partners or of an agent appointed and maintained by the partnership to maintain and furnish such names and addresses (4) the names of the partners authorized to execute an instrument transferring real property held in the name of the partnership; and (ii) may contain the authority, or limitations on the authority, of some or all of the partners to enter into other transactions on behalf of the partnership and any other matter.
The registration of a trade name with the Department of Revenue permits the general partnership to do business in a name other than the personal names of its partners. A general partnership doing business under a trade name must file a “certificate of assumed or trade name” with the Secretary of State. A statement of trade name shall state: (a) the true name of the person or, in the case of a general partnership that is not a limited liability partnership, the true name of at least one general partner of the general partnership; (b) if the person is an entity, the form of entity and the jurisdiction under the law of which it is formed; (c) if the person is not a reporting entity, the person’s principal address; (d) the name, other than the true name of person, under which the person transacts business, or contemplates transacting business, in this state; (e) a brief description of the kind of business; (f) such other information as the secretary of state may require.
Partners have the statutory right to participate in management. Also, unless otherwise agreed, differences in the ordinary course of business may be resolved by a majority vote. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all the partners.
Partners are jointly and severally liable but creditors must exhaust remedies against the general partnership before executing against the partners. The partnership also shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of business of the partnership or for the preservation of its business or property.
In Colorado, a limited partnership formed before November 1, 1981 is subject to the Uniform Limited Partnership Act of 1931 (ULPA). A limited partnership formed after October 31, 1981 is governed by the Colorado Uniform Limited Partnership Act (CULPA). Limited partnerships subject to ULPA can elect to be governed by CULPA.
This article will focus on limited partnership formation under the CULPA.
A limited partnership is formed by two or more persons under the laws of Colorado and having one or more general partners and one or more limited partners. The name of a limited partnership must include: Limited Partnership, Limited, Company, L.P., Ltd., or Co., and must be distinguishable on the record from the name of any other entity.
A limited partnership is formed by filing a certificate of limited partnership with the Secretary of State. The certificate must set forth: (1) the name of the limited partnership; (2) the name and address of the registered agent; (3) the name and the address of each general partner; (4) a statement that there are at least two partners in the partnership, at least one of whom is a limited partner.
Limited partnerships may file a “statement of partnership authority” per criteria listed in the general partnership section of this article. They also must file a “certificate of assumed or trade name” per criteria listed in the general partnership section of this article.
General partners may participate in management, but limited partners who participate in control of the business may incur personal liability.
A general partner is jointly and severally liable for the obligations of the limited partnership. A limited partner is not liable for the obligations of the limited partnership unless the limited partner is also a general partner, or the limited partner participates in the control of the business. However, if the limited partner participates in the control of the business at the time such liability is incurred, the limited partner is liable only to persons who transact business or conduct activities with the limited partnership reasonably believing that the limited partner is a general partner.
Limited Liability Partnerships (LLPs)
An LLP formed before January 1, 1998, and registered after May 23, 1995, will be governed by UPL LLP law unless it elects to be governed by CUPA. An LLP formed after December 31, 1997, or which elects to be governed by CUPA, will be subject to CUPA LLP provisions.
An LLP is a general partnership in which the partners are not personally liable for the debts and obligations of the general partnership.
LLPs are formed after filing a registration statement with the Secretary of State. The statement may be included in the certificate of limited partnership and declares the following: (a) the name that has been the true name of the domestic partnership or of the domestic limited partnership and the name that will be the domestic entity name of the domestic limited liability partnership or domestic limited liability limited partnership; (b) the principal office address of its principal office; and (c) the registered agent name and registered agent address of its registered agent.
LLPs may file a “statement of partnership authority” per criteria listed in the general partnership section of this article. They also must file a “certificate of assumed or trade name” per criteria listed in the general partnership section of this article. The name of an LLP must contain the words Registered Limited Liability Partnership, Limited Liability Partnership, L.L.P., LLP, R.L.L.P., or RLLP, and must be distinguishable on the record from the name of any other entity.
LLPs are governed by a partnership agreement, which is the agreement, whether written, oral, or implied, among the partners that governs relations among the partners and between the partners and the partnership. Partners in LLPs have a statutory right to participate in management. Unless otherwise agreed, differences in the ordinary course of business may be resolved by a majority of the partners, and differences outside the ordinary course of business and amendments of the partnership are resolved by unanimous vote.
Except as provided in a partnership agreement, a partner is not liable directly or indirectly, including by way of indemnification, contribution, or otherwise for a debt, obligation, or liability of or chargeable to the LLP (other than for the partner’s own negligence, wrongful acts, or misconduct).
Limited Partnership Associations (LPAs)
LPAs formed after May 24, 1995 are governed by the Colorado Limited Partnership Association Act. LPAs are unincorporated associations formed under the Colorado Limited Partnership Act.
An LPA is formed by filing articles of association with the Secretary of State. The LPAs’ name must include the word Limited or the abbreviation Ltd. or LPA, and the entity must be distinguishable on the record from any other entity.
LPAs follow corporation rules for name and trade name filing. If operating under a name other than the true name of the person or general partner of a general partnership, LPAs must file a “certificate of assumed trade name” with the Secretary of State. LPAs also must file articles of association with the Secretary of State, which must contain: (1) the name of the LPA; (2) a statement that the association is formed under the Colorado Limited Partnership Association Act; (3) in a manager-managed LPA, a statement that the entity is manager-managed and a statement of the difference in management rights of members; (4) any restriction on the authority of members or managers; (5) the address of the association’s initial principal office; (6) the name of the association’s initial registered agent and the address of its initial registered office in this state; and (7) the names and addresses of the organizers.
In the LPA structure, either managers or members may manage the association. At least two Managers are elected from among the members. The election of a manager or officer shall require a majority vote of the members in number and interest.
Under the CLPAA, the managers, officers, and members, including their transferees and successors shall not be liable for a debt, obligation, or other liability of the LPA. However, managers authorizing a wrongful dividend are jointly and severally liable for the amount of the wrongful distribution and are entitled to contribution from other managers and from members who received dividends knowing that they were wrongful.