A Limited Partnership (LP) is a partnership in which the limited partners have limited liability. It must have at least one general partner, which is generally liable for all of the debts and obligations of the partnership (see below for the exception as an LLLP). We recommend that the general partner of the partnership be formed as a Delaware LLC, the persons who were to become the general partners become the members of the LLC. This step insulates the actual general partners from personal liability. The general partner may also be a limited partner, however, the limited partnership must have at least one limited partner who or which must be different from the general partner. Limited partners have the same limited liability as a stockholder in a corporation existing under the Delaware General Corporation Law or a member of a Delaware LLC, Sec. 17-303(a).
Limited partners may not participate in the control of the partnership. If they violate this rule they may become liable as a general partner to persons who transact business with the limited partner and reasonably believe that the person is a general partner. Sec. 17-303(a) has “safe harbor” provisions which permit limited partners to perform defined services for the partnership without becoming general partners. Delaware limited partnerships are formed under the Delaware Revised Uniform Limited Partnership Act, Title 6 Delaware Code §17-101 et seq. (DRULPA).
The limited partnership is formed by the filing of a “certificate of limited partnership” under Sec. 17-201 of DRULPA. The certificate contains the name of the limited partnership, the name and address of the registered agent and the names and business, or other addresses, of all of the general partners. The general partners may either personally sign the certificate or may authorize the execution by an agent or attorney in fact. The authorization need not be in writing and need not be sworn (Sec. 17-204(b)). The limited partnership is formed at the time of the filling of the initial certificate of limited partnership with the Delaware Secretary of State (Sec. 17-201(b)).
A limited partnership must have a partnership agreement which may be entered into before, after or at the time of the filing of the certificate of limited partnership. Without regard to when the agreement is entered into, the agreement may be made effective as of the date of the formation of the limited partnership or at such other time or date as may be provided in the partnership agreement (Sec. 17-201(d)).
As a result of the Delaware requirement that the limited partnership have a partnership agreement, DELCORP’s® limited partnership package includes our standard limited partnership agreement. Under the standard agreement the general partners decide all matters among themselves; there are no obligations for capital calls; income and expense are distributed to the partners, at such time as may be determined by the general partners, based on each partners’ interest in the income and expense of the partnership (sometimes referred to as partnership interest or % interest). The current Delaware annual tax for limited partnerships is US$200 payable by June 1. Partnerships pay no additional tax to the State of Delaware unless they transact business within the state.
As an alternative to the general partners having “general liability”, a Delaware limited partnership may be formed as, or may elect to thereafter become, a “limited liability limited partnership” (a “LLLP”). As a LLLP, the general partners have the same limited liability as is afforded to partners of a Delaware LLP (Sec. 17-214(c)). Notwithstanding the LLLP election we still recommend that the general partner be a LLC. The LLC general partner will have as its only asset its interest in the partnership. Section 17-214 requires that the name of the LLLP contain as the final words or letters in its name “Limited Liability Limited Partnership,” or the abbreviations “L.L.L.P.” or “LLLP”. In addition to the US$200 annual Delaware tax paid by all limited partnerships, the LLLP must also file an annual report identifying the number of general partners and pay an additional annual fee of US$200 for each general partner.
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