Legal Issues and Legal Structure Term Paper

Download this Term Paper in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Term Paper:



LEGAL ISSUES-LIMITED PARTNERSHIP. According to Black's Law Dictionary (1991), a limited partnership is a "type of partnership of one or more general partners who manage business and who are personally liable for partnership debts, and one or more limited partners, who contribute capital and share in profits but who take no part in running business and incur no liability with respect to partnership obligations beyond contribution" (p. 928). This definition of a limited partnership is congruent with the provisions of the Uniform Limited Partnership Act that stipulates such a partnership is comprised of one or more general partners and one or more limited partners who are not bound by the obligations of the partnership (Black's, 1991). A limited partnership represents an effective operational structure for asset protection because limited partners are generally liable only for their partnership contributions and not for any partnership debts if they do not participate in the control of the day-to-day partnership business; by contrast, general partners control the partnership and are completely liable for partnership debts (Dedon, 1999).

Although laws concerning limited partnerships vary from state to state, the aforementioned Uniform Limited Partnership Act sets forth general requirements for their creation and operation. For instance, the Secretary of State (2010) reports that in Texas, "The limited partnership operates in accordance with a partnership agreement, written or oral, of the partners as to the affairs of the limited partnership and the conduct of its business. While the partnership agreement is not filed for public record, the limited partnership must file a certificate of formation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements" (Selecting a business structure, 2010, para. 2).

1. EASE of FORMATION. In Missouri, forming a limited partnership involves only the filing of a certificate of limited partnership with the state's Corporations Division and the payment of all required fees; however, there are a variety of other issues that must be considered during the formation that will contribute to its success -- or failure -- in the future and these issues are discussed further below.

2. TAXATION. The ultimate goal of any limited partnership is to provide a framework in which there is limited personal liability as to taxation for all owners (Cleveland, Wells & Yashimoto, 1996). According to Gutterman (1994), "For tax purposes, profits and losses from the limited partnership are "passed through" to each of the general and limited partners in the proportions provided for in the limited partnership agreement" (p. 259). In this area, the general partners enjoy a great deal of latitude concerning the allocation of profits and losses. In this regard, Gutterman advises, "As a general rule, the partners are free to allocate profits and losses in any manner they decide, even if the allocations are disproportionate to the capital contributed to the partnership, provided that the allocations have 'substantial economic effect' under Section 704(b) of the Internal Revenue Code of 1986, as amended" (1994, p. 259).

In addition, in those cases where there are family relationships between the partners such as a married couple, there also some worthwhile income and estate planning reasons why assets should be transferred to a family limited partnership:

1. It allows a couple to shift income to children or other relatives through gifts of limited partnership interests. Income from these limited partnership interests is then taxed to the limited partners. If the parents together own 10% of the partnership and the partnership's income is $100, the parents would be taxed on only $10 of income.

2. Once the interests have been given away, they generally no longer are in the couple's gross estate.

3. Couples can take advantage of the gift tax provisions by giving $20,000 worth of limited partnership interests each year to a limited partner. These independent reasons for forming a limited partnership may help demonstrate there is no fraudulent intent on asset transfers to the partnership if this strategy subsequently is challenged in court (Dedon, 1999, p. 61)


According to Dedon (1999), partnerships are confronted with certain special risks that can doom a business to failure because partnerships are liable for potential claims against their partners (Dedon, 1999). According to this authority, "General partners may be liable for against their personal assets resulting from engagements performed in distant cities of which he or she had no knowledge. Failure to adopt a plan that protects assets from creditors can have tragic consequences for those who are sued" (Dedon, 1999, p. 61). There are some limits as to what and how much can be assessed against partnership assets. In this regard, the same type of affirmative asset partitioning that is applied to corporations, typically termed "priority with liquidation protection" is also used with limited partnerships which assigns creditors a prior claim on assets as well as providing that if a partner becomes insolvent, the partner's personal creditors cannot force liquidation of partnership assets to satisfy their claims upon exhausting the partner's personal assets (Hansmann & Kraakman, 2000). The most severe tactic that a creditor can use in these cases is to have the partner's creditors assume the partner's role as an owner that can encourage the liquidation of firm assets but this requires at least a majority agreement among the partnership's limited partners (Hansmann & Kraakman, 2000).

4. Management and CONTROL. The general partner of a limited partnership has full authority to manage the affairs of the limited partnership and is subject to unlimited liability for debts and obligations incurred by the limited partnership. Limited partners have no rights to participate in the management and control of the business of the limited partnership; however, they also are not liable for any of the debts or obligations of the limited partnership in excess of the amount of capital they contributed to the partnership (Gutterman, 1994, p. 258). In practice, the management structure of a limited partnership ranges between full or partially participatory (Cleveland, Wells & Yashimoto, 1996).

5. TRANSFERABILITY and CONTINUITY. Both partnerships and corporations share some common characteristics as they apply to transferability and continuity. Although partnerships and corporation must both have associates as well as a stated objective in order to conduct their businesses, partnerships do not typically posses four of the remaining characteristics that define corporations, to-wit: (a) limited liability, (b) centralized management, (c) continuity of life, and (d) free transferability of interests (Cleveland et al., 1996). Current IRS regulations require that in order to be properly formed for federal income tax purposes, a partnership is not allowed to possess more than two of these four corporate characteristics (Cleveland et al., 1996). Because limited liability is one of the primary features that the limited partnership provides its stakeholders, companies seeking to operate as limited partnerships must ensure that they do not posses more than one of the other three remaining corporate characteristics: (a) continuity of life, (b) centralized management, or (c) free transferability of ownership (Cleveland et al., 1996).


LEGAL STRUCTURE: FORMATION and FILING of CERTIFICATE. The Missouri Secretary of State (201) reports that in Missouri, the formation of a limited partnership requires the filing of a certificate of limited partnership with the Corporations Division pursuant to Section 359.091, RSMo; likewise, all foreign limited partnerships seeking to do business in Missouri are also required to register with the Corporations Division per Section 359.501, RSMo; the fee for filing both an original certificate of limited partnership and for registering a foreign limited partnership is currently $105 (Starting a business, 2010).




CONTRACT and TORT LIABILITY. The extent of liability for contractual obligations as well as exposure to tort liability will depend on the stakeholders' status within the limited partnership. "An entity has "limited liability" if under local law no member is personally liable for the debts or claims against the organization. Personal liability means that a creditor of an organization may seek personal satisfaction from a member of the organization, to the extent that the assets of the organization are insufficient to satisfy the creditor's claim" (Cleveland et al., 1996, p. 27). The law of partnership solves the problem of granting creditors a prior claim on the assets of the firm, and hence permits the weak form of affirmative asset partitioning, by creating a special form of concurrent tenancy for all assets held in partnership name. (a partner is said to hold partnership assets as a "tenant in partnership" under the old Uniform Partnership Act.(34) the rules of creditors' rights and bankruptcy applied to partnership provide that creditors of the partnership have a claim on these partnership assets, in case of the partnership's insolvency, that is prior to the claims of the partners' personal creditors (Hansmann & Kraakman, 2000,…[continue]

Some Sources Used in Document:


Cite This Term Paper:

"Legal Issues And Legal Structure" (2010, January 30) Retrieved December 8, 2016, from

"Legal Issues And Legal Structure" 30 January 2010. Web.8 December. 2016. <>

"Legal Issues And Legal Structure", 30 January 2010, Accessed.8 December. 2016,

Other Documents Pertaining To This Topic

  • Human Resources Management Legal Issues

    This creates the largest challenge for a global company like WalMart which has to ensure that it keeps up with changes that are happening in different states and countries. For example the rules for employees in Massachusetts are different from those in New York. This creates challenges for the organization in trying to keep up with compliance to legal standards. Cultural change around the world is also creating challenges for

  • Sub Prime Mortgage Lenders Ethical Legal Issues Ethical

    Sub-Prime Mortgage Lenders Ethical Legal Issues Ethical and legal issues concerning sub-prime mortgage lenders The essay is aimed at exploring the subprime mortgage lending and related ethical and legal issues. Subprime mortgage has become an influential industry in particular due to the increase in trend to take loans for house purchase in an average American. Ethical Issues involved Legal Issues Ethical and legal issues concerning sub-prime mortgage lenders Subprime Mortgage Industry Legal Issues Ethical Issues CONCLUSION AND SOLVING THE PROBLEM Ethical and

  • Legal Issues National International Acquisitions 2 the

    Legal issues national international acquisitions. 2) The types acquisitions a) Off-market b) Hostile c) Negotiated d) Take- business 3) Mention effects acquisitions employees I specifics paper detailed a high level. Company acquisition laws The modern day business environment is extremely complex and demanding, presenting the economic agents with a series of challenges. They, for instance, have to respond to the ever changing needs of the customer base, the incremental pressures to

  • Legal Nurse Consultant Business Plan

    (Chizek, 2003) The Role legal nurse consultant may provide service in a number of roles, including but not limited to: Consulting expert Testifying expert Facility-based investigator Trainer and in-service presenter Peer reviewer Quality improvement, risk management, claims management Liability insurance marketer and clinical resource" (Chizek, 2003) As standards of care constantly change, medical and nursing staff must keep informed of current standard to develop and/or modify policies and procedures, which must be maintained and secured indefinitely. In the

  • Healthcare Legal Issues Care and Treatment of

    Healthcare Legal Issues: Care and Treatment of Minors The evolution of the hospital is a unique social phenomenon reflecting societal attitudes toward illness and the welfare of the individual and the group. Hospitals existed in antiquity, in Egypt and in India. After Christianity became the state religion of the Roman Empire, hospitals were built in Christian nations. Subsequently, after Islam arose, hospitals were built in Moslem countries as well. Regardless of

  • Ethical and Legal Issues in Acting as

    Ethical and Legal Issues in Acting as a Client Advocate" focuses on issues facing the psychiatric nurse in his or her dealing not only with patients, but also with family members of patients as well as wider social and political issues. The article emphasizes the complexity of the ethical issues surrounding the psychiatric profession, not only because of the nature of the afflictions of patients, but also because of

  • Major Legal Issues Concerning Female Inmates

    Women in Prison Major Legal Issues Concerning Female Inmates Problems in corrections: Dealing with the unique needs of women in the prison system The number of female prison inmates in America and internationally is growing. Although men still outnumber women in the prison population, the rates of female incarceration, once considered relatively nominal, have skyrocketed. "In the U.S., where the prison and jail population reached two million in the year 2000, women's incarceration is

Read Full Term Paper
Copyright 2016 . All Rights Reserved