Alternatives to Incorporation for Persons in Quest of Profit: The Limited Partnership with a Corporate General Partner

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GRIN Verlag, 2007 - 60 pages
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Bachelor Thesis from the year 2006 in the subject Law - Civil / Private / Trade / Anti Trust Law / Business Law, grade: A-, New York University School of Law, course: US corporate and commercial law, 0 entries in the bibliography, language: English, abstract: American company law traditionally offered a group of businessmen in quest of profit only two choices of business associations: a corporation or a partnership. Both forms have their advantages and disadvantages that depend upon various factors: the size of the envisaged business, its riskiness, capital requirements, need for a separation of ownership and management, liability, desired life of the venture, and transferability of share interests. The partnership has generally been used for smaller enterprises associated with less risk and capital requirements. The corporate form gives businessmen the opportunity to conduct risky business affairs with respect to potential tort liability as well as default risk without being exposed to unlimited personal liability because only the assets of the corporation can be used to satisfy claims. The benefit of limited liability came at the price of disadvantageous double taxation because, unlike a partnership, a corporation has been viewed as an independent entity and its income has consequently been taxed on the corporation's as well as the shareholders' level. This has driven smart entrepreneurs to conduct their business affairs in form of a hybrid entity, a combination of a partnership and a corporation, the limited partnership with a corporate general partner. In that form a corporation is the (sole) general partner of a limited partnership which results in limited liability for the owners and managers of this hybrid entity and the advantage of the preferential tax treatment of a partnership. Thus, this entity allows combining the benefits of a corporation and a partnership while reducing their shortcomings. The goal of this paper is to illustrate the development of
 

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Contents

The Limited Partnership with a Corporate General Partner 11
11
Reasons for the Unpopularity of the Limited Partnership with a Corporate General Partner 19
19
Conclusion 25
25
Copyright

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Page 20 - Fidelity Lease, Ltd., a limited partnership acting by and through Interlease Corporation, General Partner." [2] We disagree with this contention. Section 8 of Article 6132a simply provides that a limited partner who takes part in the control of the business subjects himself to personal liability as a general partner. The statute makes no mention of any requirement of reliance on the part of the party attempting to hold the limited partner personally liable. !!!• 1 1' Si I I 1 It l|9 ii I gp il...
Page 19 - However, if the limited partner's participation in the control of the business is not substantially the same as the exercise of the powers of a general partner...
Page 21 - Coase, The Problem of Social Cost, 3 J. LAW & ECON. 1 (1960).
Page 8 - ... even if the limited partner participates in the management and control of the limited partnership.
Page 7 - It was adopted partly because of the difficulty of determining when the "control" line has been overstepped, but also (and more importantly) because of a determination that it is not sound public policy to hold a limited partner who is not also a general partner liable for the obligations of the partnership except to persons who have done business with the limited partnership reasonably believing, based on the limited partner's conduct, that he is a general partner.
Page 7 - However, if the limited partner participates in the control of the business, he is liable only to persons who transact business with the limited partnership reasonably believing, based upon the limited partner's conduct, that the limited partner is a general partner.
Page 8 - ... (c) An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner.

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