A Case of Not Filing for Renewal

A potential problem with statutory entities is that if one forgets to file a renewal, one may lose limited liability without knowing it.

Case: Gilman Paint & Varnish Co. v. Legum

Facts
The Tovell Construction Company was a limited partnership that was formed in 1942 for a predetermined duration of two years. C. Eugene Tovell and Walter J. Levy were general partners each of whom contributed $25,000 in capital, and Legum was a limited partner who contributed $150,000. Legum's share of the net profits was to be 33 1/3 percent. Gilman Paint & Varnish Co. sued Legum, together with Tovell and Levy, severally and as partners. In 1944 the partners signed a two year extension, but did not record it until 1948. Therefore, at the time of the sale of the merchandise, there was nothing on record indicating the existence of the partnership. In early 1948, the partnership defaulted, and Legum was sued for the amount owed.

Issue
Since the limited partnership no longer existed at the time of the sale, the issue is whether Legum really was a general partner and therefore whether he had unlimited personal liability.

Holding
Legum cannot be held as a general partner of the Tovell Construction Company. Furthermore, he did not have to give up his share of the profits in the business in order to not be held personally liable.

Reasoning
Section 11 of ULPA addresses situations in which a person erroneously believes himself to be a limited partner. If one gives up one's interest in the company upon learning of being a general partner, then the person is relieved of the obligation of a general partner. Section 11 of ULPA also states that one does not have to repay past profits as long as the profits do not exceed those that would have been received as a limited partner.

A Case of Limited Partners' Losing their Limited Liability

Case: Holzman v. de Escamilla

Facts
Hacienda Farms Limited was organized as a limited partnership in early 1943. Ricardo de Escamilla was the general partner and James L. Russell and H.W. Andrews were limited partners. Russell and Andrews advised Escamilla about which crops to plant and co-signed checks. They even could write checks without the need for Escamilla's signature. They also fired the general partner and hired somebody to replace him.

The partnership entered bankruptcy in December 1943. Russell and Andrews claimed that they had limited liability. The plaintiff maintained that they had taken control of the business, performing managerial acts, and therefore had the liability of a general partner.

Issue
The issue is whether Russell and Andrews active participation in the business made them lose the personal liability protection of limited partners.

Holding
Russell and Andrews were held liable as general partners.

Reasoning
Because they had the absolute power to withdraw all partnership funds from the bank account and could fire the manager, they had full control of the business and had become liable as general partners.

The limited partnership comprises general partners who run the business and are exposed to personal liability, and limited partners who invest in the business and have only their invested capital at risk. Limited partnerships are especially useful for raising capital since they permit investors to participate financially in the business without incurring personal liability.

Дата добавления: 2015-11-16