Corporate General Partners of Limited Partnerships
In the Journal of Small and Emerging Business Law, Vol. 1, No. 1, 1997.
Posted: 20 Sep 1998
Date Written: May 1997
The traditional limited partnership is essentially a financing device that permits passive investors (the limited partners) to participate in the profits of a firm managed by other persons (the general partners) without fear of personal liability. The general partners are personally liable for all partnership obligations, including breaches of fiduciary duties owed to the limited partners. A limited partnership with a nominally financed corporation as its sole general partner departs radically from this model and becomes a limited liability entity not unlike a corporation. Since there is no prohibition against limited partners serving as shareholders, directors or officers of the corporate general partner, the organizers and managers of the venture may participate in the sharing of profits and losses as limited partners as well as through the corporate general partner.
After discussing the unique features of the limited partnership with a corporate general partner, and the problems it poses in relation to fiduciary duties owed by the directors and managers of the corporate general partner to the limited partners, the author analyzes recent cases and proposes that courts should uniformly impose fiduciary duties on directors and managers of the corporate general partner. Additionally, the author analyzes the issues raised when control over the general partner is transferred to a third party and concludes that the appropriate analysis for determining whether a transfer is valid is whether the transfer poses an increased risk of harm to the limited partners.
Suggested Citation: Suggested Citation