The Limited Liability Partnership Amendments to the Uniform Partnership Act (1994)
52 Pages Posted: 17 Sep 2006
Since 1990, dissatisfaction with corporate tax and business laws, and Subchapter S tax restrictions, has fueled an unprecedented explosion of state laws. Those laws provide business owners important options to form partnership organizations combining corporate-styled limited liability with partnership tax characteristics. Every state has adopted a limited liability company (LLC) act. Every state but Vermont and Wyoming has adopted a limited liability partnership (LLP) act providing some form of liability shield to the partners of a general partnership electing to have one. Those LLC and LLP acts, however, are far from uniform. The LLC acts are a confusing and inconsistent amalgam of corporate, general, and limited partnership law. The LLP acts generally amend the Uniform Partnership Act of 1914 (UPA), rather than the Uniform Partnership Act (1994) (UPA 1994), and vary widely in liability shield adoption procedures and the scope and durability of the shield.
LLCs and LLPs are relatively new business forms. With time, practitioners will become more comfortable with their advantages and particularities. These forms also will become more prevalent as other laws recognize their structure. For example, only recently has the Internal Revenue Service (IRS) released rules which automatically classify LLCs and LLPs formed after January 1, 1997 as partnerships. These rules eliminate a lingering concern that these entities could be considered associations taxable as corporations for federal tax purposes. Adding to the growing body of law, the IRS also has released rules to determine when LLC and LLP business owners may avoid self-employment taxes on their distributive share of income, and how they may select a tax matters agent to represent the business entity in a tax audit.
In an important effort to provide more uniformity, in 1996 the National Conference of Commissioners on Uniform State Laws adopted the Uniform Limited Liability Partnership Amendments (ULLPA) to the UPA 1994. By extending elective corporate-styled limited liability into the UPA 1994, the ULLPA followed the approach of the Uniform Limited Liability Company Act (ULLCA). Both the ULLPA and the ULLCA provide business owners the opportunity to obtain both corporate-styled liability and partnership tax status where profits are passed through the entity, and taxed only once, at the owner's level.
For all purposes other than the specially created partner liability shield, an LLP is a general partnership. Therefore, a discussion of the ULLPA's main features can be organized readily around the principal UPA 1994 amendment areas: elective creation and annual report provisions; partner liability shield provisions; and provisions to recognize LLPs formed under foreign law.
Keywords: general partnership, revised uniform partnership act, RUPA, limited liability partnership, LLP
JEL Classification: K10, K20
Suggested Citation: Suggested Citation