HOUSE BILL REPORT

SHB 393

BYHouse Committee on Judiciary (originally sponsored by Representatives P. King, Padden, Appelwick and Schmidt)

Changing provisions relating to limited partnerships.

House Committe on Judiciary

Majority Report:     The substitute bill be substituted therefor and the substitute bill do pass.  (15)

     Signed by Representatives Armstrong, Chair; Crane, Vice Chair; Appelwick, Brough, Hargrove, P. King, Lewis, Moyer, Niemi, Padden, Patrick, Schmidt, Scott, Wang and Wineberry.

House Staff:Harry Reinert (786-7110)

AS PASSED HOUSE MARCH 16, 1987

BACKGROUND:

In 1981, Washington adopted the Uniform Limited Partnership Act. The act provides for the filing of a certificate of limited partnership with the secretary of state.  The certificate must include the names of all general partners and all limited partners.  The certificate of partnership must also state specific details about the cash or property contributed by all partners, when a limited partner may assign his or her interest, what events may lead to termination of the partnership, and additional matters determined by the general partners.

A domestic limited partnership is required to maintain an office in the state and have a registered agent who is a resident of the state to receive service of process.  A limited partnership must include the words "Limited Partnership" in its name and may not have any word or phrase in its name that implies that it is organized for a purpose other than stated in the certificate of limited partnership.  The limited partnership is required to keep books and records available at its office for review and copying by partners.

A limited partnership is dissolved by the filing a certificate of cancellation with the secretary of state.

If a person required to execute a certificate of amendment or cancellation fails or refuses to do so, a partner or assignee of a partner may request a court to order that a certificate of amendment or cancellation be issued.

A person may be made an additional limited partner under the terms of the partnership agreement.  The certificate of limited partnership on file with the secretary of state must be amended before the person becomes a limited partner.

A limited partner is not generally liable for the obligations of the limited partnership unless certain conditions are met.  If the limited partner is also a general partner or participates in the control of the business he or she may be liable for partnership obligations.  In the latter instance, the liability is only to persons who transact business with the partnership with actual knowledge that the limited partner is participating in control.  There are certain activities that a limited partner may engage in without incurring liability. These include: being an agent or employee of the limited partnership or an officer, director or shareholder of a general partner; consulting with or advising a general partner; acting as a surety for the limited partnership; or proposing, approving, or voting on certain matters relating to the operation of the limited partnership.

A creditor may enforce an obligation against a partner who has failed to make a promised contribution or received money or other property in violation of the statute, even if the partnership agrees not to hold the partner liable.

Unless the partnership agreement provides otherwise, a limited partnership interest may be assigned and a partner ceases to be a partner upon assignment of all of his or her interest.

A foreign limited partnership must register with the secretary of state before commencing business in the state.  The registration must include a statement of the general character of its business and a list of the partners if the list is not included in its certificate of limited partnership in the other jurisdiction.

The secretary of state may charge a fee for filing certificates relating to limited partnerships and for furnishing certified copies of those certificates and documents relating to limited partnerships.  The fee for filing a certificate of limited partnership cannot exceed one hundred dollars.  The fee for filing other certificates cannot exceed twenty-five dollars.

SUMMARY:

The contents of the certificate of limited partnership filed with the secretary of state are changed.  The certificate need only contain the names and addresses of the general partners.  The names of the limited partners are not required to be included.  The certificate need not incorporate provisions of the partnership agreement relating to the cash and property contributed by the partners or the events that lead to termination. This information must included in the written partnership agreement or be kept on file with other limited partnership records at the partnership offices.

The partnership must maintain an office which is located at a specific geographical location in the state.  The registered agent of the partnership must give prior written consent which must be filed with the secretary of state and must have a specific geographical address.  If the registered agent cannot be found or if he has not been appointed, service may be made on the secretary of state or any authorized clerk of the secretary of state's corporation department.  A registered agent may resign by filing a duplicate written notice with the secretary of state.  The agent's appointment terminates thirty days after the receipt of the notice.

A partnership must use the words "limited partnership" or the abbreviation "L.P." with its name.  The restriction on words or phrases that may be included in the name is removed.

The dissolution of a limited partnership is commenced by filing a certificate of dissolution with the secretary of state.  When the winding up process is completed, a certificate of cancellation is filed with the secretary of state.  The certificate of limited partnership is cancelled upon the effective date of the certificate of cancellation.  A partnership may file a certificate of restatement indicating the new provisions of the certificate of limited partnership which incorporate previous amendments.

Any person adversely affected by the refusal or failure of a person to execute a certificate may petition the court to have the certificate executed.

A person becomes a limited partner on the later of the date the original certificate is filed or the date stated in the records of the partnership.

A limited partner may participate in additional activities in the operation of the partnership without incurring the liability of a general partner.  These include: taking any legal action permitted or required by law; requesting or attending a meeting of partners; winding up the partnership; exercising a right or power permitted to limited partners by law; or proposing or making decisions relating to the admission or removal of either a limited or general partner, a transaction involving a conflict of interest between the partnership and a general partner, an amendment to the partnership agreement or certificate, matters the partnership agreement permits the limited partners to approve or disapprove.

A creditor's ability to enforce a claim against a partner who has failed to make a promised contribution or improperly received money or other property is limited to the extent that the creditor relied on the obligation of the partner to make the contribution.

The effect of an assignment of a partnership interest is clarified.  The assignee is entitled to share in profits, losses, deductions, credits, and gains to the extent they are assigned by the assignor.  The partnership agreement may provide that the partnership interest is evidenced by a certificate which may be assigned or transferred.

A foreign limited partnership must register in this state, but is not required to disclose the general nature of its business.  The registration must include the names and addresses of all general partners and the address at which the names and addresses of the limited partners may be found.  The foreign domestic partnership must also promise to retain those records until the registration in this state is cancelled.

The statutory maximum fees for filing certificates relating to limited partnerships is repealed.

Fiscal Note:    Not Requested.

House Committee ‑ Testified For:     Andrew Zuccotti, Washington State Bar Association; Laura Eckert, Secretary of State's Office.

House Committee - Testified Against: None Presented.

House Committee - Testimony For:     Limited partnerships are likely to become a more common form of business organization.  The bill will treat limited partners more like shareholders of corporations and will permit the limited partners an opportunity to be more involved with business operations without incurring liability.  The bill will also significantly reduce the paper that has to be filed with the secretary of state.

House Committee - Testimony Against: None Presented.