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

Table of Contents

• I. Introduction
• II. The Limited Partnership
  • A. Description of the Limited Partnership
  • B. Historic Development
  • C. Taxation of the Limited Partnership
• III. The Limited Partnership with a Corporate General Partner
  • A. Development of the Corporate General Partners
  • B. Control Liability of the Limited Partners – the Main Cases
    • 1. Delaney v. Fidelity Lease
    • 2. Frigidaire Sales Corp. v. Union Properties
• IV. Reasons for the Unpopularity of the Limited Partnership with a Corporate General Partner
  • A. Uncertain Legality
  • B. Uncertain Law Pertaining to Liability of Limited Partners
  • C. Diminishing Taxation Advantages
  • D. New and Better Alternatives
    • 1. The Limited Liability Company
    • 2. The Limited Liability Limited Partnership
• V. Conclusion

Objectives and Key Themes

This paper aims to illustrate the development of the limited partnership with a corporate general partner in the United States over the past four decades, analyzing its advantages and disadvantages. The focus is on the two main factors shaping this form: the recognition of limited liability for its managers and the tax treatment of the limited partnership. The evolution of the limited partnership itself will be examined to provide context. * Development of the limited partnership with a corporate general partner. * Limited liability for managers within this structure. * Tax treatment of limited partnerships and its impact on the hybrid form. * Legal controversies surrounding the hybrid form and the “control rule.” * Reasons for the relative unpopularity of this structure in the US.

Chapter Summaries

I. INTRODUCTION: This introductory chapter sets the stage by outlining the traditional choices for business associations in American company law: corporations and partnerships. It highlights the advantages and disadvantages of each, emphasizing the limitations of unlimited personal liability in partnerships and the double taxation inherent in corporations. The chapter introduces the limited partnership with a corporate general partner as a hybrid entity aiming to combine the benefits of both while mitigating their drawbacks. The chapter also briefly discusses the initial legal challenges surrounding this hybrid form and its eventual acceptance, followed by the emergence of other competing business structures. The overall objective is to lay the groundwork for the subsequent analysis of this hybrid structure. II. THE LIMITED PARTNERSHIP: This chapter provides a detailed description of the limited partnership, contrasting it with general partnerships and corporations. It explains the key distinction between general and limited partners, focusing on the limited liability afforded to limited partners. The chapter explores the structure and legal requirements of limited partnerships, emphasizing the formalities required compared to general partnerships. Furthermore, it explains the taxation of limited partnerships and contrasts it with the double taxation associated with corporations. This chapter establishes the foundational legal and structural elements of the limited partnership, providing the necessary background for understanding the more complex limited partnership with a corporate general partner discussed in subsequent chapters. III. THE LIMITED PARTNERSHIP WITH A CORPORATE GENERAL PARTNER: This chapter delves into the development of the limited partnership with a corporate general partner as a hybrid entity. It focuses on the key legal cases that shaped its evolution, particularly those addressing the "control rule"—whether limited partners participating in management incur personal liability. The chapter examines pivotal cases like *Delaney v. Fidelity Lease* and *Frigidaire Sales Corp. v. Union Properties*, analyzing how these rulings influenced the legal understanding and acceptance of this business structure. This section provides a deep dive into the crucial legal precedents that clarified the liabilities and responsibilities within this specific type of limited partnership. IV. REASONS FOR THE UNPOPULARITY OF THE LIMITED PARTNERSHIP WITH A CORPORATE GENERAL PARTNER: This chapter explores the factors that contributed to the limited partnership with a corporate general partner’s relative unpopularity despite its initial promise. It investigates the uncertainties surrounding its legality and the liability of limited partners, along with the diminishing tax advantages it once offered. The emergence of newer alternatives, such as limited liability companies (LLCs) and limited liability limited partnerships (LLLPs), is highlighted as a key reason for its declining use. The chapter analyzes the competitive landscape and shows how newer structures offered similar benefits with fewer drawbacks.

Keywords

Limited partnership, corporate general partner, limited liability, pass-through taxation, control rule, Delaney v. Fidelity Lease, Frigidaire Sales Corp. v. Union Properties, Limited Liability Company (LLC), Limited Liability Limited Partnership (LLLP), American company law, business associations.

FAQ: A Comprehensive Guide to the Limited Partnership with a Corporate General Partner

What is the main focus of this paper?

This paper analyzes the development, advantages, and disadvantages of the limited partnership with a corporate general partner (LP-CGP) in the United States over the past four decades. It particularly focuses on the impact of limited liability for managers and tax treatment on this hybrid business structure.

What are the key themes explored in the paper?

The key themes include the development of the LP-CGP, limited liability for managers within this structure, the tax treatment of limited partnerships, legal controversies surrounding the “control rule,” and the reasons for the relative unpopularity of this structure in the US. The evolution of the limited partnership itself is also examined for context.

What are the different chapters and their respective contents?

Chapter I: Introduction sets the stage by comparing corporations and partnerships, highlighting the LP-CGP as a hybrid aiming to combine their benefits. Chapter II: The Limited Partnership provides a detailed explanation of limited partnerships, contrasting them with general partnerships and corporations. Chapter III: The Limited Partnership with a Corporate General Partner delves into the development of the LP-CGP, analyzing key legal cases like Delaney v. Fidelity Lease and Frigidaire Sales Corp. v. Union Properties. Chapter IV: Reasons for the Unpopularity of the Limited Partnership with a Corporate General Partner explores factors contributing to the LP-CGP's decline, including legal uncertainties, diminishing tax advantages, and the emergence of alternatives like LLCs and LLLPs. Chapter V: Conclusion summarizes the findings.

What are the key legal cases discussed in the paper?

The paper analyzes Delaney v. Fidelity Lease and Frigidaire Sales Corp. v. Union Properties, two pivotal cases that shaped the legal understanding of the LP-CGP and the “control rule” concerning limited partners' liability.

What are the main advantages and disadvantages of the LP-CGP?

The paper explores the initial advantages of the LP-CGP as a hybrid structure combining the benefits of partnerships and corporations. However, it also highlights the disadvantages that led to its decline in popularity, including legal uncertainties surrounding liability and diminishing tax advantages.

What are the alternative business structures mentioned as competitors to the LP-CGP?

The paper highlights the rise of Limited Liability Companies (LLCs) and Limited Liability Limited Partnerships (LLLPs) as newer alternatives that offered similar benefits with fewer drawbacks, contributing to the LP-CGP’s decline.

What are the key legal and tax aspects covered in the paper?

The paper covers the legal aspects of limited liability for partners, the “control rule” impacting liability, and the tax treatment of limited partnerships, contrasting it with corporate taxation. It also examines the legal uncertainties surrounding the LP-CGP and its impact on its popularity.

What are the keywords associated with this paper?

Key words include: Limited partnership, corporate general partner, limited liability, pass-through taxation, control rule, Delaney v. Fidelity Lease, Frigidaire Sales Corp. v. Union Properties, Limited Liability Company (LLC), Limited Liability Limited Partnership (LLLP), American company law, business associations.