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F I S C A L I M P A C T R E P O R T

SPONSOR Youngberg

ORIGINAL DATE

LAST UPDATED

01-20-06

HB 113

SHORT TITLE Uniform Revised Limited Partnership Act

SB

ANALYST Dearing

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

($0.1)

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Courts (AOC)

Public Regulatory Commission (PRC)

Attorney General (AG)

Agency responses from the Administrative Office of the Courts, Pubic Regulatory Com-

mission and the Attorney General are from the 2005 legislative session, and are specific to

the earlier version designated the Uniform Limited Partnership Act. Minor changes in lan-

guage of the Uniform Revised Limited Partnership Act, are stated by NCCUSL to be of

stylistic nature, as opposed to any substantiality in change(s) of the legal mean-

ing/interpretation of the Act.

SUMMARY

Synopsis of Bill

House Bill 113 enacts the model “Uniform Revised Limited Partnership Act,” put forth by the

National Conference of Commissioners on Uniform State Laws (NCCUSL) in an effort to pro-

mote uniformity of the law among various states concerning the organization of limited partner-

ships. The enactment would repeal sections of the NMSA code, effective January 1, 2008, en-

compassing 54-2-1 NMSA 1978 through 54-2-63 NMSA 1978.

In a brief summary provided by the commissioners, they state that the “ULPA provides a more

flexible and stable basis for the organization of limited partnerships, helping states stimulate new

House Bill No. 113 – Page

2

partnership business ventures.” In the commissioner’s prefatory note, they provide further in-

sight into the Act.

According the prior (2005 session) response from Administrative Office of the Courts, The new

Limited Partnership Act is a “stand alone” act, “de-linked” from both the original general part-

nership act (“UPA”) and the Revised Uniform Partnership Act (“RUPA”). To be able to stand

alone, the Limited Partnership incorporates many provisions from RUPA and some from the

Uniform Limited Liability Company Act (“ULLCA”). As a result, the new Act is far longer and

more complex than its immediate predecessor, the Revised Uniform Limited Partnership Act

(“RULPA”).

The new Act has been drafted for a world in which limited liability partnerships and lim-

ited liability companies can meet many of the needs formerly met by limited partnerships. This

Act therefore targets two types of enterprises that seem largely beyond the scope of LLPs and

LLCs: (i) sophisticated, manager-entrenched commercial deals whose participants commit for

the long term, and (ii) estate planning arrangements (family limited partnerships). This Act ac-

cordingly assumes that, more often than not, people utilizing it will want:

•

strong centralized management, strongly entrenched, and

•

passive investors with little control over or right to exit the entity

The Act’s rules, and particularly its default rules, have been designed to reflect these assump-

tions.

The Act contains a severability clause, and repeals portions of NMSA 1978 relating to limited

partnerships. Section 1206 describes the application of the Revised Uniform Liability Partner-

ship Act to existing relationships.

The Act provides that except as noted regarding specific provisions, the effective date of the Act

is January 1, 2007.

According to the prior (2005 session) response from the Attorney General, “The Uniform Lim-

ited Partnership Act (ULPA), completely revised by the NCCUSL in 2001, updates limited part-

nership law to reflect modern business practices by providing greater flexibility and protection.

The ULPA originally dates back to 1916, and since that time has set the standard for limited

partnership law in this country. It was extensively revised in 1976 and amended in 1985.

When ULPA was last revised, limited partnerships were used extensively within the business

community. Today, limited liability partnerships (LLPs) and limited liability companies (LLCs)

can meet many of the needs formerly met only by limited partnerships. Limited partnerships are

now used primarily in two ways: for family limited partnerships in estate planning arrangements,

and for highly-sophisticated, manager-controlled limited partnerships.

A limited partnership is distinguished from a general partnership by the existence of limited

partners who invest in the partnership; in return for limited liability, the limited partner usually

relinquishes any right of control or management of partnership affairs. However, the general

partner of a limited partnership traditionally receives no direct liability protection.

House Bill No. 113 – Page

3

The new act provides:

•

Perpetual Entity. No termination unless the agreement so provides. Limited partner exit

does not dissolve the entity.

•

Entity Status. A limited partner is clearly an entity.

•

Convenience. The new ULPA provides a single, self-contained source of statutory

authority for issues pertaining to limited partnerships. The act is no longer dependent upon gen-

eral partnership law for rules that are not contained within ULPA.

•

LLLP Status. Under the new ULPA, limited partnerships may opt to become limited

liability limited partnerships (LLLP), simply by so stating in the limited partnership agreement,

and in the publicly filed certificate. The primary reason for a limited partnership to elect LLLP-

status is to provide direct protection from liability for debts and obligations of the partnership to

the general partner of the limited partnership.

•

Liability Shield. The 1976 ULPA provided only a restricted liability shield for limited

partners. The new ULPA provides a full, status-based shield against limited partner liability for

entity obligations. The shield applies whether or not the limited partnership is an LLLP.

•

Express Default Statute. The act governs relations among the partners and between the

partners and the partnership only when the partnership agreement does not do so.

The new Act also addresses other issues, such as allocating power between general partners and

limited partners; and setting fiduciary duties owed by general partners to other general and lim-

ited partners.”

The following more elaborate summary has also been taken from the NCCUSL web site,

http://nccusl.org/Update/uniformact_summaries/uniformacts-s-ulpa.asp.

“First, the ULPA 2001 includes provisions to meet the needs of sophisticated, manager-

entrenched commercial deals whose participants commit for the long term. Second, the ULPA

2001 addresses the modern needs of estate planning arrangements, so-called "family limited

partnerships." In addressing these concerns, this Act assumes that people utilizing it will want

both strong centralized, entrenched management, and passive investors or limited partners with

little capacity to exit the entity. As a result, the Act's rules, and particularly its default rules, have

been designed to reflect those assumptions.

A fundamental change from RULPA involves the liability of limited partners and general part-

ners for the partnership debts. Under RULPA, a limited partner could be held liable for the en-

tity's debts if he participated in the control of the business and the third party transacted business

with the partnership with the reasonable belief that the limited partner was a general partner. Un-

der the new Act, a limited partner cannot be held liable for the partnership debts even if he par-

ticipates in the management and control of the limited partnership. Concerning general partners,

under RULPA, liability was complete, automatic and formally inescapable. Under this Act, lim-

ited liability limited partnership (LLLP) status is expressly available to provide a full liability

shield to all general partners.

Another important change concerns a limited partner's right to disassociate from the partnership.

Under RULPA a limited partner could theoretically withdraw from the partnership on six months

notice unless the partnership agreement specified the withdrawal events for a limited partner.

House Bill No. 113 – Page

4

Due to estate planning concerns, the new ULPA default rule affords no right to disassociate as a

limited partner before the termination of the limited partnership. The power to disassociate is ex-

pressly recognized, but may be exercised only through the partnership agreement or those events

listed in section 601(b) of this Act.

There are other important changes in the new ULPA. For example, under RULPA, the duration

of the limited partnership must be specified in the certificate of limited partnership. Under this

Act, no duration limit must be specified and the default rule now creates a perpetual entity. How-

ever, the duration is subject to change via the partnership agreement.

Also, under RULPA the use of a limited partner's name in the entity's name was prohibited ex-

cept in unusual circumstances. Under the new ULPA, this restriction is eliminated. A limited

partner's name may be incorporated into the business name of an entity created under this Act.

Further, under RULPA the dissolution of the partnership entity required the unanimous, written

consent of all the partners. Under this Act, dissolution of the partnership only requires the con-

sent of all the general partners and of the limited partners owning a majority of the rights to re-

ceive distributions as limited partners at the time the consent is to be effective.

FISCAL IMPLICATIONS

There will be a minimal administrative cost for statewide update, distribution, and documenta-

tion of statutory changes. Any additional fiscal impact on the judiciary would be proportional to

the enforcement of this law and commenced proceedings. New laws, amendments to existing

laws, and new hearings have the potential to increase caseloads in the courts, thus requiring addi-

tional resources to handle the increase.

SIGNIFICANT ISSUES

While HB 113 seeks to enact most portions of the model ULPA put forward by the commission-

ers of the NCCUSL in 2001, the bill omits the following provisions from Article 8, governing

dissolution of limited partnerships:

•

Section 809: Administrative dissolution

•

Section 810: Reinstatement following administrative dissolution

•

Section 811: Appeal from denial of reinstatement

•

HB 113 adds the following section not present in the NCCUSL model ULPA:

•

Section 119: Limited partnership subject to amendment or repeal of the ULPA

For additional notes and comments from the NCCUSL commissioners regarding the

Uniform Revised Limited Partnership Act, visit:

http://www.nccusl.org/nccusl/DesktopDefault.aspx.tabindex=0&tabid=1

and select “Limited Partnership Act” from the pull-down list. There are minor revisions to this

proposed legislation from the aforementioned source via NCCUSL. These are stated to be

needed to change language for reasons of style only.

House Bill No. 113 – Page

5

The following provisions of the Act, among others, some of which create or authorize new pro-

ceedings, will affect the courts:

•

Section 205: if a person required by the ULPA to sign a record or deliver a re-

cord to the secretary of state for filing does not do so, any other person that is

aggrieved may petition the district court to order the person to sign the record,

deliver the record to the secretary of state for filing or the secretary of state to

file the record unsigned.

•

Section 405.C (4): a court must grant permission to a judgment creditor to

levy execution against the assets of a general partnership or another specified

condition must occur in order for a judgment creditor of a general partner to

so levy execution.

•

Section 703: A court may perform the following:

•

Charge the transferable interest of the judgment debtor with

payment of an unsatisfied amount of a judgment with interest,

on application to a court by any judgment creditor of a partner

or transferee

•

Appoint a receiver of the share of the distributions due or to

become due to the judgment debtor

•

Order a foreclosure upon interest subject to the charging order

at any time

•

Section 802: On application by a partner, the district court may order dissolu-

tion of a limited partnership if it is not reasonably practicable to carry on the

activities of the limited partnership in conformity with the partnership agree-

ment.

•

Section 809: An assignee for the benefit of creditors of a limited partnership

or a partner, or a person appointed by a court to represent creditors of a lim-

ited partnership or a partner, may enforce a person’s obligation to contribute.

ADMINISTRATIVE IMPLICATIONS

See “Fiscal Implications” above.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

None.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Status Quo

PD/mt