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Advising California Partnerships

Successfully navigate California’s complex business environment with this authoritative guide, completely updated to reflect the Tax Cuts and Jobs Act.

Successfully navigate California’s complex business environment with this authoritative guide, completely updated to reflect the Tax Cuts and Jobs Act.

  • All relevant nuances of the Tax Cuts and Jobs Act’s effect on forming and operating partnerships, including the new pass-through entities income deduction
  • Planning general partnerships, limited partnerships, and LLPs
  • Drafting partnership agreements
  • Detailed operating agreement forms, with annotated clauses
  • Issuing partnership interests
  • Taxation of partnership income
  • Taxation of transfers and terminations of partnership interests
  • Partnership litigation
  • Dissociation
  • Dissolving and winding up
  • Change of entity
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Successfully navigate California’s complex business environment with this authoritative guide, completely updated to reflect the Tax Cuts and Jobs Act.

  • All relevant nuances of the Tax Cuts and Jobs Act’s effect on forming and operating partnerships, including the new pass-through entities income deduction
  • Planning general partnerships, limited partnerships, and LLPs
  • Drafting partnership agreements
  • Detailed operating agreement forms, with annotated clauses
  • Issuing partnership interests
  • Taxation of partnership income
  • Taxation of transfers and terminations of partnership interests
  • Partnership litigation
  • Dissociation
  • Dissolving and winding up
  • Change of entity

1

Attorney’s Role

Jerome Sapiro, Jr.

  • I.  SCOPE OF CHAPTER  1.1
  • II.  ETHICAL DUTIES  1.2
  • III.  DETERMINING WHETHER REPRESENTATION IS APPROPRIATE  1.3
  • IV.  ASSESSING ATTORNEY’S PROFESSIONAL COMPETENCE  1.4
  • V.  CONFLICTS OF INTEREST
    • A.  Conflicts Among Parties  1.5
    • B.  Conflicts Between Attorney and Client
      • 1.  Disclosure Requirements  1.6
      • 2.  Ownership Interest in Exchange for Services  1.7
    • C.  Avoidance or Waiver of Conflicts of Interest  1.8
      • 1.  Conflicts of Interest Checking  1.9
      • 2.  Ethical Walls  1.10
    • D.  Representing Partnership  1.11
  • VI.  DUTY OF CONFIDENTIALITY
    • A.  Representing Entities  1.12
    • B.  Withdrawal From Representation  1.13
  • VII.  ESTABLISHING SCOPE OF ATTORNEY’S ROLE
    • A.  Maintaining Lines of Communication  1.14
    • B.  Conflicting Instructions From Partners  1.15
  • VIII.  DOCUMENTING ATTORNEY-CLIENT RELATIONSHIP  1.16
    • A.  Nonengagement Letters  1.17
    • B.  Engagement Letters
      • 1.  Written Fee Agreement  1.18
        • a.  Statutory Requirements Governing Fee Agreements  1.19
        • b.  Prohibition of Unconscionable Fee  1.20
        • c.  Advance Fees  1.21
        • d.  Nonrefundable Fees  1.22
        • e.  Financial Arrangements Among Attorneys  1.23
      • 2.  Arbitration Provisions  1.24
      • 3.  Judicial Reference as Alternative to Arbitration  1.25
      • 4.  Checklist: Elements to Consider for Inclusion in Engagement Letter  1.26
    • C.  Disengagement Letters  1.27
  • IX.  FORMS
    • A.  Form: Nonengagement Letter  1.28
    • B.  Engagement Letter
      • 1.  Form: Salutation  1.29
      • 2.  Form: Introduction  1.30
      • 3.  Form: Scope of and Limitations on Duties  1.31
      • 4.  Form: Required Securities Disclosures  1.32
      • 5.  Form: Association of Specialists  1.33
      • 6.  Form: Who Will Work on Matter  1.34
      • 7.  Form: Fees  1.35
      • 8.  Form: Expenses  1.36
      • 9.  Form: Nonrefundable Fees  1.37
      • 10.  Form: Billings  1.38
      • 11.  Form: No Apportionment Among Multiple Clients  1.39
      • 12.  Form: Warranties as to Fees and Costs  1.40
      • 13.  Form: Arbitration Clause  1.41
      • 14.  Form: Judicial Reference of Disputes  1.42
      • 15.  Form: Termination  1.43
      • 16.  Form: Document Retention  1.44
      • 17.  Form: No Tax Advice  1.45
      • 18.  Form: Conflicts of Interest  1.46
      • 19.  Form: Disclosure of Conflicts From Prior Representation  1.47
      • 20.  Form: Waiver of Conflicts  1.48
      • 21.  Form: Entire Agreement  1.49
      • 22.  Form: Closing  1.50
      • 23.  Form: Acceptance  1.51
    • C.  Form: Disengagement Letter on Completion of Services  1.52
    • D.  Form: Notice Letter to Former Client Regarding Potential Conflict with New Client  1.53
    • E.  Disengagement Letter on Termination of Representation Before Services Completed  1.54

2

Choice of Entity and Collecting Client Information

Paul J. Derenthal

Teri L. K. Shugart

  • I.  SCOPE OF CHAPTER  2.1
  • II.  OVERVIEW  2.2
    • A.  Corporation (Including S Corporation)  2.3
    • B.  General Partnership  2.4
    • C.  Limited Partnership  2.5
    • D.  Limited Liability Partnership  2.6
    • E.  Limited Liability Company  2.7
    • F.  Sole Proprietorship  2.8
  • III.  FACTORS IN SELECTING MOST APPROPRIATE FORM OF ENTITY
    • A.  Ease of Formation; Transaction Costs
      • 1.  Corporation  2.9
      • 2.  General Partnership  2.10
      • 3.  Limited Partnership  2.11
      • 4.  Limited Liability Partnership
        • a.  Registration With Secretary of State  2.12
        • b.  Security Requirement  2.13
        • c.  Registration With State Governing Body  2.14
      • 5.  Limited Liability Company  2.15
    • B.  Income Tax Considerations  2.16
      • 1.  Classification of Entities for Tax Purposes  2.17
      • 2.  Tax Consequences of Formation  2.18
        • a.  Cash Contributions  2.19
        • b.  Contributions of Property  2.20
        • c.  Contributions of Services  2.21
      • 3.  Taxation of Entity and Its Owners
        • a.  Tax Cuts and Jobs Act: Qualified Business Income Deduction  2.21A
        • b.  C Corporations
          • (1)  Entity Level Tax; Double Taxation  2.22
          • (2)  Inability to Use Losses  2.23
          • (3)  At-Risk Rules; Passive Loss Rules  2.24
          • (4)  Method of Accounting  2.25
          • (5)  Taxable Year  2.26
        • c.  S Corporations  2.27
          • (1)  Pass-Through Entity  2.28
          • (2)  Requirements to Qualify as S Corporation  2.29
          • (3)  Distributions to Shareholders  2.30
          • (4)  At-Risk Rules; Passive Loss Rules  2.31
          • (5)  Method of Accounting  2.32
          • (6)  Taxable Year  2.33
          • (7)  Differing Tax Treatment Between Partnerships and S Corporations  2.34
        • d.  Partnerships
          • (1)  Pass-Through Entity  2.35
          • (2)  Distributions  2.36
          • (3)  Special Allocations  2.37
          • (4)  Debt Increases Basis; Recourse and Nonrecourse Debt  2.38
          • (5)  Section 754 Election  2.39
          • (6)  At-Risk Rules  2.40
          • (7)  Passive Loss Rules  2.41
          • (8)  Termination of Partnership for Tax Purposes [Deleted]  2.42
          • (9)  Method of Accounting  2.43
          • (10)  Taxable Year  2.44
        • e.  Limited Liability Companies  2.45
      • 4.  Taxation on Disposition of Interests and Liquidation
        • a.  Corporations  2.46
        • b.  Partnerships  2.47
        • c.  Limited Liability Companies  2.48
    • C.  State Taxation
      • 1.  Corporations  2.49
      • 2.  S Corporations  2.50
      • 3.  Partnerships  2.51
      • 4.  Limited Liability Companies; Fee Table  2.52
    • D.  Other Tax Considerations
      • 1.  Self-Employment Income  2.53
        • a.  General and Limited Partnerships  2.53A
        • b.  LLCs  2.53B
      • 2.  Fringe Benefits
        • a.  Corporations  2.54
        • b.  S Corporations  2.55
        • c.  Partnerships  2.56
        • d.  Limited Liability Companies  2.57
    • E.  Management and Control
      • 1.  Corporations  2.58
      • 2.  General Partnerships  2.59
      • 3.  Limited Partnerships  2.60
      • 4.  Limited Liability Partnerships  2.61
      • 5.  Limited Liability Companies  2.62
    • F.  Liability of Owners for Business Obligations
      • 1.  Corporations  2.63
      • 2.  General Partnerships  2.64
      • 3.  Limited Partnerships  2.65
      • 4.  Limited Liability Partnerships  2.66
      • 5.  Limited Liability Companies  2.67
    • G.  Transferability of Interests; Liquidity  2.68
      • 1.  Corporations  2.69
      • 2.  General Partnerships  2.70
      • 3.  Limited Partnerships  2.71
      • 4.  Limited Liability Partnerships  2.72
      • 5.  Limited Liability Companies  2.73
    • H.  Ability to Raise Capital
      • 1.  Corporations  2.74
      • 2.  General Partnerships  2.75
      • 3.  Limited Partnerships  2.76
      • 4.  Limited Liability Partnerships  2.77
      • 5.  Limited Liability Companies  2.78
    • I.  Continuity of Business  2.79
      • 1.  Corporations  2.80
      • 2.  General Partnerships  2.81
      • 3.  Limited Partnerships  2.82
      • 4.  Limited Liability Partnerships  2.83
      • 5.  Limited Liability Companies  2.84
    • J.  Other Factors Influencing Choice of Entity
      • 1.  Anonymity of Owners  2.85
      • 2.  Professionals  2.86
      • 3.  Reorganizations, Conversions, and Mergers  2.87
  • IV.  TABLE: BUSINESS ASPECTS OF COMMONLY USED ENTITIES  2.88
  • V.  CHECKLISTS  2.89
    • A.  Checklist: Information About Participants, Their Roles, and Interests in Business  2.90
    • B.  Checklist: Information About Business  2.91
    • C.  Checklist: Information Necessary to Organize Partnership  2.92

3

Tax Considerations on Formation of and Contributions to Partnership

Mark M. Tucker

Julie Vandersluis Skeen

John C. Suttle

  • I.  SCOPE OF CHAPTER  3.1
  • II.  TAX CLASSIFICATION AS PARTNERSHIP: CHECK-THE-BOX REGULATIONS
    • A.  Introduction; Pre-1997 Partnerships  3.2
    • B.  Business Entity: Corporation or Partnership  3.3
      • 1.  Partnership and Corporation Defined  3.4
      • 2.  Election of Classification  3.5
      • 3.  Employment Tax Treatment of Partners in Partnership That Owns Disregarded Entity  3.5A
      • 4.  Default Classification
        • a.  Entities in Existence Before 1997  3.6
        • b.  Entities Formed On or After January 1, 1997  3.7
    • C.  California Conformity  3.8
    • D.  Publicly Traded Partnerships Treated as Corporations  3.9
  • III.  NONRECOGNITION FOR PROPERTY TRANSFERS TO PARTNERSHIP  3.10
    • A.  Property Defined
      • 1.  Money and Installment Obligations  3.11
      • 2.  Intangibles  3.12
        • a.  Letters of Intent and Trade Secrets  3.13
        • b.  Interests in Another Partnership  3.14
        • c.  Accounts Receivable  3.15
        • d.  Partner’s Promissory Note  3.16
        • e.  Noncompensatory Options  3.16A
        • f.  Partnership’s Obligation  3.17
        • g.  Leasehold Interests  3.18
        • h.  Mere Rights to Use Property  3.19
        • i.  Intangibles: Goodwill; Going Concern Value; Patents, Copyrights, Trademarks  3.20
    • B.  Foreign Partnerships; Partners  3.21
    • C.  Reallocation of Income  3.22
    • D.  Contributions by Corporate Partners  3.23
    • E.  Contributions of Recapture Property  3.24
    • F.  Contributions of Investment Credit Recapture Property  3.25
    • G.  Depreciation  3.26
  • IV.  ISSUANCE OF PARTNERSHIP INTEREST IN EXCHANGE FOR SERVICES
    • A.  General Considerations  3.27
    • B.  Capital Interests  3.28
    • C.  Profits Interests  3.29
    • D.  Restricted Partnership Interests; Options to Acquire Partnership Interests  3.30
  • V.  DISGUISED SALE RULES
    • A.  Disguised Sale Rules Treat Transfers as Sales  3.31
    • B.  Transfer of Property by Partner; Transfer of Consideration by Partnership to Partner  3.32
    • C.  Special Rules Applicable to Guaranteed Payments, Preferred Returns, Operating Cash Flow Distributions, and Reimbursements of Preformation Expenses  3.33
      • 1.  Reasonable Guaranteed Payments  3.34
      • 2.  Reasonable Preferred Returns  3.35
      • 3.  What Are “Reasonable” Preferred Returns and Guaranteed Payments  3.36
      • 4.  Operating Cash Flow Distributions  3.37
      • 5.  Reimbursements of Preformation Expenses  3.38
    • D.  Special Rules Relating to Liabilities  3.39
    • E.  Disguised Sales by Partnerships to Partners  3.40
    • F.  Exception for Certain Partnership Terminations [Deleted]  3.41
    • G.  Disclosure  3.42
  • VI.  LIABILITY SHIFTS
    • A.  Effect on Contributing Partner  3.43
    • B.  Effect on Noncontributing Partners  3.44
    • C.  Example  3.45
    • D.  Impact of Collapsible Partnership Provisions  3.46
  • VII.  INVESTMENT COMPANY RULES
    • A.  Gain on Transfer Is Recognized  3.47
    • B.  Transfer to Investment Company Defined  3.48
    • C.  Diversification Test  3.49
    • D.  Diversified Portfolio Test  3.50
    • E.  Real Estate Partnerships  3.51
  • VIII.  PARTNERSHIP ELECTIONS  3.52
    • A.  Method of Accounting  3.53
      • 1.  Limits on Use of Cash Method  3.54
        • a.  Inventory Business  3.55
        • b.  C Corporation Partner  3.56
        • c.  Tax Shelter  3.57
      • 2.  Changing to Accrual Method  3.58
    • B.  Selection of Taxable Year  3.59
      • 1.  Conformity Rules  3.60
        • a.  Majority Interest Rule  3.61
        • b.  Principal Partner Rule  3.62
        • c.  Least Aggregate Deferral Rule  3.63
      • 2.  Maintaining Accounting Segments for Partners’ Varying Interests  3.64
      • 3.  Exclusive Procedures for Automatic Approval to Adopt, Change, or Retain an Annual Accounting Period  3.65
        • a.  Natural Business Year  3.66
        • b.  Facts and Circumstances Test  3.67
      • 4.  Deferral Election With Tax Payment  3.68
      • 5.  Form: Application to Adopt, Change, or Retain a Tax Year (IRS Form 1128)  3.69
    • C.  Start-Up Costs  3.70
    • D.  Organizational Fees and Syndication Expenses  3.71
    • E.  Involuntary Conversion Elections  3.72
    • F.  Depreciation Elections; Expense Election  3.73
    • G.  Choice of Inventory Methods  3.74
    • H.  Electing Out of Installment Method  3.75
    • I.  Electing Out of Self-Charged Interest Rule Under IRC §469  3.76
    • J.  Requesting Extensions for Filing Returns  3.77
    • K.  Election to Make Basis Adjustments  3.78
    • L.  Special Election for Large Partnerships; Repealed as of January 1, 2018  3.79
    • M.  Electing Out of Subchapter K  3.80
      • 1.  Investment Organizations  3.81
      • 2.  Joint Operating Agreements  3.82
    • N.  California  3.83
    • O.  Election by Nonresident Partners [Deleted]  3.84

4

Partnership Name

  • I.  SCOPE OF CHAPTER  4.1
  • II.  SELECTION OF NAME
    • A.  Preliminary Considerations  4.2
      • 1.  Type of Partnership  4.3
      • 2.  Other Uses Contemplated?  4.4
      • 3.  Is Name a “Fictitious Business Name”?  4.5
      • 4.  Prohibited Names  4.6
    • B.  Is Proposed Name Available?  4.7
      • 1.  Fictitious Business Name Search  4.8
      • 2.  Checking Name Availability With Secretary of State  4.9
      • 3.  Special Rules for Limited Partnerships
        • a.  Name Requirements for Limited Partnerships  4.10
        • b.  Limited Partnership Name Must be Distinguishable  4.11
        • c.  Limited Partnership’s Use of Conflicting Name  4.12
        • d.  Name Reservation for Limited Partnerships  4.13
      • 4.  Special Rules for Limited Liability Partnerships  4.14
      • 5.  Searching for Unregistered Users  4.15
      • 6.  Checking for Conflicts With Trade Names or Marks  4.16
        • a.  Sources for Preliminary Search  4.17
        • b.  Trademark Search Services  4.18
    • C.  Will Proposed Name Be Protectible?
      • 1.  Protection Generally  4.19
      • 2.  Table: Devices for Protecting Partnership Name  4.20
      • 3.  Trade Names and Marks as They Relate to Partnership Names
        • a.  Definitions and Examples  4.21
        • b.  “Strong” Versus “Weak” Names and Marks  4.22
          • (1)  Fanciful or Arbitrary Marks  4.23
          • (2)  Suggestive Marks  4.24
          • (3)  Descriptive Marks With Secondary Meaning  4.25
          • (4)  Generic Terms  4.26
        • c.  Registration of Trade Names and Marks  4.27
        • d.  First Use as Basis for Rights  4.28
  • III.  CALIFORNIA FILING REQUIREMENTS
    • A.  General Partnerships
      • 1.  Fictitious Business Name Statement
        • a.  Who Must File  4.29
        • b.  Where and When to File; Fee  4.30
        • c.  Form: Fictitious Business Name Statement  4.31
        • d.  Publication  4.32
        • e.  Expiration and Renewal  4.33
        • f.  Effect of Partner’s Withdrawal  4.34
        • g.  Presumptions Arising From Filing  4.35
        • h.  Penalties for Noncompliance  4.36
        • i.  Abandonment of Use of Fictitious Name  4.37
      • 2.  Statement of Partnership  4.38
    • B.  Limited Partnerships
      • 1.  Form: Name Reservation Request (Secretary of State Form)  4.39
      • 2.  Certificate of Limited Partnership
        • a.  Filing and Recordation  4.40
        • b.  Penalties for Noncompliance  4.41
      • 3.  Fictitious Business Name  4.42
    • C.  Limited Liability Partnership
      • 1.  Registration as Limited Liability Partnership  4.43
      • 2.  Fictitious Business Name  4.44
  • IV.  TRANSFER AND TERMINATION OF RIGHTS IN NAME
    • A.  Transfer of All Rights in Trade Name or Mark
      • 1.  Trade Name Transferred With Other Assets  4.45
      • 2.  Assignment of Mark Under State Law  4.46
      • 3.  Federally Registered Mark  4.47
    • B.  Transfer of Less Than All Rights: Licensing  4.48
    • C.  Expiration or Abandonment of Trade Name or Mark  4.49
    • D.  Abandonment of Fictitious Name  4.50

5

Planning General Partnerships

Charles E. Toombs

  • I.  SCOPE OF CHAPTER  5.1
  • II.  CHARACTER OF GENERAL PARTNERSHIP
    • A.  Uniform Partnership Act of 1994 (RUPA)  5.2
    • B.  Definition of Partnership  5.3
    • C.  Ostensible Partnership  5.4
      • 1.  Joint Venture Distinguished From Partnership  5.5
      • 2.  Agency Distinguished From Partnership  5.6
    • D.  Partnership as Distinct Entity  5.7
    • E.  Authority to Bind Partnership
      • 1.  Mutual Agency  5.8
      • 2.  Transfers of Partnership Property  5.9
    • F.  Partners’ Liability  5.10
  • III.  PARTNERS’ OBLIGATIONS
    • A.  Fiduciary Duties  5.11
      • 1.  Duty of Loyalty  5.12
        • a.  Duty to Account  5.13
        • b.  Duty to Refrain From Self-Dealing  5.14
        • c.  Duty Not to Compete  5.15
        • d.  Role of Partnership Agreement  5.16
      • 2.  Duty of Care  5.17
      • 3.  Potential for Additional Fiduciary Duties  5.18
      • 4.  Obligation of Good Faith and Fair Dealing  5.19
    • B.  Permissible Exceptions to Partner’s Duties and Obligations  5.20
    • C.  Enforcement of Partners’ Obligations  5.21
  • IV.  APPLICATION OF CALIFORNIA LAW
    • A.  Taxation of California Partnerships  5.22
    • B.  Similarity to California Corporations  5.23
  • V.  FACTORS TO CONSIDER IN STRUCTURING PARTNERSHIP AND DRAFTING PARTNERSHIP AGREEMENT
    • A.  California or Foreign Jurisdiction  5.24
    • B.  Partners’ Rights and Obligations  5.25
    • C.  Ownership of Partnership Property  5.26
    • D.  Liability for Partnership Obligations
      • 1.  Partnership Liability to Third Parties  5.27
      • 2.  Partnership Liability to Partners  5.28
      • 3.  Partner’s Liability for Partnership Obligations  5.29
        • a.  After Dissociation  5.30
        • b.  After Dissolution  5.31
      • 4.  Partnership Indemnification  5.32
      • 5.  Insurance  5.33
    • E.  Initial Contributions and Capital Structure
      • 1.  Checklist: Planning for Initial Contributions and Capital Structure  5.34
      • 2.  Default Provisions  5.35
    • F.  Additional Financing  5.36
    • G.  Failure to Make Contributions  5.37
    • H.  Profit and Loss Sharing  5.38
    • I.  Distributions  5.39
    • J.  Transfer or Assignment of Partnership Interests  5.40
    • K.  Withdrawal of Partner  5.41
    • L.  Liquidating and Dissolving Partnership
      • 1.  Partnership at Will  5.42
      • 2.  Partnership for Definite Term or Particular Undertaking  5.43
      • 3.  Dissolution on Happening of Event  5.44
      • 4.  Dissolution on Petition of Partner or Transferee of Partner’s Interest  5.45
      • 5.  Winding Up Process  5.46
    • M.  Resolving Disputes Without Litigation  5.47
  • VI.  FORMATION
    • A.  Partnership Agreement
      • 1.  Issues to Include in Agreement  5.48
      • 2.  Issues Not Affected by Agreement  5.49
    • B.  Statement of Authority
      • 1.  Effect of Filed Statement  5.50
      • 2.  Form: Statement of Partnership Authority (Secretary of State Form GP–1)  5.51
    • C.  Other Partnership Filings  5.52
    • D.  Statement of Address and Principal Place of Business
      • 1.  Effect of Filed Statement  5.53
      • 2.  Form: Statement by Unincorporated Association (Secretary of State Form UA-100)  5.54

6

General Partnership Agreements

Charles E. Toombs

  • I.  SCOPE OF CHAPTER  6.1
  • II.  SHORT FORM PARTNERSHIP AGREEMENT
    • A.  Form: Parties, Date, and Recitals  6.2
    • B.  Form: Name  6.3
    • C.  Form: Place of Business  6.4
    • D.  Form: Term of Partnership  6.5
    • E.  Form: Business of Partnership  6.6
    • F.  Form: Powers  6.7
    • G.  Form: Statutory Filings  6.8
    • H.  Form: Capital  6.9
    • I.  Form: Division of Profits and Losses  6.10
    • J.  Form: Distributions to Partners in Proportion to Initial Capital Contributions  6.11
    • K.  Form: Accounting  6.12
    • L.  Form: Records and Reports  6.13
    • M.  Form: Management  6.14
    • N.  Form: Partnership Representative; Election Out of Audit Regime  6.14A
    • O.  Form: Partners’ Fiduciary Duty and Duty of Care  6.15
    • P.  Form: Changes in Membership  6.16
    • Q.  Form: Consent of Spouses  6.17
    • R.  Transfer of Partnership Interests  6.18
      • 1.  Form: Valuation of Interest  6.19
      • 2.  Form: Payment of Purchase Price  6.20
    • S.  Form: Miscellaneous Clauses  6.21
    • T.  Form: Execution  6.22
    • U.  Form: Consent of Spouses  6.23
  • III.  LONG FORM PARTNERSHIP AGREEMENT
    • A.  Form: Parties, Date, and Recitals  6.24
    • B.  Formation Issues: Name, Term, Purposes, and Powers
      • 1.  Form: Basic Operative Clause  6.25
      • 2.  Form: Firm Name  6.26
      • 3.  Form: Chief Executive Office  6.27
      • 4.  Form: Term of Partnership  6.28
      • 5.  Form: Purposes Clause  6.29
      • 6.  Form: Powers  6.30
    • C.  Form: Statutory Filings  6.31
    • D.  Capital
      • 1.  Initial Contributions
        • a.  Form: Contributions in Money or Property  6.32
        • b.  Form: Contributions of Services  6.33
      • 2.  Form: Contributed Property; Special Tax Allocations Because of Carryover Basis  6.34
      • 3.  Form: Failure to Make Initial Contribution  6.35
      • 4.  Form: Deferred Contributions  6.36
      • 5.  Form: Additional Capital  6.37
      • 6.  Form: Withdrawals of Capital  6.38
      • 7.  Form: No Interest on Capital Contributions  6.39
      • 8.  Form: Loans to Partnership  6.40
    • E.  Form: Division of Profits and Losses  6.41
    • F.  Distributions to Partners
      • 1.  Form: Distribution of Profits  6.42
      • 2.  Form: Distributions of Proceeds From Sale of Capital Assets  6.43
      • 3.  Form: Limit on Distributions  6.44
    • G.  Accounting
      • 1.  Form: Fiscal Year of Partnership  6.45
      • 2.  Form: Accounting Method  6.46
      • 3.  Capital Accounts
        • a.  Form: Capital Accounts—Initial Contributions  6.47
        • b.  Form: Adjustment of Capital Accounts  6.48
      • 4.  Form: Determination of Profit and Loss  6.49
    • H.  Records and Reports
      • 1.  Form: Partnership Books  6.50
      • 2.  Form: Annual Report to Partners  6.51
    • I.  Management
      • 1.  Form: Control of Business  6.52
      • 2.  Form: Acts Requiring Majority Consent  6.53
      • 3.  Form: Handling Funds  6.54
      • 4.  Partners’ Remuneration
        • a.  Form: Remuneration to Partner  6.55
        • b.  Form: Effect of Assignment of Interest  6.56
      • 5.  Compliance With Centralized Partnership Audit Regime
        • a.  Form: Designation of Partnership Representative  6.56A
        • b.  Form: Authority to Be Exercised by Partnership Representative  6.56B
        • c.  Form: Partnership Election Out of Subchapter C of Chapter 63 of the Internal Revenue Code and Centralized Partnership Audit Regime  6.56C
    • J.  Partner’s Fiduciary Duty
      • 1.  Form: Duty of Loyalty  6.57
      • 2.  Form: Duty of Care  6.58
      • 3.  Form: Duty of Good Faith and Fair Dealing  6.59
      • 4.  Form: Furtherance of Partner’s Own Interests  6.60
    • K.  Changes in Membership and Partner Dissociation
      • 1.  Form: New Partners  6.61
      • 2.  Form: Partner’s Dissociation  6.62
      • 3.  Form: Partner’s Expulsion by Partner Vote  6.63
      • 4.  Form: Expulsion by Judicial Determination  6.64
      • 5.  Retirement
        • a.  Form: Retirement From Partnership Management  6.65
        • b.  Form: Retirement From Partnership  6.66
      • 6.  Form: Noncompetition Covenant  6.67
      • 7.  Purchase of Dissociated Partner’s Interest
        • a.  Form: Payment When Business Not Wound Up  6.68
        • b.  Form: Payment of Purchase Price by Mutual Agreement When Business Not Wound Up  6.69
    • L.  Transfer of Partnership Interests
      • 1.  Form: Definition of Transferable Interest  6.70
      • 2.  Form: Transferability of Interest  6.71
      • 3.  Form: Transfers Under Dissolution of Marriage  6.72
      • 4.  Form: Right of First Refusal  6.73
      • 5.  Form: Valuation of Interest  6.74
      • 6.  Form: Payment of Purchase Price  6.75
      • 7.  Form: Assumption of Outstanding Partnership Liabilities  6.76
    • M.  Dissolution and Termination
      • 1.  Form: Dissolution  6.77
      • 2.  Form: Termination of Partnership After Dissolution; Waiver of Termination  6.78
      • 3.  Form: Persons Eligible to Wind Up Partnership  6.79
      • 4.  Form: Distribution of Assets  6.80
    • N.  Form: Indemnification  6.81
    • O.  Form: Miscellaneous Clauses  6.82
    • P.  Form: Execution  6.83
    • Q.  Form: Consent of Spouses  6.84

7

Planning Limited Partnerships

Colby A. Campbell

George Grellas

  • I.  SCOPE OF CHAPTER  7.1
  • II.  FACTORS DISTINGUISHING LIMITED PARTNERSHIPS FROM GENERAL PARTNERSHIPS
    • A.  Primary Distinction  7.2
    • B.  Primary Advantages  7.3
    • C.  Primary Disadvantages  7.4
    • D.  Primary Use of Limited Partnerships  7.5
    • E.  Obtaining Personal Liability Protection for General Partners  7.6
  • III.  GOVERNING LAW
    • A.  California Law
      • 1.  Uniform Limited Partnership Act of 2008 (Re-RULPA)  7.7
      • 2.  “Legacy Limited Partnerships”: Effect of Re-RULPA on Limited Partnerships Formed Before January 1, 2008  7.8
      • 3.  Predecessor Statutes Affecting Limited Partnerships  7.9
      • 4.  Application of General Partnership Law  7.10
      • 5.  Differences Between Re-RULPA and NCCUSL Uniform Act That May Affect California Limited Partnerships  7.11
    • B.  Tax Law
      • 1.  Federal Taxation
        • a.  Tax Treatment  7.12
        • b.  Tax Classification  7.13
      • 2.  California Taxation  7.14
    • C.  Securities Law  7.15
  • IV.  CHARACTERISTICS FUNDAMENTAL TO LIMITED PARTNERSHIPS
    • A.  Permissible Business  7.16
    • B.  Management by General Partners  7.17
    • C.  Rights of Limited Partners  7.18
    • D.  Liability
      • 1.  General Partners  7.19
      • 2.  Limited Partners  7.20
      • 3.  Liability of Investor Who Erroneously Believes in Good Faith in Limited Partner Status; Right of Withdrawal  7.21
      • 4.  Insurance Coverage  7.22
    • E.  Fiduciary Responsibilities
      • 1.  In General  7.23
      • 2.  Duty of Loyalty  7.24
      • 3.  Duty of Care  7.25
      • 4.  Duty of Good Faith and Fair Dealing  7.26
    • F.  Books and Records  7.27
    • G.  Copies and Reports  7.28
  • V.  FORMATION REQUIREMENTS
    • A.  Certificate of Limited Partnership
      • 1.  Filing Requirement  7.29
      • 2.  Execution and Acknowledgment Requirement
        • a.  By General Partners  7.30
        • b.  By Persons Other Than General Partners  7.31
      • 3.  Payment Requirement  7.32
      • 4.  Effective Date  7.33
      • 5.  Recordation Option  7.34
      • 6.  Liability For Misstatements  7.35
      • 7.  Amendment to Certificate of Limited Partnership  7.36
      • 8.  Restated Certificate of Limited Partnership  7.37
    • B.  Fictitious Business Name  7.38
    • C.  Trademarks, Service Names, and Trade Names  7.39
    • D.  Limited Partnership Agreement
      • 1.  Requirement of Agreement  7.40
      • 2.  Provisions That May Be Varied  7.41
    • E.  Additional Filings
      • 1.  Federal Employer Identification Number  7.42
      • 2.  Securities Filings  7.43
      • 3.  Employer Requirements  7.44
        • a.  EDD Registration  7.45
        • b.  Workers’ Compensation  7.46
      • 4.  Licensing
        • a.  Business Licenses  7.47
        • b.  Seller’s Permit  7.48
      • 5.  Qualification to Do Business Outside California  7.49
  • VI.  FACTORS TO CONSIDER IN STRUCTURING LIMITED PARTNERSHIP AND DRAFTING LIMITED PARTNERSHIP AGREEMENT  7.50
    • A.  Scope of Business  7.51
    • B.  Financing and Guaranties  7.52
    • C.  Capital Contributions
      • 1.  Initial Capital  7.53
      • 2.  Additional Capital  7.54
      • 3.  Contribution of Specific Assets  7.55
      • 4.  Debt  7.56
      • 5.  Tax Considerations  7.57
        • a.  Contribution of Nonnegotiable Promissory Note  7.58
        • b.  Contribution of Services  7.59
      • 6.  Remedies for Failure to Contribute  7.60
    • D.  Distributions
      • 1.  Manner of Distribution  7.61
      • 2.  Time of Distribution  7.62
      • 3.  Reserve Rights  7.63
    • E.  Allocations of Profits and Losses  7.64
    • F.  Rights of General Partners  7.65
    • G.  Voting Rights of Limited Partners  7.66
    • H.  Compensation  7.67
    • I.  Time and Opportunities  7.68
    • J.  Indemnification  7.69
    • K.  Transfers of Partnership Interests  7.70
    • L.  Buy-Out Rights  7.71
    • M.  Removal of General Partners  7.72
    • N.  Admission of Additional Partners  7.73
    • O.  Events of Dissolution  7.74
      • 1.  Consent of Partners  7.75
      • 2.  Cessation of General Partner  7.76
  • VII.  SECRETARY OF STATE LIMITED PARTNERSHIP FORMS
    • A.  Form: Certificate of Limited Partnership (Secretary of State Form LP-1)  7.77
    • B.  Form: Amendment to Certificate of Limited Partnership (Secretary of State Form LP-2)  7.78
    • C.  Other Limited Partnership Forms  7.79
  • VIII.  CHECKLISTS
    • A.  Checklist: Preformation  7.80
    • B.  Checklist: Formation  7.81
  • IX.  ESTATE PLANNING WITH LIMITED PARTNERSHIPS
    • A.  Family Limited Partnerships (FLPs)  7.82
    • B.  IRS Challenges to FLPs  7.83
    • C.  Family Limited Liability Companies (FLLCs) as Alternatives to FLPs  7.84

8

Limited Partnership Agreements

Colby A. Campbell

George Grellas

  • I.  SCOPE OF CHAPTER  8.1
  • II.  FORM: SHORT FORM AGREEMENT FOR A SMALL CALIFORNIA LIMITED PARTNERSHIP  8.2
  • III.  ANNOTATED FORM OF AGREEMENT OF LIMITED PARTNERSHIP
    • A.  Form: Title of Agreement, Date, and Parties  8.3
    • B.  Defined Terms
      • 1.  Format  8.4
      • 2.  Form: Definitions  8.5
    • C.  Organization
      • 1.  Form: Formation and Name  8.6
      • 2.  Form: Designated Office  8.7
      • 3.  Form: Certificate of Limited Partnership  8.8
      • 4.  Form: Term  8.9
      • 5.  Form: Business of Partnership  8.10
      • 6.  Form: Financing and Partner Guaranties of Repayment  8.11
    • D.  Capital Contributions
      • 1.  Form: Initial Capital Contributions  8.12
      • 2.  Additional Capital Contributions
        • a.  Form: General Partners’ Additional Capital Contributions  8.13
        • b.  Form: Limited Partners—No Obligation to Contribute Additional Capital  8.14
      • 3.  Form: Capital Accounts  8.15
      • 4.  Form: No Interest  8.16
      • 5.  Form: No Withdrawal of Capital  8.17
    • E.  Form: Distributions  8.18
    • F.  Profits and Losses
      • 1.  Form: Determination and Allocation of Profits and Losses  8.19
      • 2.  Form: Special Allocations of Profits and Losses  8.20
      • 3.  Form: Qualified Income Offset  8.21
      • 4.  Form: IRC §704(c) Allocations  8.22
    • G.  Rights and Powers of General Partners
      • 1.  Form: Participation; Rights and Powers  8.23
      • 2.  Form: Delegation of Authority  8.24
      • 3.  Form: Compensation  8.25
      • 4.  Form: Liability of General Partners  8.26
      • 5.  Form: Reimbursement of Expenses and Indemnification  8.27
      • 6.  Form: Devotion of Time  8.28
      • 7.  Form: Employment or Retention of Affiliates  8.29
      • 8.  Form: Other Business Activities  8.30
    • H.  Rights and Powers of Limited Partners
      • 1.  Form: Generally No Right to Participate  8.31
      • 2.  Form: Power of Attorney  8.32
      • 3.  Form: Consent Required  8.33
      • 4.  Form: Liability of Limited Partners  8.34
      • 5.  Form: Dissociation Rights  8.35
      • 6.  Form: Transactions With Limited Partners  8.36
    • I.  Administrative Matters
      • 1.  Form: Books and Records  8.37
      • 2.  Form: Reports and Copies  8.38
      • 3.  Tax Matters
        • a.  Form: Tax Returns  8.39
        • b.  Form: Partnership Representative  8.40
        • c.  Form: Taxable Year  8.41
        • d.  Form: Election Out of Partnership Audit Rules  8.41A
      • 4.  Form: Accounting Method  8.42
      • 5.  Form: Bank Accounts  8.43
      • 6.  Form: Partnership Meetings  8.44
      • 7.  Form: Insurance  8.45
    • J.  Transfers of Partnership Interests
      • 1.  Form: General Prohibition  8.46
      • 2.  Form: Conditions of Transfer  8.47
      • 3.  Form: Permitted Transfers  8.48
      • 4.  Form: Right of First Refusal  8.49
      • 5.  Form: Transferor’s Rights in Partnership  8.50
    • K.  Form: Admission of Additional Partners  8.51
    • L.  Default of General Partner
      • 1.  Form: Events of Default of General Partner  8.52
      • 2.  Form: Notice of Default and Time to Cure  8.53
      • 3.  Form: Election of Remedies After Default of General Partner  8.54
      • 4.  Form: Determination of Fair Market Value  8.55
    • M.  Dissolution, Winding Up, Liquidation, and Termination
      • 1.  Form: Events of Dissolution  8.56
      • 2.  Form: Winding Up  8.57
      • 3.  Form: Distribution of Liquidation Proceeds  8.58
      • 4.  Form: Deficit Restoration Requirement  8.59
    • N.  Miscellaneous Provisions  8.60
      • 1.  Form: Amendment  8.61
      • 2.  Form: Arbitration  8.62
      • 3.  Form: Binding Effect  8.63
      • 4.  Form: Captions and Headings  8.64
      • 5.  Form: Counterparts and Facsimiles  8.65
      • 6.  Form: Counting of Days  8.66
      • 7.  Form: Cumulative Remedies  8.67
      • 8.  Form: Entire Agreement  8.68
      • 9.  Form: Exhibits  8.69
      • 10.  Form: Further Documents  8.70
      • 11.  Form: Governing Law  8.71
      • 12.  Form: Jurisdiction  8.72
      • 13.  Form: Notice  8.73
      • 14.  Form: Prevailing Party’s Fees  8.74
      • 15.  Form: Pronouns and Gender  8.75
      • 16.  Form: Severability  8.76
      • 17.  Form: Time of Essence  8.77
      • 18.  Form: Waiver  8.78
    • O.  Form: Signatures  8.79
    • P.  Form: Separate Property Waiver and Acknowledgment  8.80

9

Planning Limited Liability Partnerships

James T. Freeman

  • I.  SCOPE OF CHAPTER  9.1
  • II.  NATURE OF LIMITED LIABILITY PARTNERSHIP (LLP)
    • A.  Governing Laws  9.2
    • B.  Available Only to Architecture, Public Accountancy, Law, Engineering, and Land Surveying, and Certain Affiliates  9.3
  • III.  DISTINGUISHING CHARACTERISTIC OF LLP: LIMITED LIABILITY
    • A.  Limited Liability of Partners  9.4
    • B.  Exceptions to Limited Liability
      • 1.  Liability Incurred When Partnership Not LLP  9.5
      • 2.  Liability Imposed by Agreement  9.6
      • 3.  Liability for Tortious Conduct  9.7
      • 4.  Liability for Acts, Errors, and Omissions in Rendering Legal Services  9.8
      • 5.  Liability as Guarantor  9.9
    • C.  Restrictions on Distributions  9.10
  • IV.  SECURITY FOR CLAIMS REQUIREMENTS
    • A.  LLP Must Provide Security for Professional Liability Claims  9.11
      • 1.  Insurance Requirements  9.12
      • 2.  Deposit of Security  9.13
      • 3.  Net Worth Requirements
        • a.  Legal Requirements  9.14
        • b.  Form: Alternative Security Provision of a Limited Liability Partnership (Secretary of State Form LLP–3)  9.15
    • B.  Automatic Guaranty  9.16
    • C.  Security on Dissolution or Insolvency  9.17
  • V.  FORMATION OF LIMITED LIABILITY PARTNERSHIPS
    • A.  Partnership Names  9.18
    • B.  Registration With Secretary of State
      • 1.  Legal Requirements  9.19
      • 2.  Form: Application to Register a Limited Liability Partnership (Secretary of State Form LLP–1)  9.20
      • 3.  Amending Limited Liability Partnership Registration  9.21
      • 4.  Form: Amendment to Registration of a Limited Liability Partnership (Secretary of State Form LLP–2)  9.22
    • C.  Additional Registration and Filing Requirements  9.23
      • 1.  State Board of Architectural Examiners  9.24
      • 2.  State Board of Accountancy  9.25
      • 3.  State Bar of California
        • a.  Legal Requirements  9.26
        • b.  Form: Application for Issuance of Certificate of Registration as a Limited Liability Partnership (State Bar Form LLP 101)  9.27
    • D.  Partnership Agreement  9.28
  • VI.  CHANGE OF STATUS
    • A.  Cessation of LLP Status  9.29
    • B.  Form: Notice of Change of Status of a Limited Liability Partnership (Secretary of State Form LLP–4)  9.30
  • VII.  CHECKLISTS
    • A.  Checklist: Organizing New California LLP  9.31
    • B.  Checklist: Registering Foreign LLP in California  9.32
    • C.  Checklist: Converting Domestic Partnership to Registered LLP  9.33

10

Limited Liability Partnership Agreements

James T. Freeman

  • I.  SCOPE OF CHAPTER  10.1
  • II.  LIMITED LIABILITY PARTNERSHIP AGREEMENT FORM PROVISIONS
    • A.  Form: Title, Introduction, Name  10.2
    • B.  Form: Purpose and Term  10.3
    • C.  Form: Place of Business  10.4
    • D.  Form: Security Requirements  10.5
    • E.  Form: Definitions  10.6
    • F.  Form: Capital Contributions  10.7
    • G.  Form: Capital Accounts; Allocations of Profit and Loss  10.8
    • H.  Form: Qualified Income Offset  10.9
    • I.  Form: Distributions  10.10
    • J.  Form: Restrictions on Distributions  10.11
    • K.  Form: Management  10.12
    • L.  Form: Rights and Duties of Partners  10.13
    • M.  Form: Fiscal Year  10.14
    • N.  Form: Accounting Method  10.14A
    • O.  Form: Records and Reports  10.14B
    • P.  Tax Matters
      • 1.  Form: Tax Matters Partner/Partnership Representative  10.14C
      • 2.  Form: Tax Returns  10.14D
      • 3.  Form: Election Out of Partnership Audit Rules  10.14E
    • Q.  Form: Banking  10.14F
    • R.  Form: Additional Partners  10.15
    • S.  Form: Withdrawal, Expulsion, or Disability of Partner  10.16
    • T.  Form: Payments to Terminated Partner  10.17
    • U.  Form: Continuation of Partnership  10.18
    • V.  Form: Liquidating Events  10.19
    • W.  Form: Winding Up  10.20
    • X.  Form: Deficit Capital Accounts  10.21
    • Y.  Form: Indemnification  10.22
    • Z.  General Provisions
      • 1.  Form: Amendments  10.23
      • 2.  Form: Notices  10.24
      • 3.  Form: Counterparts  10.25
      • 4.  Form: Governing Law  10.26
      • 5.  Form: Successors  10.27
      • 6.  Form: Severability  10.28
      • 7.  Form: Headings  10.29
      • 8.  Form: Further Documents  10.30
      • 9.  Form: Construction  10.31
      • 10.  Form: Gender  10.32
      • 11.  Form: Incorporation by Reference  10.33
    • AA.  Form: Attorney Fees  10.34
    • AB.  Form: Arbitration  10.35
    • AC.  Form: Entire Agreement  10.36

11

Issuing Partnership Interests

Christopher Chediak

  • I.  SCOPE OF CHAPTER  11.1
  • II.  CHARACTER OF PARTNERSHIP INTEREST
    • A.  General Partnership Interest Under RUPA
      • 1.  Nature and Definition of “Partnership Interest”  11.2
      • 2.  Existence of General Partnership  11.3
      • 3.  Issuance of Partnership Interests in General Partnership  11.4
    • B.  Limited Partnership Interests Under Re-RULPA
      • 1.  Applicability  11.5
      • 2.  “Partnership Interest” Defined  11.6
      • 3.  Issuance of Partnership Interests in Limited Partnerships
        • a.  Becoming a General Partner  11.7
        • b.  Becoming a Limited Partner  11.8
  • III.  APPLICATION OF FEDERAL SECURITIES LAWS TO ISSUANCE OF PARTNERSHIP INTERESTS
    • A.  Securities Laws and Determining if Investment Is “Security”  11.9
      • 1.  When Partnership Interest Is Investment Contract  11.10
        • a.  Profits Derived From Efforts of Others: Howey Test  11.11
        • b.  Investor Lacks Ability to Control Management: Williamson Test  11.12
      • 2.  Other Tests of Interest as Security: “Similar Circumstances” and “Family Resemblance”  11.13
    • B.  Registering Transactions Under Securities Act  11.14
    • C.  Securities and Transactions Exempt From Registration Requirement  11.15
      • 1.  Nonpublic Offerings  11.16
        • a.  Requirements for Nonpublic Offering
          • (1)  Information Available to Investors  11.17
          • (2)  Securities Have “Come to Rest”  11.18
        • b.  Investor Representations and Legend Requirements  11.19
      • 2.  Limited Offerings: Regulation D  11.20
        • a.  Rule 504: Offerings up to $5 Million  11.21
        • b.  Rule 505: Offerings up to $5 Million [Deleted]  11.22
        • c.  Rule 506: Offerings With No Monetary Limit  11.23
      • 3.  Intrastate Offerings
        • a.  Section 3(a)(11) Exemption  11.24
        • b.  Rule 147  11.25
        • c.  Rule 147A  11.25A
        • d.  Using Intrastate Exemption With Other Exemptions  11.26
        • e.  Form: Legend for Certificate and Partnership Agreement  11.27
      • 4.  Coordination With California Exemption for Sales to Qualified Purchasers: Regulation CE  11.28
      • 5.  Offerings Under Compensatory Benefit Plans  11.28A
      • 6.  Crowdfunding  11.28B
      • 7.  Regulation A+  11.28C
    • D.  Application of Federal Antifraud Provisions to Issuance of Partnership Interests  11.29
      • 1.  Section 10(b) and Rule 10b–5 of Securities Exchange Act  11.30
      • 2.  Section 17 of Securities Act  11.31
      • 3.  Sections 11 and 12(a) of Securities Act  11.32
      • 4.  Disclosure Documents  11.33
        • a.  All Material Information  11.34
        • b.  Type of Investor Determines Level of Disclosure  11.35
      • 5.  Regulation D Information Delivery Requirement  11.36
  • IV.  APPLICATION OF CALIFORNIA SECURITIES LAWS TO ISSUANCE OF PARTNERSHIP INTERESTS
    • A.  Partnership Interests Defined as Securities
      • 1.  Definition Based on Partners’ Active Participation in Management  11.37
      • 2.  Tests Used to Determine When Partnership Interest Is Investment Contract  11.38
        • a.  “Risk Capital” Test  11.39
        • b.  Howey Test  11.40
    • B.  Qualification Required for Nonexempt Security Transactions  11.41
      • 1.  Merit Regulation: “Fair, Just, and Equitable” Standard  11.42
      • 2.  Transaction Definitions Essential for Determining Whether Qualification Is Required  11.43
    • C.  Exemptions From Qualification  11.44
      • 1.  Exempt Securities  11.45
      • 2.  Exempt Transactions
        • a.  Issuer, Nonissuer, and Reorganization Transactions Can Be Exempt  11.46
        • b.  Limited Offering Exemption  11.47
          • (1)  No More Than 35 Purchasers  11.48
          • (2)  Qualified Purchasers  11.49
          • (3)  Purchaser’s Investment Representation  11.50
          • (4)  No Advertising  11.51
          • (5)  Filing Notice  11.52
          • (6)  Form: Subscription Agreement  11.53
        • c.  Exemption for Sales to Qualified Purchasers That Are Accompanied by General Announcement  11.54
          • (1)  Purchaser Must Be Qualified  11.55
          • (2)  Disclosure Document  11.56
          • (3)  Information in General Announcement  11.57
          • (4)  Filing Notice of Transaction  11.58
        • d.  Nonissuer Exemptions  11.59
        • e.  Other Transactions Exempt From Qualification  11.60
    • D.  Qualifying Issuer Transaction  11.61
      • 1.  Qualification by Coordination  11.62
      • 2.  Qualification by Notification  11.63
      • 3.  Qualification by Permit  11.64
        • a.  Preparing the Application  11.65
        • b.  Filing the Application  11.66
        • c.  Division of Corporations’ Review of Application  11.67
    • E.  Liability for Violations Under California Securities Law  11.68
      • 1.  Liability for Failure to Qualify Offers and Sales of Securities  11.69
      • 2.  Liability for Manipulation of Prices or Appearance of Trading  11.70
      • 3.  Liability for Misrepresentation of Material Facts  11.71
      • 4.  Liability for Unlawful Insider Trading  11.72
      • 5.  Vicarious Liability  11.73
      • 6.  Common Law Liability  11.74

12

Operating a Partnership

John E. Di Giusto

  • I.  SCOPE OF CHAPTER  12.1
  • II.  DECISION MAKING
    • A.  Who Has Authority; Scope of Authority
      • 1.  General Partnerships
        • a.  Statutory Restrictions Applicable to Partnership Agreements  12.2
        • b.  Equal Authority; Majority Rule  12.3
        • c.  Voting; Deadlocks  12.4
        • d.  Effect of Partnership Statement  12.5
        • e.  Effect of Partner’s Dissociation  12.6
      • 2.  Limited Partnerships
        • a.  Role of General Partner
          • (1)  When General Partner Is Not Also a Limited Partner  12.7
          • (2)  When General Partner Is Also a Limited Partner  12.8
        • b.  Multiple General Partners  12.9
        • c.  Classes of Partners  12.10
        • d.  Liability Considerations  12.11
        • e.  Meetings  12.12
    • B.  How a Partnership Executes Documents
      • 1.  General Partnerships  12.13
      • 2.  Certificates for Limited Partnerships  12.14
  • III.  LICENSING REQUIREMENTS OF TRADES AND PROFESSIONS  12.15
  • IV.  CONVEYANCE OF PARTNERSHIP PROPERTY  12.16
    • A.  Property Held in Name of Partnership  12.17
    • B.  Property Held in Name of One or More Partners or Other Persons  12.18
    • C.  Recovery of Improperly Transferred Property  12.19
    • D.  Limited Partnerships  12.20
    • E.  Property Tax Revaluations  12.21
  • V.  GENERAL PARTNERSHIP STATEMENTS  12.22
  • VI.  LIMITED PARTNERSHIP FORMS  12.23
  • VII.  QUALIFYING TO DO BUSINESS IN ANOTHER JURISDICTION  12.24
  • VIII.  FORM: RESIGNATION OF AGENT UPON WHOM PROCESS MAY BE SERVED (SECRETARY OF STATE FORM RA-100)  12.25

13

Taxation of Partnership Income

Charles E. Toombs

  • I.  SCOPE OF CHAPTER  13.1
  • II.  TAX ACCOUNTING
    • A.  Pass-Through Treatment  13.2
    • B.  Chart: Deduction for Qualified Business Income of Pass-Through Entities  13.2A
    • C.  Computing Taxable Income
      • 1.  Income Computed at Entity Level  13.3
      • 2.  Partnership Audits and Adjustments  13.3A
      • 3.  Disallowed Deductions  13.4
      • 4.  Separately Stated Items  13.5
    • D.  Federal and State Income Tax Reporting Requirements
      • 1.  IRS Form 1065; Schedule K-1 (1065)  13.6
      • 2.  Franchise Tax Board Form 565; Schedule K-1 (565)  13.7
    • E.  Tax Matters Partner/Partnership Representative  13.8
  • III.  PARTNER’S BASIS IN PARTNERSHIP INTEREST
    • A.  Purposes of Calculation  13.9
    • B.  Determining Partner’s Initial Basis
      • 1.  Acquisition by Capital Contribution  13.10
      • 2.  Acquisition by Purchase  13.11
      • 3.  Acquisition by Gift  13.12
      • 4.  Acquisition by Inheritance  13.13
    • C.  Adjustments to Partner’s Basis
      • 1.  Increases in Basis  13.14
      • 2.  Decreases in Basis  13.15
    • D.  Effect of Partnership Liabilities on Partner’s Basis  13.16
      • 1.  Increase and Decrease in Partner’s Share of Partnership Liabilities Reflected in Basis  13.17
      • 2.  Determining Partner’s Share of Partnership Liabilities  13.18
        • a.  Recourse Liabilities  13.19
        • b.  Nonrecourse Liabilities  13.20
  • IV.  PARTNER’S DISTRIBUTIVE SHARE
    • A.  Significance of Distributive Shares  13.21
    • B.  Determining Partner’s Distributive Share  13.22
      • 1.  Allocations With Substantial Economic Effect  13.23
        • a.  Capital Account Maintenance  13.24
        • b.  Liquidating Distributions  13.25
        • c.  Capital Account Deficit Restoration Requirement  13.26
        • d.  Qualified Income Offset  13.27
        • e.  Substantiality of Economic Effect  13.28
          • (1)  Shifting Tax Consequences Within 1 Year  13.29
          • (2)  Transitory Allocations Over Successive Years  13.30
      • 2.  Allocation in Accordance With Partner’s Interest in Partnership  13.31
      • 3.  Special Rules for Allocations of Nonrecourse Deductions  13.32
        • a.  Safe Harbor Test  13.33
        • b.  Minimum Gain Chargeback  13.34
      • 4.  Allocations of Precontribution Gain, Loss, and Deduction  13.35
        • a.  Allocations of Built-In Gain or Loss  13.36
        • b.  Allocations of Cost Recovery Deductions  13.37
        • c.  Ceiling Limitation and “Small Disparity” Rule  13.38
    • C.  Allocations Relating to Family Partnerships  13.39
      • 1.  Donating Partnership Interest to Family Member  13.40
      • 2.  When Donee Recognized as Partner of Partnership  13.41
    • D.  Limitations on Deductibility of Partner’s Share of Partnership Losses  13.42
      • 1.  Basis Limitation  13.43
      • 2.  At-Risk Limitation  13.44
      • 3.  Passive Loss Limitation  13.45
        • a.  Real Estate Professionals  13.46
        • b.  Publicly Traded Partnerships  13.47
  • V.  CURRENT DISTRIBUTIONS TO PARTNER
    • A.  Partner’s Recognition of Gain and Loss  13.48
      • 1.  Distributions of Cash  13.49
      • 2.  Distributions of Other Assets  13.50
        • a.  Distributions That Alter Partner’s Interest in IRC §751 Property  13.51
        • b.  Distributions That Alter Partners’ Shares of Partnership Liabilities  13.52
        • c.  Distributions Relating to Built-In Gain Property  13.53
        • d.  Distributions Treated as Disguised Sales  13.54
        • e.  Distributions of Property Subject to Depreciation and Investment Credit Recapture
          • (1)  Depreciation Carries Over  13.55
          • (2)  Investment Credit Recapture  13.56
    • B.  Partner’s Basis in Partnership Interest and Distributed Property
      • 1.  Basis of Partnership Interest  13.57
      • 2.  Basis of Distributed Property  13.58
    • C.  Holding Period of Distributed Property  13.59
  • VI.  PARTNERSHIP TRANSACTIONS WITH PARTNERS
    • A.  Distributions Treated Differently From Other Payments to Partners  13.60
      • 1.  Payments to Partner Acting in Nonpartner Capacity  13.61
      • 2.  Payments to Partner Acting in Partner Capacity  13.62
    • B.  Self-Employment Tax  13.63
    • C.  Sale of Assets to Controlled Partnership  13.64

14

Taxation of Transfers and Terminations of Partnership Interests

John R. Bonn

Julie Vandersluis Skeen

  • I.  SCOPE OF CHAPTER  14.1
  • II.  SALE OR EXCHANGE OF PARTNERSHIP INTEREST
    • A.  Treatment of Transferor
      • 1.  Distinguishing Sale or Exchange, Liquidation, and Termination  14.2
      • 2.  “Disguised” Sale or Exchange  14.3
      • 3.  Recognition and Amount of Transferor’s Gain or Loss  14.4
      • 4.  Sale of Partial Interest  14.5
      • 5.  Contribution to Another Partnership  14.6
      • 6.  No Like-Kind Exchange of Partnership Interests [Deleted]  14.7
      • 7.  Transfer in Exchange for Stock of Corporation  14.8
      • 8.  Character of Income, Gain, or Loss Recognized in General  14.9
      • 9.  Amounts Attributable to Unrealized Receivables and Inventory Items  14.10
      • 10.  Active, Passive, and Portfolio Income, Gain, or Loss  14.11
      • 11.  Suspended Losses  14.12
      • 12.  Installment Sale  14.13
      • 13.  Closing of Partnership Taxable Year  14.14
    • B.  Treatment of Transferee
      • 1.  Capital Account for Purchased Interest  14.15
      • 2.  Purchaser’s “Outside” Basis and Holding Period  14.16
      • 3.  Effect on Basis and Holding Period of Partnership Assets  14.17
      • 4.  Elective Inside Basis Adjustment  14.18
      • 5.  Allocation of Basis Adjustment  14.19
      • 6.  Effect on Depreciation and Amortization of Partnership Assets  14.20
      • 7.  Amortization of Partnership Section 197 Intangibles  14.21
    • C.  Allocation of Partnership Tax Items Between Transferor and Transferee for Year of Sale or Exchange  14.22
    • D.  Termination of Partnership for Tax Purposes  14.23
      • 1.  Definition of “Sale or Exchange” [Deleted]  14.24
      • 2.  Effect of Order of Transactions on Whether Termination Occurs [Deleted]  14.25
      • 3.  Consequences of Technical Termination of Partnership [Deleted]  14.26
  • III.  LIQUIDATION OF PARTNERSHIP INTEREST
    • A.  Distinguishing Between Liquidation and Sale or Exchange of Partnership Interest  14.27
    • B.  When Liquidation of an Interest Is Considered to Occur  14.28
    • C.  Treatment of Liabilities  14.29
    • D.  Distinguishing Between Current and Liquidating Distributions  14.30
    • E.  Income Tax Treatment of Payments in Liquidation of Partner’s Interest  14.31
      • 1.  Substantially Appreciated Inventory Items  14.32
      • 2.  Constructive Sale or Exchange of Unrealized Receivable  14.33
      • 3.  Liquidating Distributions for Unrealized Receivables  14.34
      • 4.  Payments for Partnership Property, Including Good Will  14.35
      • 5.  Income Payments  14.36
    • F.  Constructive Sale or Exchange of “Hot Assets”  14.37
    • G.  Income Payments  14.38
    • H.  Payments for Partnership Property  14.39
    • I.  Treatment of Payments for Good Will  14.40
    • J.  Allocation of Series of Payments  14.41
    • K.  Distributions in Kind: Recognition of Gain or Loss  14.42
      • 1.  Basis of Distributed Property  14.43
      • 2.  Holding Period of Distributed Property  14.44
      • 3.  Character of Gain on Sale of Distributed Property  14.45
    • L.  Adjustments to Basis of Undistributed Partnership Property  14.46
    • M.  Amortization of §197 Intangibles  14.47
    • N.  Allocation of Partnership Tax Items for Year or Years of Liquidation  14.48
  • IV.  WITHHOLDING REQUIREMENTS
    • A.  Federal Withholding Requirements  14.49
    • B.  California Withholding Requirements  14.50
      • 1.  Domestic Nonresidents of California  14.51
      • 2.  Foreign Nonresident Partners  14.52
  • V.  NONINCOME-TAX CONSEQUENCES
    • A.  Sales Tax Consequences of Sale of Partnership Interests  14.53
    • B.  Change of Ownership for California Real Property Tax Purposes  14.54
      • 1.  Acquisition of More Than 50 Percent Control  14.55
      • 2.  Transfers by Original Co-Owners  14.56
      • 3.  Transfers Between Spouses or Registered Domestic Partners  14.57
    • C.  California Documentary Transfer Tax  14.58

15

Litigation

Frederick D. Booke

Ovvie Miller

  • I.  SCOPE OF CHAPTER  15.1
  • II.  ALTERNATIVE DISPUTE RESOLUTION  15.2
    • A.  Mediation  15.3
    • B.  Arbitration
      • 1.  Contractual Arbitration  15.4
      • 2.  Factors Affecting Decision to Include Arbitration Provision in Partnership Agreement
        • a.   Discovery, Damages, Arbitration Principles, Future Controversies, and Judicial Review  15.5
        • b.  Availability of Class Action Arbitration  15.5A
      • 3.  Nonsignatory Arbitration  15.6
    • C.  Judicial Arbitration  15.7
  • III.  CIVIL LITIGATION
    • A.  Partnership’s Contacts With Other States  15.8
      • 1.  Conflict of Laws: General Partnerships and Limited Liability Partnerships (LLPs)  15.9
      • 2.  Regulation of Foreign Limited Partnerships  15.10
        • a.  In California  15.11
        • b.  In Other States  15.12
    • B.  California Jurisdiction  15.13
      • 1.  Domestic Partnerships  15.14
      • 2.  Foreign Partnerships  15.15
        • a.  Doing Business Test  15.16
        • b.  Agent Designated for Service of Process  15.17
    • C.  Federal Jurisdiction  15.18
    • D.  Venue  15.19
    • E.  Parties
      • 1.  Determining Whether Partnership or Partners Are Parties  15.20
      • 2.  Statement of Partnership Authority  15.21
      • 3.  Limited Liability Partners as Parties  15.22
      • 4.  California Joinder
        • a.  Actions by Partnership  15.23
        • b.  Actions Against Partners or Partnership  15.24
      • 5.  Federal Joinder  15.25
    • F.  Limitation of Actions  15.26
  • IV.  ACTION AGAINST OUTSIDER BY PARTNERSHIP AND/OR PARTNERS
    • A.  Identity of Plaintiffs  15.27
    • B.  Complaint  15.28
      • 1.  Allegations of Partnership Existence  15.29
      • 2.  Fictitious Business Name Allegations
        • a.  Action by General Partnership  15.30
        • b.  Action by Limited Partnership  15.31
        • c.  Action by Individual Partners  15.32
      • 3.  Body of Complaint  15.33
      • 4.  Prayer, Subscription, and Verification  15.34
    • C.  Responses by Defendant Outsider
      • 1.  Grounds for Demurrer  15.35
        • a.  No Allegation of Compliance With Fictitious Business Name Statutes  15.36
        • b.  No Certificate of Limited Partnership  15.37
        • c.  Partner Not Joined as Plaintiff  15.38
      • 2.  Answer  15.39
      • 3.  Cross-Complaint  15.40
      • 4.  Motions for Joinder of Necessary Parties  15.41
    • D.  Trial Problems
      • 1.  Discovery; Unwanted Disclosure of Business Information  15.42
      • 2.  Admission of Evidence  15.43
      • 3.  Special Jury Instructions  15.44
    • E.  Binding Nature of Judgment  15.45
  • V.  ACTION BY OUTSIDER AGAINST PARTNERSHIP AND/OR PARTNERS
    • A.  Types of Outsider Litigation  15.46
    • B.  Differences Between Actions Against Outsiders and Actions by Outsiders  15.47
    • C.  Separate Actions  15.48
    • D.  Pleading
      • 1.  Identity of Defendants  15.49
      • 2.  Existence of Partnership  15.50
    • E.  Statement of Partnership Authority  15.51
    • F.  Allegations of Partner’s Authority  15.52
    • G.  Allegations Regarding Limited Partner Defendants  15.53
    • H.  Partnership by Estoppel  15.54
    • I.  Service of Process  15.55
    • J.  Effect of Service on Judgment  15.56
    • K.  Intervention by Limited Partner  15.57
    • L.  Responses by Defendant Partnership and/or Partners
      • 1.  Demurrer for Misjoinder  15.58
      • 2.  Defenses in Answer  15.59
      • 3.  Nonjoinder of Partner  15.60
      • 4.  Cross-Complaint  15.61
    • M.  Trial Problems
      • 1.  Evidentiary Issues
        • a.  Evidence on Whether Transaction Was With Partnership or Partner  15.62
        • b.  Evidence of Partnership Relationship  15.63
      • 2.  Death of Partner  15.64
      • 3.  Dissolution of Partnership  15.65
    • N.  Effect of Judgment
      • 1.  Table: Judgments Against Partnerships and General Partners  15.66
      • 2.  Res Judicata  15.67
      • 3.  Default Judgments  15.68
    • O.  Enforcing Judgments  15.69
      • 1.  Levying Against Partner’s Assets for Judgment Against Partnership  15.70
      • 2.  Levying Against Partner’s Interest in Partnership for Judgment Against Partner  15.71
      • 3.  Payment and Right to Contribution  15.72
      • 4.  Charging Order  15.73
  • VI.  ACTIONS WITHIN PARTNERSHIP GROUP
    • A.  Actions Before Formation
      • 1.  When Action Is Appropriate  15.74
      • 2.  Measuring Damages  15.75
    • B.  Actions During Partnership’s Existence
      • 1.  Actions by General Partners  15.76
      • 2.  Actions by Limited Partners  15.77
      • 3.  Proof of Partnership’s Existence
        • a.  Question of Fact  15.78
        • b.  Types of Evidence Admissible to Show Partnership Existence  15.79
        • c.  Joint Venture  15.80
        • d.  Formation by Written or Oral Agreement Implied by Contract  15.81
    • C.  Torts  15.82
    • D.  Accounting
      • 1.  Accounting Not Required for Ancillary Relief  15.83
      • 2.  Pleading When Accounting Is Sought  15.84
      • 3.  Cross-Complaint for Dissolution and Accounting  15.85
      • 4.  Table: Problems of Proof in Action for Accounting  15.86
      • 5.  Judgments and Orders in Accounting Actions  15.87
    • E.  Class and Derivative Actions in Limited Partnerships  15.88
    • F.  Rescission of Partnership Agreement  15.89
    • G.  Conspiracy  15.90
    • H.  Contribution  15.91
    • I.  Workplace Antidiscrimination Actions  15.92
  • VII.  ASSIGNMENT OF PARTNER’S INTEREST
    • A.  General Partnerships
      • 1.  Transferable Interest and Rights of Transferor  15.93
      • 2.  Rights of Transferee  15.94
    • B.  Limited Partnerships  15.95

16

Dissociation and Transfer of Partnership Interests

Rachelle H. Cohen

John E. Di Giusto

  • I.  SCOPE OF CHAPTER  16.1
  • II.  DISSOCIATION IN GENERAL PARTNERSHIPS
    • A.  Dissociation
      • 1.  Effect Generally  16.2
      • 2.  Events Causing Dissociation  16.3
      • 3.  Wrongful Dissociation  16.4
      • 4.  Liabilities, Authority, and Duties Around Dissociation  16.5
    • B.  Partnership Continues on Purchase of Dissociated Partner’s Interest  16.6
    • C.  Admission of New General Partner [Deleted]  16.7
    • D.  Additional Considerations [Deleted]  16.8
  • III.  DISSOCIATION IN LIMITED PARTNERSHIPS
    • A.  Events Causing Dissociation
      • 1.  Effect Generally  16.8A
      • 2.  General Partners  16.9
      • 3.  Limited Partners  16.10
    • B.  Documenting the Dissociation  16.11
    • C.  Form: Certificate of Dissociation (Secretary of State Form LP-101)  16.12
    • D.  Effect of Dissociation
      • 1.  General Partners  16.13
      • 2.  Limited Partners  16.14
    • E.  Right to Distribution on Dissociation  16.15
    • F.  Wrongful Dissociation
      • 1.  General Partners  16.16
      • 2.  Limited Partners  16.17
    • G.  Liabilities Around Dissociation
      • 1.  General Partners  16.18
      • 2.  Limited Partners  16.19
  • IV.  RETIREMENT OF GENERAL PARTNER
    • A.  Methods of Effecting Retirement
      • 1.  General Partnerships  16.20
      • 2.  Limited Partnerships  16.21
    • B.  Partners’ Continuing Rights After Retirement
      • 1.  General Partnerships  16.22
      • 2.  Limited Partnerships  16.23
    • C.  Partners’ Continuing Liability After Retirement
      • 1.  General Partnerships  16.24
      • 2.  Limited Partnerships  16.25
  • V.  DEATH OF PARTNER
    • A.  General Partnerships  16.26
    • B.  Limited Partnerships  16.27
  • VI.  TRANSFERRING PARTNERSHIP INTERESTS
    • A.  General Partnerships  16.28
    • B.  Limited Partnerships
      • 1.  Interests of Limited Partners  16.29
      • 2.  Interests of General Partners  16.30
    • C.  Rights and Liabilities of Transferees
      • 1.  General Partner Interest
        • a.  General Partnerships  16.31
        • b.  Limited Partnerships  16.32
      • 2.  Limited Partner Interest  16.33
    • D.  Tax Consequences of Transferring Partnership Interest  16.34
      • 1.  Amount of Gain or Loss Realized  16.35
      • 2.  Allocation of Partnership Income and Loss Between Buyer and Seller  16.36
      • 3.  Sales of Partnership Interest When Partnership Holds Ordinary Income Property  16.37
      • 4.  Notification Compliance  16.38
      • 5.  Tax Effect for Partnership of Sale of Partnership Interest  16.39
      • 6.  Related Party Transfers  16.40
    • E.  Complying With Securities Laws  16.41
    • F.  Complying With Buy-Sell Provisions, Rights, and Options  16.42
  • VII.  SECURITY IN PARTNERSHIP INTERESTS
    • A.  Assignment For Security  16.43
    • B.  Perfecting Security Interest or Obtaining a Lien in Partnership Interest
      • 1.  General Partnerships  16.44
      • 2.  Limited Partnerships  16.45
    • C.  Execution on Partnership Interest  16.46
  • VIII.  PROCEDURAL MATTERS
    • A.  Interests in General Partnerships  16.47
    • B.  Interests in Limited Partnerships  16.48

17

Dissolving and Winding Up Partnership

J. Michael Matthews

  • I.  SCOPE OF CHAPTER  17.1
  • II.  DISTINGUISHING DISSOCIATION, DISSOLUTION, WINDING UP, AND TERMINATION  17.2
  • III.  GENERAL PARTNERSHIPS
    • A.  Dissolution Events
      • 1.  Dissociation Does Not Automatically Cause Dissolution  17.3
      • 2.  Partnership at Will  17.4
      • 3.  Partnership for Definite Term or Particular Undertaking  17.5
      • 4.  Effect of Partnership Agreement  17.6
    • B.  Dissolution by Court Decree
      • 1.  Grounds for Decree  17.7
      • 2.  Decree Sought by Assignee or Judgment Creditor  17.8
    • C.  Alternatives to Dissolution
      • 1.  Continuation; Waiver of Dissolution  17.9
      • 2.  Rescission and Restitution  17.10
      • 3.  Accounting Without Dissolution  17.11
    • D.  Partner Authority and Liability
      • 1.  Post-Dissolution Authority and Liability  17.12
      • 2.  Importance of Filing Statement of Dissolution  17.13
    • E.  Winding Up Partnership Business
      • 1.  Liquidating Partners  17.14
      • 2.  Distributions  17.15
      • 3.  Closing Out Partners’ Accounts  17.16
      • 4.  Court-Supervised Winding Up  17.17
  • IV.  LIMITED PARTNERSHIPS
    • A.  Governing Law  17.18
    • B.  Dissolution Events
      • 1.  Agreement or Consent  17.19
      • 2.  When Dissociation Causes Dissolution
        • a.  Dissociation of General Partner  17.20
        • b.  Dissociation of Last Limited Partner  17.21
    • C.  Judicial Dissolution  17.22
    • D.  Alternatives to Dissolution
      • 1.  Avoiding Judicial Dissolution  17.23
      • 2.  Limited Partnership Rollups  17.24
    • E.  Partner Authority and Liability
      • 1.  Post-Dissolution Authority and Liability of General Partners  17.25
      • 2.  Notice to Known Claimants  17.26
      • 3.  Publication of Notice of Dissolution  17.27
      • 4.  Filing Certificate of Cancellation  17.28
    • F.  Winding Up Partnership Business
      • 1.  Permitted Activities; Liquidating Partners  17.29
      • 2.  Distributions  17.30
      • 3.  Closing Out Partners’ Accounts  17.31
      • 4.  Court-Supervised Winding Up  17.32
  • V.  SPECIAL RULES FOR LIMITED LIABILITY PARTNERSHIPS
    • A.  Liability of Partners  17.33
    • B.  Notice of Cessation  17.34
    • C.  Security on Dissolution or Insolvency  17.35
  • VI.  FORMS
    • A.  Form: Statement of Dissolution (Secretary of State Form GP–4)  17.36
    • B.  Form: Limited Partnership Certificate of Cancellation (Secretary of State Form LP–4/7)  17.37
    • C.  Provisions for Dissolution of General Law Partnership
      • 1.  Form: Election to Dissolve  17.38
      • 2.  Form: Duty of Partner  17.39
      • 3.  Form: Disposition of Client Files  17.40
      • 4.  Form: Costs of Liquidation  17.41
      • 5.  Form: Distributions to Partners  17.42
      • 6.  Form: Waiver of Right to Court Decree of Dissolution  17.43
      • 7.  Form: Indemnification  17.44

18

Change of Entity

Cara K. Lowe

Mark D. Lubin

John R. Bonn

  • I.  SCOPE OF CHAPTER  18.1
  • II.  ADVANTAGES OF AND APPROACHES TO CHANGING FORM
    • A.  Advantages of Changing Into and From Partnership Form
      • 1.  Changing Corporations Into Partnerships  18.2
      • 2.  Changing LLCs Into Partnerships  18.3
      • 3.  Changing General Partnerships Into Limited Partnerships  18.4
      • 4.  Changing Partnerships Into Corporations and LLCs  18.5
      • 5.  Deciding Whether to Change Entity Under Tax Cuts and Jobs Act  18.5A
    • B.  Approaches to Changing Into and From Partnership
      • 1.  By Statutory Merger  18.6
      • 2.  By Exchange Transaction  18.7
      • 3.  By Statutory Conversion  18.8
      • 4.  By Amending Partnership Agreement  18.9
  • III.  TAX AND SECURITIES ISSUES
    • A.  Federal and California Income Tax
      • 1.  Changing Corporations Into Partnerships  18.10
        • a.  Changing C Corporations  18.11
        • b.  Changing S Corporations  18.12
        • c.  Corporations With Minimal Tax Risks  18.13
      • 2.  Changing LLCs to Partnerships  18.14
      • 3.  Changing General Partnerships to Limited Partnerships  18.15
      • 4.  Changing Partnerships Into LLCs and Corporations  18.16
      • 5.  Disappearing Partnership and Its Members in Merger  18.17
      • 6.  Surviving Partnership and Its Members in Merger  18.18
      • 7.  Transitory Merger Entity  18.19
      • 8.  Income Tax Termination of Partnership [Deleted]  18.20
      • 9.  Special Rule for Merger or Consolidation of Partnerships
        • a.  Income Tax Treatment of Resulting Partnership  18.21
        • b.  Effect of State Law on Special Rule  18.22
    • B.  Sales and Use Taxes  18.23
    • C.  Real Property Transfer Tax  18.24
      • 1.  Exemptions From Documentary Transfer Tax  18.25
      • 2.  Transfer Tax When Change Occurs by Merger or Conversion  18.26
      • 3.  Transfer Tax When Change Does Not Occur by Merger or Conversion  18.27
    • D.  Real Property Tax Reassessment  18.28
    • E.  Securities Issues  18.29
      • 1.  “Securities” Defined
        • a.  General Partnership Interests  18.30
        • b.  Limited Partnership Interests  18.31
        • c.  Corporate Shares and LLC Interests  18.32
      • 2.  Registering Issuance of Interests
        • a.  Under Federal Law  18.33
        • b.  Under California Law  18.34
  • IV.  STATUTORY MERGERS
    • A.  Types of Merger Permitted  18.35
    • B.  Law Governing Merger Proceedings  18.36
    • C.  Limited Liability Partnerships  18.37
    • D.  Steps for Merger  18.38
    • E.  Foreign Entity as Participant in Merger  18.39
    • F.  Approval and Documentation Requirements for New Entity  18.40
    • G.  Effect of Merger  18.41
    • H.  Approval of Merger  18.42
      • 1.  By General Partnership  18.43
      • 2.  By Limited Partnership  18.44
      • 3.  By Corporation  18.45
      • 4.  By LLC  18.46
    • I.  Agreement of Merger
      • 1.  Required Contents  18.47
      • 2.  Officers’ Certificate  18.48
      • 3.  Form: Agreement of Merger  18.49
      • 4.  Amendment of Agreement of Merger  18.50
    • J.  Certificate of Merger
      • 1.  Contents of Certificate  18.51
      • 2.  Notice to Secretary of State; Agent for Service of Process of Domestic Disappearing Entity  18.52
      • 3.  Form: Certificate of Merger (Secretary of State Form OBE MERGER-1)  18.53
      • 4.  Execution of Certificate  18.54
    • K.  Statement of Merger
      • 1.  When to File  18.55
      • 2.  Form: Statement/Certificate of Merger (Secretary of State Form GP–6)  18.56
      • 3.  Effective Date of Merger
        • a.  General Rules for Effective Date of Merger  18.57
        • b.  Future Effective Date of Merger  18.58
        • c.  Effective Date of Merger Involving Foreign Parties  18.59
    • L.  Dissenters’ Rights  18.60
      • 1.  Limited Partnerships  18.61
        • a.  Definition of Limited Partner “Dissenting Interest”  18.62
        • b.  Loss of Status as Dissenting Interest  18.63
        • c.  Notice of Approval of Merger  18.64
        • d.  Demand for Purchase and Payment  18.65
        • e.  Submission of Certificate  18.66
        • f.  Establishing Purchase Price and Status as Dissenting Interest
          • (1)  Establishing Purchase Price  18.67
          • (2)  Agreement on Status  18.68
          • (3)  Procedure if Parties Fail to Agree on Price or Status  18.69
        • g.  Limitation on Rights of Limited Partners to Challenge Reorganization  18.70
      • 2.  Corporations  18.71
      • 3.  LLCs  18.72
    • M.  Dissociation Rights  18.73
      • 1.  Procedure  18.74
      • 2.  Purchase of Dissociating Partner’s Interest  18.75
      • 3.  Liability and Authority of Dissociating Partner  18.76
    • N.  Abandonment of Merger  18.77
  • V.  CHANGING TO AND FROM PARTNERSHIPS OUTSIDE OF STATUTORY PROVISIONS  18.78
    • A.  Consent  18.79
      • 1.  LLCs  18.80
      • 2.  Corporations  18.81
      • 3.  Partnerships  18.82
    • B.  Tax Issues  18.83
    • C.  Method One: Owners Contribute Ownership Interests to Surviving Entity  18.84
      • 1.  Diagram: Exchanging Ownership Interests in Old Entity for Ownership Interest in Surviving Entity and Liquidating Old Entity  18.85
      • 2.  Documentation  18.86
    • D.  Method Two: Owners Contribute Old Entity’s Assets to Surviving Entity  18.87
      • 1.  Diagram: Liquidating Old Entity and Contributing Its Assets to Surviving Entity  18.88
      • 2.  Documentation  18.89
    • E.  Method Three: Old Entity Contributes Assets Directly to Surviving Entity  18.90
      • 1.  Diagram: Old Entity Contributes Its Assets Directly to Surviving Entity  18.91
      • 2.  Documentation  18.92
  • VI.  STATUTORY CONVERSIONS
    • A.  Statutory Authorization for Conversion  18.93
      • 1.  Conversion Entities  18.94
      • 2.  Conversion Prerequisites  18.95
    • B.  Effect of Conversion  18.96
    • C.  Approval and Documentation Requirements for Conversion  18.97
    • D.  Approval of Conversion  18.98
      • 1.  By General Partnership  18.99
      • 2.  By Limited Partnership  18.100
      • 3.  By Corporation  18.101
      • 4.  By LLC  18.102
      • 5.  By Foreign Entity  18.103
    • E.  Plan of Conversion
      • 1.  Required Contents  18.104
      • 2.  Form: Plan of Conversion for Converting Partnership Into LLC  18.105
    • F.  Statement or Certificate of Conversion  18.106
      • 1.  Conversion Document  18.107
      • 2.  Execution of Statement or Certificate of Conversion  18.108
      • 3.  Effect of Filing Statement or Certificate of Conversion  18.109
      • 4.  Recording Certified Evidence of Conversion When Converted Entity Owns California Real Estate  18.110
      • 5.  Form: Certificate of Limited Partnership—Conversion (Secretary of State Form LP-1A)  18.111
      • 6.  Form: Limited Liability Company Articles of Organization—Conversion (Secretary of State Form LLC–1A)  18.112
      • 7.  Form: General Partnership Statement of Partnership Authority—Conversion (Secretary of State Form GP–1A)  18.113
      • 8.  Form: Certificate of Conversion (Secretary of State Form CONV–1A)  18.114
    • G.  Effective Date of Conversion  18.115
    • H.  Securities Law Compliance  18.116
    • I.  Abandonment of Conversion  18.117
  • VII.  CHART: SECRETARY OF STATE CONVERSION INFORMATION  18.118

 

ADVISING CALIFORNIA PARTNERSHIPS

(3d Edition)

June 2018

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH01

Chapter 1

Attorney’s Role

01-026

§1.26

Checklist: Elements to Consider for Inclusion in Engagement Letter

01-028

§1.28

Nonengagement Letter

01-029

§§1.29-1.51

Salutation

 

§1.30

Introduction

 

§1.31

Scope of and Limitations on Duties

 

§1.32

Required Securities Disclosures

 

§1.33

Association of Specialists

 

§1.34

Who Will Work on Matter

 

§1.35

Fees

 

§1.36

Expenses

 

§1.37

Nonrefundable Fees

 

§1.38

Billings

 

§1.39

No Apportionment Among Multiple Clients

 

§1.40

Warranties as to Fees and Costs

 

§1.41

Arbitration Clause

 

§1.42

Judicial Reference of Disputes

 

§1.43

Termination

 

§1.44

Document Retention

 

§1.45

No Tax Advice

 

§1.46

Conflicts of Interest

 

§1.47

Disclosure of Conflicts From Prior Representation

 

§1.48

Waiver of Conflicts

 

§1.49

Entire Agreement

 

§1.50

Closing

 

§1.51

Acceptance

01-052

§1.52

Disengagement Letter on Completion of Services

01-053

§1.53

Notice Letter to Former Client Regarding Potential Conflict with New Client

01-054

§1.54

Disengagement Letter on Termination of Representation Before Services Completed

CH02

Chapter 2

Choice of Entity and Collecting Client Information

02-090

§2.90

Checklist: Information About Participants, Their Roles, and Interests in Business

02-091

§2.91

Checklist: Information About Business

02-092

§2.92

Checklist: Information Necessary to Organize Partnership

CH04

Chapter 4

Partnership Name

04-031

§4.31

Fictitious Business Name Statement

CH05

Chapter 5

Planning General Partnerships

05-034

§5.34

Checklist: Planning for Initial Contributions and Capital Structure

CH06

Chapter 6

General Partnership Agreements

06-002

§§6.2-6.23

Parties, Date, and Recitals

 

§6.3

Name

 

§6.4

Place of Business

 

§6.5

Term of Partnership

 

§6.6

Business of Partnership

 

§6.7

Powers

 

§6.8

Statutory Filings

 

§6.9

Capital

 

§6.10

Division of Profits and Losses

 

§6.11

Distributions to Partners in Proportion to Initial Capital Contributions

 

§6.12

Accounting

 

§6.13

Records and Reports

 

§6.14

Management

 

§6.14A

Partnership Representative; Election Out of Audit Regime

 

§6.15

Partners’ Fiduciary Duty and Duty of Care

 

§6.16

Changes in Membership

 

§6.17

Consent of Spouses

 

§6.18

Transfer of Partnership Interests

 

§6.19

Valuation of Interest

 

§6.20

Payment of Purchase Price

 

§6.21

Miscellaneous Clauses

 

§6.22

Execution

 

§6.23

Consent of Spouses

06-024

§§6.24-6.84

Parties, Date, and Recitals

 

§6.25

Basic Operative Clause

 

§6.26

Firm Name

 

§6.27

Chief Executive Office

 

§6.28

Term of Partnership

 

§6.29

Purposes Clause

 

§6.30

Powers

 

§6.31

Statutory Filings

 

§6.32

Contributions in Money or Property

 

§6.33

Contributions of Services

 

§6.34

Contributed Property; Special Tax Allocations Because of Carryover Basis

 

§6.35

Failure to Make Initial Contribution

 

§6.36

Deferred Contributions

 

§6.37

Additional Capital

 

§6.38

Withdrawals of Capital

 

§6.39

No Interest on Capital Contributions

 

§6.40

Loans to Partnership

 

§6.41

Division of Profits and Losses

 

§6.42

Distribution of Profits

 

§6.43

Distributions of Proceeds From Sale of Capital Assets

 

§6.44

Limit on Distributions

 

§6.45

Fiscal Year of Partnership

 

§6.46

Accounting Method

 

§6.47

Capital Accounts—Initial Contributions

 

§6.48

Adjustment of Capital Accounts

 

§6.49

Determination of Profit and Loss

 

§6.50

Partnership Books

 

§6.51

Annual Report to Partners

 

§6.52

Control of Business

 

§6.53

Acts Requiring Majority Consent

 

§6.54

Handling Funds

 

§6.55

Remuneration to Partner

 

§6.56

Effect of Assignment of Interest

 

§6.56A

Designation of Partnership Representative

 

§6.56B

Authority to Be Exercised by Partnership Representative

 

§6.56C

Partnership Election Out of Subchapter C of Chapter 63 of the Internal Revenue Code and Centralized Partnership Audit Regime

 

§6.57

Duty of Loyalty

 

§6.58

Duty of Care

 

§6.59

Duty of Good Faith and Fair Dealing

 

§6.60

Furtherance of Partner’s Own Interests

 

§6.61

New Partners

 

§6.62

Partner’s Dissociation

 

§6.63

Partner’s Expulsion by Partner Vote

 

§6.64

Expulsion by Judicial Determination

 

§6.65

Retirement From Partnership Management

 

§6.66

Retirement From Partnership

 

§6.67

Noncompetition Covenant

 

§6.68

Payment When Business Not Wound Up

 

§6.69

Payment of Purchase Price by Mutual Agreement When Business Not Wound Up

 

§6.70

Definition of Transferable Interest

 

§6.71

Transferability of Interest

 

§6.72

Transfers Under Dissolution of Marriage

 

§6.73

Right of First Refusal

 

§6.74

Valuation of Interest

 

§6.75

Payment of Purchase Price

 

§6.76

Assumption of Outstanding Partnership Liabilities

 

§6.77

Dissolution

 

§6.78

Termination of Partnership After Dissolution; Waiver of Termination

 

§6.79

Persons Eligible to Wind Up Partnership

 

§6.80

Distribution of Assets

 

§6.81

Indemnification

 

§6.82

Miscellaneous Clauses

 

§6.83

Execution

 

§6.84

Consent of Spouses

CH07

Chapter 7

Planning Limited Partnerships

07-080

§7.80

Checklist: Preformation

07-081

§7.81

Checklist: Formation

CH08

Chapter 8

Limited Partnership Agreements

08-002

§8.2

Form: Short Form Agreement for a Small California Limited Partnership

08-003

§§8.3-8.80

Title of Agreement, Date, and Parties

 

§8.5

Definitions

 

§8.6

Formation and Name

 

§8.7

Designated Office

 

§8.8

Certificate of Limited Partnership

 

§8.9

Term

 

§8.10

Business of Partnership

 

§8.11

Financing and Partner Guaranties of Repayment

 

§8.12

Initial Capital Contributions

 

§8.13

General Partners’ Additional Capital Contributions

 

§8.14

Limited Partners—No Obligation to Contribute Additional Capital

 

§8.15

Capital Accounts

 

§8.16

No Interest

 

§8.17

No Withdrawal of Capital

 

§8.18

Distributions

 

§8.19

Determination and Allocation of Profits and Losses

 

§8.20

Special Allocations of Profits and Losses

 

§8.21

Qualified Income Offset

 

§8.22

IRC §704(c) Allocations

 

§8.23

Participation; Rights and Powers

 

§8.24

Delegation of Authority

 

§8.25

Compensation

 

§8.26

Liability of General Partners

 

§8.27

Reimbursement of Expenses and Indemnification

 

§8.28

Devotion of Time

 

§8.29

Employment or Retention of Affiliates

 

§8.30

Other Business Activities

 

§8.31

Generally No Right to Participate

 

§8.32

Power of Attorney

 

§8.33

Consent Required

 

§8.34

Liability of Limited Partners

 

§8.35

Dissociation Rights

 

§8.36

Transactions With Limited Partners

 

§8.37

Books and Records

 

§8.38

Reports and Copies

 

§8.39

Tax Returns

 

§8.40

Partnership Representative

 

§8.41

Taxable Year

 

§8.41A

Election Out of Partnership Audit Rules

 

§8.42

Accounting Method

 

§8.43

Bank Accounts

 

§8.44

Partnership Meetings

 

§8.45

Insurance

 

§8.46

General Prohibition

 

§8.47

Conditions of Transfer

 

§8.48

Permitted Transfers

 

§8.49

Right of First Refusal

 

§8.50

Transferor’s Rights in Partnership

 

§8.51

Admission of Additional Partners

 

§8.52

Events of Default of General Partner

 

§8.53

Notice of Default and Time to Cure

 

§8.54

Election of Remedies After Default of General Partner

 

§8.55

Determination of Fair Market Value

 

§8.56

Events of Dissolution

 

§8.57

Winding Up

 

§8.58

Distribution of Liquidation Proceeds

 

§8.59

Deficit Restoration Requirement

 

§8.61

Amendment

 

§8.62

Arbitration

 

§8.63

Binding Effect

 

§8.64

Captions and Headings

 

§8.65

Counterparts and Facsimiles

 

§8.66

Counting of Days

 

§8.67

Cumulative Remedies

 

§8.68

Entire Agreement

 

§8.69

Exhibits

 

§8.70

Further Documents

 

§8.71

Governing Law

 

§8.72

Jurisdiction

 

§8.73

Notice

 

§8.74

Prevailing Party’s Fees

 

§8.75

Pronouns and Gender

 

§8.76

Severability

 

§8.77

Time of Essence

 

§8.78

Waiver

 

§8.79

Signatures

 

§8.80

Separate Property Waiver and Acknowledgment

CH09

Chapter 9

Planning Limited Liability Partnerships

09-031

§9.31

Checklist: Organizing New California LLP

09-032

§9.32

Checklist: Registering Foreign LLP in California

09-033

§9.33

Checklist: Converting Domestic Partnership to Registered LLP

CH10

Chapter 10

Limited Liability Partnership Agreements

10-002

§§10.2-10.36

Title, Introduction, Name

 

§10.3

Purpose and Term

 

§10.4

Place of Business

 

§10.5

Security Requirements

 

§10.6

Definitions

 

§10.7

Capital Contributions

 

§10.8

Capital Accounts; Allocations of Profit and Loss

 

§10.9

Qualified Income Offset

 

§10.10

Distributions

 

§10.11

Restrictions on Distributions

 

§10.12

Management

 

§10.13

Rights and Duties of Partners

 

§10.14

Fiscal Year

 

§10.14A

Accounting Method

 

§10.14B

Records and Reports

 

§10.14C

Tax Matters Partner/Partnership Representative

 

§10.14D

Tax Returns

 

§10.14E

Election Out of Partnership Audit Rules

 

§10.14F

Banking

 

§10.15

Additional Partners

 

§10.16

Withdrawal, Expulsion, or Disability of Partner

 

§10.17

Payments to Terminated Partner

 

§10.18

Continuation of Partnership

 

§10.19

Liquidating Events

 

§10.20

Winding Up

 

§10.21

Deficit Capital Accounts

 

§10.22

Indemnification

 

§10.23

Amendments

 

§10.24

Notices

 

§10.25

Counterparts

 

§10.26

Governing Law

 

§10.27

Successors

 

§10.28

Severability

 

§10.29

Headings

 

§10.30

Further Documents

 

§10.31

Construction

 

§10.32

Gender

 

§10.33

Incorporation by Reference

 

§10.34

Attorney Fees

 

§10.35

Arbitration

 

§10.36

Entire Agreement

CH11

Chapter 11

Issuing Partnership Interests

11-027

§11.27

Legend for Certificate and Partnership Agreement

11-053

§11.53

Subscription Agreement

CH17

Chapter 17

Dissolving and Winding Up Partnership

17-038

§§17.38-17.44

Election to Dissolve

 

§17.39

Duty of Partner

 

§17.40

Disposition of Client Files

 

§17.41

Costs of Liquidation

 

§17.42

Distributions to Partners

 

§17.43

Waiver of Right to Court Decree of Dissolution

 

§17.44

Indemnification

CH18

Chapter 18

Change of Entity

18-049

§18.49

Agreement of Merger

18-105

§18.105

Plan of Conversion for Converting Partnership Into LLC

 

Selected Developments

June 2018 Update

Congress enacted the Tax Cuts and Jobs Act (Pub L 115–97, 131 Stat 2054), effective January 1, 2018. See §3.1. Among its provisions affecting partnerships, the Act makes the following changes:

  • Entitles shareholders or members of “pass-through” entities, depending on the nature of the business, to a deduction of the lesser of 20 percent of ordinary income less net capital gain or 20 percent of “qualified business income.” IRC §199A(a)–(b). See §§2.21A, 7.12, 13.2. A new chart graphically illustrating the details of the deduction has been added in §13.2A.

  • Reduces the federal corporate tax rate to a flat 21 percent. IRC §11(b). See §§2.22, 13.2.

  • Changes certain limitations on the use of the cash method of accounting provided in IRC §448(c)(1). See §§2.25, 3.56.

  • Repeals former provisions for a deemed “technical termination” of a business entity. IRC §708(b). See §§2.42, 3.41, 3.71, 6.71, 14.23–14.26, 17.2, 18.20.

  • In a slight tweak to “carried interest” provisions, permits investment fund managers to report their shares of investment income as long-term capital gain if the investment fund holds the asset for at least 3 years. IRC §1061. See §3.29.

  • Adds new IRC §864(c)(8), which provides that a nonresident alien individual’s or foreign corporation’s gain or loss from the sale, exchange, or other disposition of a partnership interest is effectively connected with the conduct of a trade or business in the United States to the extent that the person would have had effectively connected gain or loss had the partnership sold all of its assets at fair market value; and new IRC §1446(f), which provides special rules for withholding on dispositions of foreign partnership interests. See §§6.20, 14.49.

  • Changes the rules regarding net operating losses such that new net operating loss deductions are limited to 80 percent of taxable income; the 2-year loss carrybacks and other specified loss carryback provisions are eliminated except for certain net operating loss carrybacks from farming operations; and there are now indefinite loss carry-forwards. IRC §172. See §13.4.

  • Suspends the personal exemptions under IRC §151 in exchange for increasing the standard deduction up to $12,000 for individual taxpayers and $24,000 for taxpayers filing joint returns, along with other modifications to wage withholding rules and to requirements on who must file tax returns. See §13.4.

  • Repeals the deduction for alimony payments under former IRC §215, while at the same time excluding alimony from income. See §13.5.

  • Permits a member of an LLC to deduct the member’s distributive share of LLC loss to the extent of the member’s adjusted basis in the membership interest. IRC §704(d). See §13.43.

  • Provides that if any gain on a disposition of a partnership interest is treated as effectively connected with the conduct of a trade or business in the United States, the transferee is required to deduct and withhold 10 percent of the amount realized on the disposition unless the transferor furnishes to the transferee an affidavit stating that the transferor is not a foreign person. IRC §1446(f). See §14.49.

Since the Tax Cuts and Jobs Act was enacted, the IRS has issued some limited guidance concerning various aspects of it, including the following:

  • Guidance related to IRC §1061 clarifying that S corporations will be subject to the new “carried interest” holding periods. IRS Notice 2018–18, 2018–2 Int Rev Bull 443. See §3.29.

  • A determination that withholding under new IRC §1446(f) should not be required with respect to a disposition of an interest in a publicly traded partnership until further guidance has been issued (Notice 2018–08, 2018–7 Int Rev Bull 352), as well as an announcement that the IRS intends to issue regulations on qualifying for exemptions from withholding or reductions in the amount of withholding under §1446(f), and suspending secondary partnership level withholding requirements (IRS Notice 2018–29, 2018–16 Int Rev Bull 495). See §§6.20, 14.49.

The Fourth Appellate District of the California Court of Appeal held that automatic disqualification of an attorney was required in a class action due to a concurrent conflict of interest implicating the duty of loyalty. Walker v Apple, Inc. (2016) 4 CA5th 1098. See §1.8.

The United States District Court for the Eastern District of California held that the case-by-case inquiry required in certain conflict-of-interest situations involves a two-step, burden-shifting process. National Grange of the Order of Patrons of Husbandry v California Guild (ED Cal, May 12, 2017, CIV. No. 2:16-201 WBS DB) 2017 US Dist Lexis 72994. See §1.10.

A new discussion of sole proprietors as a choice of business entity has been added in chap 2. See §2.8.

The IRS has issued TD 9787, 81 Fed Reg 69291 (Oct. 5, 2016), which contains final regulations under IRC §§704, 707, and 752. The final regulations under §707 provide guidance relating to disguised sales of property to or by a partnership, and the final regulations under §752 provide guidance relating to allocations of excess nonrecourse liabilities of a partnership to partners for disguised sale purposes. Treas Reg §1.752–3. See §§2.38, 3.31–3.42, 13.3A, 13.19–13.20, 13.54, 13.61, 14.29.

A mistaken designation of an individual signing an agreement as the “managing member” of an LLC did not invalidate the agreement for lack of authority, in the absence of actual knowledge by the other party that the individual had no authority to execute the document. Western Surety Co. v La Cumbre Office Partners, LLC (2017) 8 CA5th 125. See §2.62.

Corporations Code §15907.02(h) does not prevent a limited partner from contracting with a third party such that a partner agrees to give the third party any distributions, information, or documents he receives from the partnership. SP Inv. Fund LLC I v Cattell (2017) 18 CA5th 898. See §§2.71, 7.70, 16.48.

The IRS has issued temporary and proposed regulations regarding transfers of appreciated property by United States citizens to partnerships with foreign partners related to the transferor; the regulations override the rules under IRC §721 for nonrecognition of gain on the contribution of property to a partnership in exchange for an interest in the partnership unless the partnership adopts the remedial allocation method and satisfies certain other requirements. TD 9814, 2017–7 Int Rev Bull 878. See §§3.12, 3.21, 13.36.

The IRS issued temporary regulations that address transfers of appreciated property by United States persons to partnerships with foreign partners related to the transferor under IRC §721(c), and that override the rules providing for nonrecognition of gain on a contribution of property to a partnership in exchange for an interest in the partnership. TD 9814, 2017–7 Int Rev Bull 878. See §§3.21, 13.36.

The IRS also issued final and temporary regulations concerning how liabilities are allocated for purposes of IRC §707 and when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability. TC 9788, 2016–2 Cum Bull 889. See §§3.31, 3.42, 13.19, 13.54, 13.61.

The California Franchise Tax Board has released a final summary of 2017 federal income tax changes. See §3.83.

The Bipartisan Budget Act of 2015 (BBA) (Pub L 114–74, 129 Stat 584), effective for tax years on or after January 1, 2018, changes the way the IRS will be conducting audits of partnerships and LLC tax returns and creates a new centralized partnership audit regime. It imposes taxes on the partnership rather than any partner, and eliminates the special election for large partnerships. It also substitutes the term “partnership representative” for the old “tax matters partner.” Operating agreements throughout the book have been revised accordingly, and form language has been added to accommodate these provisions of the BBA. IRC §§6440–6446. See §§3.79, 6.14A, 6.56A–6.56C, 8.40, 8.41A, 10.14A–10.14E, 13.3, 13.3A.

The IRS has issued several sets of proposed and final regulations to implement the new partnership audit rules of the BBA. 82 Fed Reg 27334 (June 14, 2017); REG–119337–17, 82 Fed Reg 56765 (Nov. 30, 2017); REG–120232–17, REG–120233–17, 82 Fed Reg 60144 (Dec. 19, 2017); TD 9829, 83 Fed Reg 24 (Jan. 2, 2018); REG–118067–17, 83 Fed Reg 4868 (Feb. 2, 2018). In addition, on March 23, 2018, Congress enacted a series of Technical Corrections Related to Partnership Audit Rules (Pub L 115–141, Division U, Title II, §§201–207, 132 Stat 348) within the Consolidated Appropriations Act, 2018 (Pub L 115–141, 132 Stat 348). See §§6.14A, 10.14E, 13.3A.

Effective July 1, 2017, the California State Board of Equalization (BOE) has been restructured. The BOE will continue to perform the duties assigned to it by the California Constitution, while all its other duties will be transferred to the new California Department of Tax and Fee Administration and the Office of Tax Appeals. Many forms formerly filed with the BOE and publications formerly published by it are being transferred to the Department of Tax and Fee Administration. See §7.48.

A California court held that Corp C §15907.02(h) does not prevent a limited partner from contracting with a third party such that a partner agrees to turn over to the third party any distributions, information, or documents he receives from the partnership, or to vote on partnership matters as instructed by the third party. SP Investment Fund LLC I v Cattell (2017) 18 CA5th 898. See §§7.70, 16.48.

The application fee and initial license fees for a partnership to apply for a license with the State Board of Accountancy have been increased to $270. The filing fee for a name change application remains $150. 16 Cal Code Regs §70(c), (d). See §9.25.

A new discussion of crowdfunding has been added in chap 11. See §11.28B.

The legislature has provided that for taxable years beginning on or after January 1, 2017, a partnership that is required to file a return with the Franchise Tax Board (FTB) under Rev & T C §18633 or §18633.5 may apply for an extension for up to 7 months. Rev & T C §18567(a)(2)(B). See §13.7.

The California Supreme Court held that a provision in a predispute arbitration agreement that waives the right to seek public injunctive relief is contrary to California public policy and unenforceable under California law. McGill v Citibank, N.A. (2017) 2 C5th 945. See §15.5A.

The following forms have been updated:

Instructions to Application to Adopt, Change, or Retain a Tax Year (IRS Form 1128). See §3.69.

Certificate of Limited Partnership (Secretary of State Form LP-1). See §7.77.

Resignation of Agent Upon Whom Process May Be Served (Secretary of State Form RA-100). See §12.25.

Limited Partnership Certificate of Cancellation (Secretary of State Form LP-4/7). See §17.37.

About the Authors

JOHN R. BONN received his A.B. from Princeton University, Woodrow Wilson School of Public and International Affairs, in 1972 and his J.D. from the University of California, Berkeley, School of Law in 1976. Mr. Bonn has been a partner of Sheppard, Mullin, Richter & Hampton, LLP in Los Angeles since 1986, and before that time was a partner of Luce, Forward, Hamilton & Scripps. He is the author of a two-volume treatise, Partnership Taxation, published in 1987 by Clark, Boardman, Callaghan & Co. In addition, Mr. Bonn is the author of two papers presented to the University of Southern California Tax Institute, “Choice of Entity for the U.S. Private Enterprise and Use of Disregarded Entities” (1999) and “Acquiring or Disposing of an S Corporation” (1997). Mr. Bonn has been named in the 1997–1998, 1995–1996, 1993, 1989, and 1987 editions of The Best Lawyers in America. He is an author of chapter 14, “Taxation of Transfers and Terminations of Partnership Interests,” and Chapter 18, “Change of Entity.”

FREDERICK D. BOOKE received his A.B. degree in 1961 from the University of California, Berkeley, and his J.D. in 1965 from the University of California, Los Angeles, School of Law. Mr. Booke is of counsel to the firm Cohan & Flame in Los Angeles. He specializes in civil and health care litigation. He is an author of chapter 15, “Litigation.”

COLBY A. CAMPBELL received her A.B. degree in 1980 from the University of California, Berkeley, her J.D. in 1985 from the University of Santa Clara, and her LL.M. in Taxation in 1992 from Golden Gate University. Ms. Campbell is an associate of the firm of Trainor Robertson in Sacramento. Her practice involves tax, business, and estate planning. She is an author of chapter 7, “Planning Limited Partnerships.”

CHRISTOPHER CHEDIAK received his B.S. in 1980 from the University of California, Davis, and his J.D. in 1983 from the University of Southern California. Mr. Chediak is a shareholder and Section Head of the Business Law Department at Weintraub Tobin Chediak Coleman Grodin Law Corporation, in Sacramento. He is a former member of the Partnerships and Partnerships and Limited Liability Companies Committee of the State Bar Business Law Section and former president of the Sacramento County Bar Business Law Section. He is the author of chapter 11, “Issuing Partnership Interests.”

RACHELLE H. COHEN received her B.S. degree in 1997 from Cornell University and her J.D. in 2001 from the University of California, Los Angeles, School of Law. She specializes in business and real estate transactions at Kehr, Schiff & Crane, LLP, Los Angeles. Ms. Cohen is a member of the Los Angeles County Bar Association and the Business Law Section of the State Bar of California, where she is the Vice Chair of the Partnerships and Limited Liability Companies Committee. She is an author of chapter 16, “Dissociation and Transfer of Partnership Interests.”

PAUL J. DERENTHAL received his B.A. in 1976 from the University of San Francisco and his J.D. in 1980 from the University of California, Hastings College of the Law. Mr. Derenthal is a partner in the law firm of Derenthal & Dannhauser in San Francisco. His practice focuses on organizing and counseling businesses, including corporations and partnerships, and on securities law. He also serves as an arbitrator for the National Association of Securities Dealers. He is an author of chapter 2, “Choice of Entity and Collecting Client Information.”

JOHN E. DI GIUSTO received his B.S. in 1975 from California State University, Sacramento, his J.D. in 1981 from the University of California, Davis, School of Law, his LL.M. in Business and Taxation in 1984 from the University of the Pacific, McGeorge School of Law, and is a retired CPA. He is a shareholder in the firm of Boutin Gibson Di Giusto Hodell Inc., specializing in business litigation, real estate transactions, corporate and business transactions, and taxation. Mr. Di Giusto is the author of chapter 12, “Operating a Partnerhip,” and one of the authors of chapter 16, “Dissociation and Transfer of Partnership Interests,” and wishes to acknowledge the assistance of Kimberly L. Jackson, James R. Moore, and Mark W. Owens on these chapters.

JAMES T. FREEMAN received his A.B. in 1969 from the University of California, Davis), and his J.D. in 1972 from the University of California, Davis, School of Law. Mr. Freeman practices law with Goldsberry, Freeman & Guzman, LLP, in Sacramento, specializing in business law, real estate, and finance. He is the author of chapter 9, “Planning Limited Liability Partnerships,” and chapter 10, “Limited Liability Partnership Agreements.”

GEORGE GRELLAS received his B.A. in 1974 from the University of California, Santa Cruz, with highest honors, and his J.D. in 1978 from the University of Santa Clara Law School, magna cum laude. He heads the firm George Grellas & Associates, in Cupertino, where he specializes in start-ups in technology, business, corporate, and commercial law and represents leading companies in the high tech field and traditional business owners in a broad array of industries. Details of his Silicon Valley practice may be found at http://www.grellas.com. He is an author of chapter 7, “Planning Limited Partnerships.”

CARA K. LOWE received her B.A. in 1990 from the University of California, Berkeley, and her J.D. in 1994 from the University of California, Hastings College of the Law. She is the principal of the firm Pivot Law PC, specializing in corporate law and mergers and acquisitions. Ms. Lowe is an author of chapter 18, “Change of Entity.”

MARK D. LUBIN received his B.A. in 1973 from Columbia University and his J.D. in 1977 from the University of California, Berkeley, School of Law. Mr. Lubin is a partner in the firm of Stein & Lubin LLP, in San Francisco, specializing in real estate and general business law. He was co-chair (1995–1996) and member (1992–1996) of the Partnerships and Limited Liability Companies Committee of the State Bar Business Law Section and has participated on a national panel for the drafting of a Uniform Limited Liability Partnership Act. Mr. Lubin is an author of chapter 18, “Change of Entity.”

J. MICHAEL MATTHEWS received his B.A. in 1973 from Yale University and his J.D. in 1976 from Georgetown University. Mr. Matthews is a member in the firm of Rogers, Joseph, O’Donnell & Quinn, specializing in construction, legal ethics, professional liability, and business litigation. He is the author of chapter 17, “Dissolving and Winding Up Partnership.”

OVVIE MILLER received his B.A. (highest honors) in 1956 from the University of California, Los Angeles, and his J.D. in 1961 from Harvard Law School. Mr. Miller is of counsel to Rosenfeld Meyer & Susman, LLP, in Beverly Hills, specializing in family law and civil litigation. He is a member of the Beverly Hills, Los Angeles County, and American Bar Associations and the State Bar Committee on Administration of Justice. He is a Fellow of the American Academy of Matrimonial Lawyers. Mr. Miller is an author of chapter 15, “Litigation.”

JEROME SAPIRO, JR., received his B.A. in 1963 from the University of California, Berkeley, and his LL.B. in 1966 from the University of California, Hastings College of the Law. He is proprietor of The Sapiro Law Firm in San Francisco. Mr. Sapiro is former chair of the Bar Association of San Francisco Legal Ethics Committee; former member of the State Bar Committee on Professional Responsibility and Conduct; past president of the Lawyers’ Club of San Francisco; past president of the St. Thomas More Society of San Francisco; former member of the State Bar Commission for the Revision of the Rules of Professional Conduct, which drafted the Rules of Professional Conduct that became effective in 1989 and 1992; and a former member of the California State Bar Standing Committee on the Administration of Justice. He is a member of the Board of Governors of the Lawyers’ Club of San Francisco and is secretary of the Executive Committee of the Litigation Section of the California State Bar. Mr. Sapiro’s practice includes business litigation, litigation involving lawyers, estate planning and probate and related litigation, consultation with lawyers on their ethical studies, and transactional work. He often testifies as an expert witness in matters involving lawyers’ professional responsibilities. Mr. Sapiro is the author of chapter 1, “Attorney’s Role.”

TERI L. K. SHUGART received her B.S. in 1981 from the University of California, Santa Cruz, and her J.D. in 1984 from the University of California, Hastings College of the Law, where she was chief managing editor of the Hastings International and Comparative Law Review. She focuses her transactional practice on corporate and LLC start-ups, sales and mergers, and real property purchases and sales. Ms. Shugart is an adjunct professor at the University of Santa Clara School of Law, and has served on the Corporations Committee of the former State Bar of California Business Law Section, where she was education co-chair. She is an author of chapter 2, “Choice of Entity and Collecting Client Information.”

JULIE VANDERSLUIS SKEEN received her B.A. in 1991 from Cornell University and her J.D. in 1999 from the University of California, Hastings College of the Law, where she completed the tax concentration. She has practiced tax law in both the private sector and with the Office of Chief Counsel, Internal Revenue Service, as a senior attorney in the Office of Associate Chief Counsel, Passthroughs and Special Industries. Ms. Skeen currently assists clients with tax controversy, tax planning, and probate matters. She is an author of chapter 3, “Tax Considerations on Formation of and Contributions to Partnership,” and chapter 14, “Taxation of Transfers and Terminations of Partnership Interests.”

JOHN C. SUTTLE received his B.A. in 1969 from Stanford University, his M.B.A. in 1973 from the University of California, Berkeley, his J.D. in 1980 from the University of California, Hastings College of the Law, and his LL.M. (in Taxation) in 1983 from Golden Gate University. Mr. Suttle is a member in the firm of SuttleLaw, PC, in San Francisco, specializing in taxation, estate planning, probate, and business law. Mr. Suttle is certified as a specialist in Taxation Law by the State Bar of California Board of Legal Specialization. He is an author of chapter 3, “Tax Considerations on Formation of and Contributions to Partnership.”

CHARLES E. TOOMBS received his B.A. in 1974 from the University of California, Berkeley, his J.D. in 1984 from the University of San Francisco, and his LL.M. (Taxation) in 1987 from New York University. Mr. Toombs practices law with McInerney & Dillon, PC, Oakland, specializing in tax, business, corporate, partnership, nonprofit, and real estate matters. He is the author of chapter 5, “Planning General Partnerships,” chapter 6, “General Partnership Agreements,” and chapter 13, “Taxation of Partnership Income.” Mr. Toombs gratefully acknowledges the work of Paul Derenthal and Herbert Kraus, authors of chapters 1 and 2 of the second edition of Advising California Partnerships, from which portions of chapter 6 are derived. Mr. Toombs also gratefully acknowledges the work of David Greenberg, whose article California Adopts the Revised Uniform Partnership Act to Govern General Partnerships, 18 CEB Cal Bus L Rep, provided clear and concise guidance for many portions of chapters 5 and 6.

MARK M. TUCKER received his B.A. in 1970 from Stanford University, his J.D. (magna cum laude) in 1974 from Willamette University, his LL.M. (in Taxation) in 1975 from New York University, and his M.B.A. in 1985 from Pepperdine University. Mr. Tucker, a member of the firm of SuttleLaw, PC, in San Francisco, emphasizes estate planning and taxation. He is a member of the Washington State Bar Association, the Oregon State Bar, and the State Bar of California. He is an author of chapter 3, “Tax Considerations on Formation of and Contributions to Partnership.”

About the 2018 Update Authors

CHRISTOPHER CHEDIAK is the update author of chapter 11, “Issuing Partnership Interests.” Please see his biography in the “About the Authors” section.

RACHELLE H. COHEN is the update author of chapter 16, “Dissociation and Transfer of Partnership Interests.” Please see her biography in the “About the Authors” section.

CARA K. LOWE is the update author of chapter 18, “Change of Entity.” Please see her biography in the “About the Authors” section.

TERI L. K. SHUGART is the update author of chapter 2, “Choice of Entity and Collecting Client Information.” Please see her biography in the “About the Authors” section.

JULIE VANDERSLUIS SKEEN is the update author of chapter 3, “Tax Considerations on Formation of and Contributions to Partnership,” and chapter 14, “Taxation of Transfers and Terminations of Partnership Interests.” Please see her biography in the “About the Authors” section.

CHARLES E. TOOMBS is the update author of chapter 5, “Planning General Partnerships,” chapter 6, “General Partnership Agreements,” and chapter 13, “Taxation of Partnership Income.” Please see his biography in the “About the Authors” section.

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