Adopting revisions to the state's uniform limited partnership law and the state's limited liability company law; making modifications to the state's uniform partnership law; procedures applicable to business corporations and nonstock corporations; certificates of authority of service insurance corporations; providing an exemption from emergency rule procedures; granting rule-making authority; and providing a penalty. (FE)

This state has, by statute, recognized limited partnerships since the 1850s.

This state first adopted the Uniform Limited Partnership Act in 1919. In 1983 Wisconsin Act 173 , this state adopted, with modifications, the Revised Uniform Limited Partnership Act (1976). In 1989 Wisconsin Act 232 , this state adopted, with modifications, the 1985 amendments to the Revised Uniform Limited Partnership Act (1976). Current law, therefore, reflects the Revised Uniform Limited Partnership Act (1976), as amended in 1985, subject to various modifications.

This bill repeals and recreates Wisconsin's limited partnership law to adopt the Revised Uniform Limited Partnership Act (2001), as last amended in 2013 (RULPA), subject to certain modifications. Many provisions of RULPA and current law are similar, including the following: A limited partnership is a legal entity separate from its partners, and the filing of a certificate of limited partnership is required to form a limited partnership. A limited partnership is distinguished from a general partnership by the presence of limited partners. A limited partnership must have at least one general partner and at least one limited partner. The limited partnership generally is managed by general partners, and limited partners primarily provide capital for the limited partnership. A partnership agreement usually provides rules of governance for the limited partnership, and, in many instances, statutory provisions are default rules that govern the limited partnership only in the absence of applicable terms in the partnership agreement. However, in some instances, the terms of the partnership agreement may not vary from statutory requirements. Unless stated otherwise in the partnership agreement, a limited partnership interest (a partner's right to receive distributions from the limited partnership) is transferable, but the recipient of the transfer (transferee) generally is entitled to receive only partnership distributions and does not gain the voting and other rights of a partner. Yet there are significant changes to current law made by RULPA, as adopted under this bill, which are discussed below.

Formation and partnership agreement Current law defines “limited partnership" as a partnership formed under applicable state law by two or more persons and having one or more general partners and one or more limited partners. To form a limited partnership, a certificate of limited partnership, containing certain information, must be filed with the Department of Financial Institutions. The limited partnership is formed upon the filing of the certificate of limited partnership or, if a later date is specified in the certificate of limited partnership, on that later date.

Under this bill, a certificate of limited partnership containing specified information must still be filed with DFI to form a limited partnership. However, the limited partnership is not formed until the certificate of limited partnership is filed and becomes effective and the limited partnership, which must have at least two partners, has at least one general partner and at least one limited partner. The bill also eliminates as required information in the certificate of limited partnership a statement of duration of the limited partnership (when the limited partnership must dissolve). Instead, the bill specifies that a limited partnership has perpetual duration, although this may be modified by the partnership agreement.

The bill clarifies that a person may be both a general partner and a limited partner and that the rights, powers, duties, and obligations of such a person are determined by the capacity in which the person acts.

The bill includes provisions related to permissible names for a limited partnership. The bill eliminates a provision of current law that, with exceptions, prohibits a limited partner's name from appearing in the limited partnership's name.

The bill also changes the standard for permissible limited partnership names. Under current law, a limited partnership's name may not be the same as or “deceptively similar" to the names of certain other businesses. Under the bill, a limited partnership's name must be “distinguishable" from the names of certain other businesses.

Current law defines “partnership agreement" as any valid agreement of the partners (limited partners and general partners) as to the affairs of a limited partnership and the conduct of its business. Certain provisions of current law relating to rights and duties of and restrictions on a partner in a limited partnership apply only if there is no contrary provision in the partnership agreement.

This bill provides more specific guidance, in comparison with current law, as to when the provisions of a partnership agreement override contrary statutory provisions and when they do not. Under the bill, “partnership agreement" means the agreement, whether oral, implied, written, or recorded in a tangible or electronic medium, of all the general and limited partners of a limited partnership concerning:

1) relations among the partners and between the partners and the limited partnership; 2) the activities and affairs of the limited partnership and the conduct of those activities and affairs; 3) the means and conditions for amending the partnership agreement; and 4) mergers and other reorganizations involving the limited partnership. As to these matters, statutory provisions govern only in the absence of an applicable provision in the partnership agreement. However, the bill also imposes restrictions on the terms of a partnership agreement. Among these restrictions, a partnership agreement may not vary from certain statutory provisions relating to the following: the power of a person to dissociate as a general partner, except with respect to a limited liability limited partnership (LLLP) (discussed further below); the grounds for expulsion of a general partner by judicial order because of certain conduct by the general partner; the causes of dissolution;

requirements for winding up the limited partnership's activities and affairs;

requirements for DFI filings or for a limited partnership's registered agent; lawsuits by and against partners and the limited partnership; records and information required to be kept by the limited partnership and a partner's right of access to the records and information; a partner's fiduciary and other duties (discussed further below); and the applicable law governing a limited partnership's internal affairs and the liability of its partners. The partnership agreement also governs the obligations of the limited partnership and its partners to a person dissociated as a partner (discussed further below) and to a transferee of a partner's interest, but an amendment to the partnership agreement after a person has dissociated as a partner cannot impose a new obligation on the person.

Partner liability and limited liability limited partnerships Under current law, a general partner of a limited partnership has the same liabilities as a partner in a partnership without limited partners (general partnership). In general, all partners in a general partnership are jointly and severally liable for all debts, obligations, and other liabilities of the general partnership. In contrast, a limited partner is generally not liable for the obligations of the limited partnership. However, there are exceptions if the limited partner is also a general partner or if the limited partner participates in the control of the business and a person who transacts business with the limited partnership reasonably believes that the limited partner is a general partner.

Under this bill, general partners are, with exceptions, liable jointly and severally for all debts, obligations, and other liabilities of the limited partnership.

The bill also eliminates the “control" exception under current law to a limited partner's exemption from liability. Under the bill, a limited partner is not personally liable for a debt, obligation, or other liability of the limited partnership solely by reason of being or acting as a limited partner, even if the limited partner participates in the management and control of the limited partnership.

Under current law, a general partnership may form as or become a limited liability partnership (LLP), and a partner in an LLP is not personally liable for any debt, obligation, or liability of the LLP, except that under some circumstances the partner may be liable for the partner's own actions or the actions of a person under the partner's supervision and control.

This bill allows a limited partnership to form as or become an LLLP by including a statement to this effect in the certificate of limited partnership. If a limited partnership is an LLLP, a general partner is not personally liable for a debt, obligation, or other liability of the LLLP solely by reason of being or acting as a general partner. Instead, a debt, obligation, or other liability incurred by the LLLP is solely that of the LLLP.

Fiduciary and other duties of partners Under current law, except as provided in the partnership agreement, a general partner of a limited partnership generally has the rights and powers, and is subject to the restrictions, of a partner in a general partnership. In general, a partner in a general partnership owes to the partnership and to the other partners duties of loyalty and care and must discharge the partner's duties and obligations consistently with the contractual obligation of good faith and fair dealing. Except as provided in the partnership agreement, a general partner or limited partner may lend money to and transact other business with the limited partnership.

This bill more directly specifies a general partner's duties to the limited partnership and to other partners and also specifies the extent to which these statutory duties may be overridden by the partnership agreement. The bill also specifies a limited partner's duties. Under the bill, unless the duty is permissibly modified in the partnership agreement (as discussed below), a general partner owes to the limited partnership, and to the other general and limited partners, duties of loyalty and care, as described below. A general partner must also discharge its duties and obligations, whether statutory or arising under the partnership agreement, and exercise its rights, consistently with the contractual obligation of good faith and fair dealing. However, a general partner does not violate a duty or obligation solely because the general partner's conduct furthers the general partner's own interest.

Under the bill, a general partner owes a fiduciary duty of loyalty that includes the duty 1) to account to the limited partnership and hold as trustee for it any property, profit, or benefit derived by the general partner in the conduct or winding up of the partnership's activities and affairs, from use of the partnership's property, or from the appropriation of a partnership opportunity; 2) to refrain from dealing with the partnership, in the conduct or winding up of the partnership's activities and affairs, adversely or on behalf of a person having an adverse interest; and 3) to refrain from competing with the partnership in the conduct of the partnership's activities and affairs. However, all the general and limited partners, or those disinterested partners with authority to act, may authorize or ratify, after disclosure of all material facts, a specific act or transaction by a general partner that otherwise would violate the duty of loyalty. Also, it is a defense to a claim of dealing adversely with the limited partnership (item 2 above) that the transaction was fair to the limited partnership.

Under the bill, a general partner also owes a duty of care, in the conduct or winding up of the limited partnership's activities and affairs, to refrain from 1) grossly negligent or reckless conduct; 2) willfully failing to deal fairly with the limited partnership or its partners when the partner has a material conflict of interest; 3) violating the criminal law; 4) engaging in a transaction in which the partner derives an improper personal profit; or 5) engaging in willful misconduct.

Under the bill, in contrast to general partners, limited partners have minimal duties to the limited partnership. A limited partner must exercise any rights under the statutes or the partnership agreement and discharge any duties under the partnership agreement consistently with the contractual obligation of good faith and fair dealing. A limited partner does not have any other duty to the limited partnership or to any other partner solely by reason of acting as a limited partner.

Under the bill, the partnership agreement of a limited partnership may not do any of the following: alter or eliminate, or restrict remedies for the breach of, the duty of loyalty or the duty of care owed by a general partner, except as described below;

eliminate a general partner's or limited partner's contractual obligation of good faith and fair dealing, but may, if not manifestly unreasonable, prescribe standards by which performance of the obligation is measured or restrict remedies for breach of the obligation; or relieve a partner from liability for conduct that violates the duty of care (described above). However, the partnership agreement may specify the method by which an act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified after the disclosure of all material facts. If not manifestly unreasonable, the partnership agreement may also alter or eliminate, or restrict remedies with respect to, certain aspects of the duty of loyalty; identify specific types or categories of activities that do not violate the duty of loyalty or the contractual obligation of good faith and fair dealing; otherwise alter the duty of care;

or alter or eliminate any other fiduciary duty. A court determines, as a matter of law, whether a term of a partnership agreement is manifestly unreasonable.

Under the bill, if a general partner acts in compliance with the general partner's fiduciary and other duties, the limited partnership must reimburse the general partner for any payment made by the general partner in the course of the general partner's activities on behalf of the partnership and must indemnify the general partner with respect to third-party claims. The limited partnership may also advance reasonable litigation expenses to the general partner. A general partner is also entitled to reimbursement from the limited partnership for advances to the partnership beyond the amount of capital the general partner agreed to contribute, which advances are considered loans.

The bill also allows a limited partnership to file with DFI a statement of partnership authority. This statement may recognize or limit, for purposes of a third party dealing with the limited partnership, the authority of a person to act for or enter into transactions on behalf of the limited partnership. In this statement, the limited partnership may identify the authority, or limitations on the authority, of any person or position (which covers all persons holding that position). The statement of authority is effective for five years from its original date or its most recent amendment or renewal, and the statement affects only the power of a person to bind the limited partnership to persons that are not partners. All persons are deemed to know of a statement of authority recorded with the register of deeds that limits a person's authority to transfer real property on behalf of the limited partnership. The bill also allows any person named in a statement of authority to file with DFI a statement of denial of authority.

Operating requirements Current law requires a limited partnership to maintain in this state a record office where specified limited partnership records are kept. This bill continues to require a limited partnership to maintain specified records and information and requires the limited partnership to maintain a registered office in this state. The bill also retains the current law requirement that the limited partnership maintain a registered agent for service of process in this state.

This bill requires limited partnerships to file with DFI annual reports containing specified information. This requirement also applies to registered foreign limited partnerships, which are limited partnerships governed by the law of another jurisdiction and authorized to do business in this state.

Under current law, a general partner or limited partner has the right to inspect and copy any of the partnership records required to be maintained by the limited partnership and also has certain rights to other information.

As under current law, this bill provides general partners and limited partners with certain rights to inspect and copy records maintained by the limited partnership, although the details of these rights in the bill differ from current law.

The bill specifies records and information that the limited partnership must furnish to general partners and limited partners without demand, as well as information that the limited partnership must furnish to partners on demand. The duty to furnish information also applies to each general partner on whom a demand is made, not just to the limited partnership. The bill also specifies the rights to information of a person dissociated as a general partner or limited partner. The bill allows a limited partnership to impose reasonable restrictions and conditions on access to and use of information furnished by the partnership.

Dissociation of partners Current law specifies the circumstances under which a general partner or limited partner may withdraw from a limited partnership. With a narrow exception, a limited partner may withdraw from a limited partnership only at the time or upon the occurrence of an event specified in the partnership agreement. In contrast, a general partner may withdraw from a limited partnership at any time by giving notice to the other partners, but if the withdrawal violates the partnership agreement, the limited partnership may recover damages from the withdrawing general partner for breaching the partnership agreement. Current law also specifies events that, absent consent of all partners, cause a person to cease to be a general partner of the limited partnership, including that the general partner: 1) is removed as a general partner in accordance with the partnership agreement; 2) assigns all his or her partnership interest to another; 3) files for bankruptcy; or 4) dies or is adjudicated incompetent.

This bill adopts the term “dissociation" in connection with the voluntary or involuntary withdrawal of a general partner or limited partner from a limited partnership and modifies the bases under which a partner's dissociation from the limited partnership occurs. Among other events causing dissociation, a general partner is dissociated when 1) the partner withdraws from the partnership or is expelled from the partnership; 2) an event occurs that, under the terms of the partnership agreement, results in the partner's dissociation; 3) the partner becomes a debtor in bankruptcy, dies, has a guardian or conservator appointed, or is adjudged to be incapable of performing his or her duties under the partnership agreement; or 4) the partnership dissolves and completes winding up. A general partner has the power to dissociate from a limited partnership at any time, rightfully or wrongfully, by expressly withdrawing, but the dissociation is wrongful if it breaches the partnership agreement or if it occurs before the winding up of the limited partnership and the general partner withdraws by express will, is expelled by judicial order, files for bankruptcy, or dissolves or terminates. A general partner that wrongfully dissociates is liable to the limited partnership and the other partners for damages caused by the dissociation.

Under this bill, in contrast to a general partner, a limited partner does not have a right to dissociate before the winding up of the limited partnership. The bill specifies that, among the events causing dissociation, a limited partner is dissociated when 1) the partner withdraws from the partnership or is expelled from the partnership; 2) an event occurs that, under the terms of the partnership agreement, results in the partner's dissociation; 3) the partner dies or, if an entity, its existence terminates; or 4) the partnership dissolves and completes winding up.

The bill provides more specific information, in comparison with current law, about the effects of a general partner's or limited partner's dissociation from a limited partnership. Among these effects, a dissociated general partner has no right to participate in the management and conduct of the partnership activities and affairs; a dissociated partner's interest takes on the status of a transferee's interest rather than a partner's interest; and certain obligations terminate as to future events but may continue to apply to past events.

Under current law, a partner that withdraws from a limited partnership is entitled to receive, within a reasonable time after withdrawal, the fair value of the partner's interest in the limited partnership as of the date of withdrawal, unless the partnership agreement provides otherwise.