Parthenon's conversion to an LLP

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Question 1.0

Yes. The state of California will authorize Parthenon’s conversion to an LLP if it is permitted by law to conduct the transformation. Whether foreign and domestic general partnerships can convert to limited liability partnerships in California upon producing a certificate of conversion or other relevant documents. Further, the conversion has to be approved by either a percentage of the partners, shareholders, as dictated by the laws of the partnership. The Secretary of State has to accept the certificate of a limited entity and the statement of conversion for the new business to function. Also, if a silent law governs Parthenon, the conversion can only be deemed effective upon the accomplishment of all acts required when creating a limited liability partnership.

Thus, Parthenon will need to obtain a Certificate of Limited Partnership Conversion (Form LP1A) and pay up to $150 if a California Corp is entangled or $70 for all others. Also, the conversion can be authorized by the signatures of at least two partners. According to the California Partnership law, if Parthenon is a foreign general partnership company, they would have to surrender the right to conduct intrastate business upon the conversion into a domestic limited liability partnership.

Indeed, converting Parthenon into an LLP protects the partners from future liabilities, but the question is whether the change writes-off pre-existing obligations. Legally, a general partner can’t be freed from personal liability by an existing creditor for debt. Thus, the fact that the LLP assumes all the business debt in the alteration doesn’t release the general partners from personal liabilities. Conclusively all the members will be equated from all future liabilities associated with the LLP but will be liable for all previous debts affiliated with the general partnership. The California Partnership Law dictates that the liabilities and obligations of the converting business remain as debts of the converted entity. This means that the liabilities accrued by Parthenon Limited Partnership are transferred to the converted limited liability partnership. Likewise, the rights of creditors and assets of the converting GP remain enforceable to the LLP as if the conversion did not happen (Justia, 2020).

Nonetheless, the partners in the converted entity are deemed liable to several components. One, they remain accountable to all obligations that mandated personal liability before the conversion of the business. However, they only remain liable to the extent of the original liability in the initial business entity. Two, they also remain liable to all obligations of the new business that are established after the conversion. Conclusively, the partnership Law of California will allow Parthenon to convert into an LLP, upon the completion of all necessary laws. Also, the liabilities of the GP will be transferred to the LLP, but the partners will remain liable to all previous obligations and debts.

Limited Partnerships

Question 2.0

All partnerships are allowed to file for bankruptcy, but it’s risky for the general life of the business and partners. When Zeus, the general partner, files for bankruptcy, they could appoint a trustee, who is obligated to liquidate some of the firm’s assets and settle the debt with Poseidon. The disadvantage of filing for bankruptcy is that Olympians Limited Partnership will have to halt all their operations, and they can’t be discharged from bankruptcy. Also, the move doesn’t alter the partners’ liability for the debt owed to Poseidon. If the debts remain unpaid after the declaration of bankruptcy, Zeus will still be liable for settling with Poseidon. On the other hand, Parthenon and the other limited partners will lose their investment in the firm and can be sued by Poseidon outside the bankruptcy. However, according to ULPA and RULPA, creditors, Poseidon, can only sue the limited partners if they signed guarantees on the partnership’s debts. Thus, if the petition for bankruptcy doesn’t settle Poseidon’s debt, the hired trustee can sue Zeus to pay the remaining debt in full.

Additionally, outside bankruptcy, Poseidon can sue the general partners (Zeus) to collect money owed. More precisely, if the liquidation of assets doesn’t cover the debt entirely, Poseidon’s trustee can sue Zeus to settle the remainder. Therefore, declaring bankruptcy doesn’t change the liability for either of the partners and being the only general partner, Zeus will be fully liable. Poseidon can only request the payment from Aphrodite if she signed a guarantee for the debt. Conclusively, in this case, the creditors can’t collect the $20,000 from the limited partner, Aphrodite. The assertion is supported by both the ULPA and RULPA, which exempt limited partners fully from the liabilities incurred by a limited liability partnership.

Question 2.1

According to ULPA, obligations of a limited partnership, including contracts or torts, aren’t transferable to a limited partner (ULPA, 2009). Initially, the “control rule” made limited partners liable as general partners if they participated in controlling the firm. However, it became challenging to determine levels of control. In the first amendment, the limited partner shield outlined a long list of activities that didn’t fit the criteria of participating in control. Also, it reserved limited liability only for partners who conduct business with the firm, holding the knowledge of participation (RULPA, 2001).

However, the definitions of “control” became complex down the years, and it had to be amended permanently. In ULPA 1976, the “control rule” states that a limited partner becomes liable for obligations only when their level of participation matches the powers of the general partner. Therefore, even with involvement in managing the partnership, Aphrodite isn’t personally liable for the $20,000 debt. His position as the office manager doesn’t necessarily match the powers of Zeus. Poseidon can thus not recover the money from Aphrodite solely because he is a limited partner. Likewise, RULPA exempts Aphrodite from personal liability, even after being involved in a managerial position. Under the control rule, Aphrodite’s involvement in management doesn’t match the powers of the general partner (RULPA, 2001).

Question 2.2

In this scenario, Aphrodite inadvertently breached the limited partner rules in the conversation with Artemis. Aphrodite states that she runs the entire operation and oversees all management decisions. Her claims inadvertently depict active participation in the firm’s routine transactions in a manner typical to a general partner. According to the final amendment of the ULPA, a limited partner is made liable when they exercise powers similar to those of general partners. Thus, Artemis’ statement could be used to prove Aphrodite is a general partner, which makes her liable to the partnership’s obligations. In this case, Poseidon can recover the debt from Aphrodite under ULPA regulations. Likewise, the RULPA doesn’t exempt limited partners from liability following their conduct or misconduct (RULPA, 2001). Aphrodite breached the partnership agreement making her personally liable to the $20,000 debt.

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