A New Form of Partnership: The Registered Limited Liability Partnership

Article excerpt

In August 1991, Texas revised the Texas Uniform Partnership Act ("TUPA") to permit partners of Texas general partnerships to be statutorily protected from the errors, omissions, and negligence of other partners by becoming a registered limited liability partnership ("RLLP"). In May, TUPA was further amended. The May 1993 amendments are effective January 1, 1994. In June 1993, RLLP legislation was passed by the Delaware state legislature which amends the Delaware Uniform Partnership Act to provide for the formation, registration, and regulation of Delaware RLLPs. The Delaware legislation is expected to be signed by the governor and is to be effective as of August 1, 1993. The following discussion of the TUPA and Texas RLLPs reflects the May 1993 amendments to TUPA and th eDelaware RLLP legislation. Louisiana has enacted and other states (including Massachusetts, North Carolina, and the District of Columbia) are considering similar provisions. In addition, Minnesota has passed legislation which recognizes an RLLP formed in another state. Typically, general partners of partnerships are personally jointly and severally liable for the wrongful acts or omissions of their other partners. In contrast, a professional in a professional service corporation ("PC") usually does not (subject to certain exceptions) have personal liability for any negligence, wrongful act, or misconduct committed by his or her fellow shareholders while rendering professional services on behalf of the corporation.

The Texas and Delaware statutes provide that a general partnership organized under the laws of those respective states-may elect to become a registered limited liability partnership. A partner in a RLLP is not individually liable for debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed in the course of the partnership business (while the partnership is a RLLP) by another partner or a representative of the partnership not working under the protected partner's supervision or direction at the time the claimed act occurred, unless the protected partner 1) was directly involved in the specific activity in which the claimed act was committed or 2) had notice or knowledge of the claimed act at the time of occurrence and then failed to take reasonable steps to prevent or cure the claimed act. The Delaware statute states that a partner in a RLLP is not liable for debts and obligations of the partnership arising from negligence, wrongful acts, or misconduct committed in the course of the partnership business by another partner or an employee, agent, or representative of the partnership. the Delaware statute furhter provides that a partner in a RLLP remains liable for his on negligence, wrongful acts, or misconduct, or that of any person under his direct supervision and control.

Under both statutes, a partnership still remains an entity which can be sued for the acts or omissions of one of its partners, and the partnership assets would be a source or recovery by the plaintiff. In addition, the Texas RLLP law provides that a RLLP must carry at least $100,000 of liability insurance of a kind that is designed to cover the kind of act for which liability is limited by the RLLP provisions or must segregate cash or cash equivalents in such amount to satisfy any judgment for the kind of act for which liability is limited by the RLLP provisions. The Delaware legislation has a similar provision, except that it requires RLLPs to carry at least $1,000,000 of liability insurance or must segragate funds of at least that amount.

Both RLLP statutes cover all general partnerships, not just personal service partnerships. The Texas statute was originally introduced as an alternative means for allowing professionals the limitation of liability already available to them under the Texas Professional Corporation Act and the Texas Professional Association Act. Thus, the initial proposed amendment to TUPA applied only to certain kinds of professional partners such as physicians, architects, attorneys, CPAs, and veterinarians. …