Why States Should Adopt RUPA

For more than 80 years, partnership law in the United States has been governed by the Uniform Partnership Act, drafted and approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1914.  Now, NCCUSL has approved the Revised Uniform Partnership Act (RUPA), which restructures the fundamentals of partnership law to reflect modern business practices.  The new act governs the relations among general partners and between the partners and the partnership.  There are many reasons why every state should adopt the Revised Uniform Partnership Act.

FLEXIBLE STRUCTURE.  RUPA is a default statute for matters not covered by the partnership agreement.  In general, the partnership agreement expressly controls over the language of RUPA.  Partners may tailor their structure to meet their business needs.

COHESIVE ENTITY.  RUPA defines a partnership explicitly as an entity, not an aggregate.  As an entity, the partnership is treated as a distinct body placed between the partners and the partnership assets.  A partnership may sue and be sued in the partnership name; property may be acquired in the partnership name.

PARTNER INTEREST.  The partner’s interest is viewed as a separate group of rights and liabilities associated with participation in a partnership.  No partner has an interest in specific property of the partnership.  Creditors of a partner may attach the interest of a partner, but may not attach specific partnership property.

PARTNER OBLIGATIONS TO EACH OTHER.  RUPA defines the partners’ duties of care and loyalty, their information rights, and the obligation of good faith and fair dealing.  These are basic standards of conduct that a partner must meet; no partnership agreement can abolish these standards.

CONVERSION AND MERGER.  RUPA provides new rules on conversion and merger.  A partnership may convert to a limited partnership, and vice versa, or may merge with another partnership or limited partnership, forming a new entity as provided in the partnership agreement.

LIMITED LIABILITY PARTNERSHIPS.  RUPA provides limited liability protection for general partners of a limited liability partnership.  The only requirement to create a registered limited liability partnership is to file a registration statement.  However, individual partners are personally liable for any injury they may have caused, and their personal assets are available to satisfy a judgment against them.

CONTINUITY OF LIFE.  RUPA changes the rule on dissolution of a partnership.  Under the new act, partnerships no longer dissolve every time a partner leaves.  In most cases, a partnership may buy out the interest of a partner who leaves without dissolving the partnership.  A term partnership will not dissolve so long as at least one-half of the partners choose to remain.  When a partner’s dissociation precipitates dissolution, partners are allowed to vote subsequently to continue the partnership.