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6 Bull. Sec. Corp. Banking & Bus. L. [1] (1968)

handle is hein.journals/txjbus6 and id is 1 raw text is: 

                                                        CONVENTION ISSUE






                           OF  THE   SECTION ON CORPORATION, BANKING & BUSINESS LAW

VOLUME 6                                        JUNE,   1968                                            No. 1

                                     THE   USES OF PARTNERSHIP                      by Alan  R. Bromberg
                                                                                          of Dallas
                                           SUMMARY CONTENTS
     1. Background                                                   5. Some Examples
     2. Substantive Characteristics Which Influence Use              6. Combinations and Alternatives
     3. Tax Characteristics Which Influence Use                      7. Some Further References
     4. Consideration of Factors
     1. Background.
         Corporations are  being created at a  much  faster rate than  partnerships. Many  (if not most)
     lawyers automatically think corporation when  clients need a  business organization. Partnerships are
     being ignored and limited partnerships have almost been forgotten.
         Without  disparaging the corporation - which is a very valuable form under most modern  statutes
     - there is a lot of virtue left in partnership. I will give some of the reasons, although they will seem
     familiar to anybody who has taken the time to think them through. I make  no effort to restate the law
     of partnership, but only the features which are likely to be most relevant to the choice of one business
     form over another. The discussion covers both general and limited partnerships.
         References are to:
             C&B  -  Crane & Bromberg on Partnerships (West Pub. Co. 1968)
             I.R.C. - Internal Revenue  Code  of 1954, 26 U.S.C.A.
             T.U.P.A. -  Texas Uniform  Partnership Act, V.A.T.S. art. 6132b
             T.U.L.P.A. -  Texas Uniform  Limited Partnership Act, V.A.T.S. art. 6132a
             V.A.T.S. - Vernon's  Annotated Texas  (Civil) Statutes
     2. Substantive Characteristics Which Influence Use.
         2.1 Liability. The most  fundamental  feature of partnership is joint and several liability of the
     partners. T.U.P.A. §15. This appears to be such a severe disadvantage that it probably accounts for the
     dismissal of partnership from consideration in most instances. But, as suggested in 4.4 below, there
     may be  situations where it is not significant. More importantly, personal liability can be largely avoided
     by proper use of the limited form.
         2.2 Amenability. One  of the most  striking things about partnership is its amenability to agree-
     ment. Surely no other form  is as completely molded by  its creator. Thus, while everyone knows that
     partnerships are easily dissolved, few realize that partnerships can by proper agreement be given the
     same continuity as corporations. More significantly, the relationship among capital, profits, services and
     control is completely a matter of contract. T.U.P.A. 18 (1). Unlike a corporation, the partnership form
     requires no fixed shares, minimum  prices, minimum  voting  rights, required hierarchy of officers and
     directors or other rigidities. By a stroke of the pen, persons can have equal rights in profits for radically
     different inputs, or equal contributions but different profit ratios. Profits may be shared according to
     any formula  the partners desire, including one which varies at different levels of profit. Any of these
     things can be changed  easily whenever the parties want. Corporations can't match this flexibility, and
     when  they come close it is only with cumbersome devices. Equal participation in control, and majority
     vote are the rule, T.U.P.A. 18(1), but they can be modified as desired.
         Limited partnerships are less fluid. They require a specified contribution and profit share for each
     limited partner, but there is no minimum  or maximum,   no  necessary relation between them, and  no
     prohibition to their change by amendment. Limited partners are, however, effectively excluded from the
     control group, by the threat of losing their limited liability. T.U.L.P.A. 8.

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