Legislature(1999 - 2000)
04/18/2000 02:37 PM Senate JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 296-UNIFORM PARTNERSHIP ACT
MR. PAT HARMAN, legislative aide to Representative Pete Kott,
explained that HB 296 is a House Judiciary Committee bill that
will enact the Uniform Partnership Act in Alaska. The basis of
Alaska statutes regarding the Uniform Partnership Act go back to
1914; HB 296 brings that version up to date. HB 296 incorporates
the concept of the entity of a partnership, not the aggregate of
the individuals who are in the partnership. A business operating
under a partnership is a default classification; if a business
does not fall under another classification it will default to a
partnership. Many businesses are operating in Alaska today as
partnerships and do not know it.
Number 47
MR. ARTHUR PETERSEN, Uniform Law Commissioner, noted that the
National Conference of Commissioners on State Laws, the creators
of the original Uniform Partnership Act, is currently in its
109th year of existence. The old partnership act was enacted in
all states except Louisiana. In the United States, partnership
law is the law of the Uniform Partnership Act and the case law
interpreting it. HB 296 updates the 1914 version which Alaska
enacted in 1917. HB 296 includes the 1994 revision and the 1996
amendments (liability partnership provisions), and one amendment
made in 1997 that responds to a federal tax ruling.
MR. PETERSEN said HB 296 will put into statute the entity concept
of a partnership act. Current law is a confusing blend of the
aggregate of individuals concept and the entity concept. The new
version makes clear it is the entity concept that has
ramifications throughout the Act. It makes the law much simpler,
cleaner and conforms with what most people think of as a
partnership.
MR. PETERSEN stated HB 296 passed unanimously in the House and is
supported by the Department of Community and Economic
Development (DCED). DCED's concern about changing the annual
reporting requirement to a biennial one has been taken care of in
CSHB 296 (L&C). The Attorney General's office supports HB 296,
as does the business law section of the Alaska Bar Association.
Number 116
SENATOR HALFORD asked how limited liability of a partnership
works.
MR. PETERSEN asked to defer to Mr. John McCabe for an expert
professional opinion but he answered that a partnership is a
default concept that regulates what happens when a group of
people get together and form a business activity. The group can
then register in a civil act of registration to accomplish the
limited liability aspect and thus become a limited liability
partnership. Procedurally, that action requires registering with
DCED.
SENATOR HALFORD said two people who want to go into business
together, each owning 50 percent as operator/owner, have the
choice of forming as a partnership or a corporation. He asked
if general partners had the option of limited liability in the
past.
MR. PETERSEN answered that general partners did not have limited
liability.
SENATOR HALFORD asked if it is easier to maintain the shield of
limited liability in a limited liability partnership than it is
in a small corporation.
Number 146
MR. PETERSEN answered yes, and a limited liability partnership is
also simpler to form than a corporation.
MR. JOHN MCCABE, Legislative Director for the Uniform Law
Commissioners, explained that a general partnership under current
law and the new version of the Uniform Act is an entity in which
every partner will have joint and several liability with respect
to the partnership business. Partners are co-equal with regard
to their ability to manage the business and they are co-equal in
regard to the liability for the business. A creditor for a
partnership has the ability to charge the assets of any partner
in order to satisfy the liabilities of the partnership. Under HB
296 there will be several liabilities so that partners will be
able to gain co-satisfaction from their fellow partners unless
the partnership puts itself in a position to be a limited
liability partnership.
Existing statute has limited liability partnership provisions but
HB 296 is a somewhat simpler system. Alaska has regarded
limitation of liability as an artifact of registering something
in the public record so that third parties dealing with the
entity will be able to find out easily whether there is
limitation of liability or not. Under the new Uniform Act (the
1997 version) a partner will register a statement into public
record in the same way as a limited partnership, limited
liability company, or a corporation. Filing is a public
announcement that all of the partners have limitation of
liability. The limitation is in terms of vicarious liability
with respect to a partnership. Vicarious liability means that
liabilities are created by other members of the partnership. The
Uniform Act is a full shield liability statute that provides
every partner with insulation from liability with respect to his
personal assets for any obligation of the partnership, except
those in which the partner has personally engaged liability.
Once a partnership is established, it has to use the term
"limited liability partnership," the initials "LLP," or signify
that it is a limited liability partnership. In this way, third
parties will know about the limitation of liability and the full
shield limitation of liability will go forward. This remains as
long as the partnership is a functioning partnership.
Partnerships are more easily terminated and are not perpetual
like corporations are. Until a termination of the LLP status is
achieved administratively, perhaps because the partnership did
not file its appropriate reports to sustain itself as an LLP, it
maintains its limited liability. The LLP provisions are there for
partnerships that exist: an existing partnership must establish
itself as having the quality of limitation of liability.
The LLP provisions in partnership law are there to serve the
stability of the partnership in order to give the partners
limited liability stature. In order to obtain limitation of
liability, without a limited liability partnership provision,
the partnership will have to be dissolved and recreated in the
form of another entity. This can be eliminated with a limited
liability provision in the statute.
Number 248
CHAIRMAN TAYLOR asked if a limited partnership creates a more
efficient shield from liability than a small wholly-owned
corporation.
MR. MCCABE said that under the Uniform Act there is full shield
liability for a partnership so that the shield of a small
corporation is mimicked more closely. Personal liability
remains; it is vicarious liability that is a product of the
shield. Every partner is liable for his own acts. This differs
from corporations in which most shareholders have full liability
but they do not participate in the business and, therefore, they
are not able to establish personal liability. Partnerships are
designed to be ongoing businesses in which every partner is a
participant in the business.
Number 291
CHAIRMAN TAYLOR said that Section 32.06.305 through Section
32.06.308 provides that a person who is a limited partner and not
actively participating will not lose any more assets than those
who invested in the partnership.
MR. MCCABE agreed, but said HB 296 deals with an entity called a
limited liability partnership which is the old general
partnership in which the partners have full joint liability,
except HB 296 adds limitation liability. That will absolve a
partner from vicarious liability. He noted that passive
investors are limited partners with full liability for
everything.
CHAIRMAN TAYLOR asked if an LLP will be liable up to a certain
amount, after which the partners with provable liability will be
responsible.
MR. MCCABE answered yes.
CHAIRMAN TAYLOR said when Alaska passed the tort reform
legislation the distinction was removed from joint and several
liability. Throughout HB 296, joint and several liability is
found among partners. He asked how this differs from the tort
reform legislation.
Number 367
MR. MCCABE said tort law refers to a group of people who have
contributed to the harm. Partnership law is a business entity
composed of individuals who join together as partners to do
business.
SENATOR DONLEY moved HB 296 from committee with individual
recommendations. With no objection, the motion carried.
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