Wisconsin Legislature Passes Updated Limited Partnership Statutes: Key Updates and Provisions
Peter Tirella | 06.23.22
On April 15, 2022, Tony Evers signed Senate Bill 566/Act 258 into law. Among the Act’s various provisions is a complete repeal and revision of Chapter 179, 2019 stats., which governs limited partnerships, and a repeal and recreation of Chapter 183, which governs limited liability companies (LLCs). Updated Chapter 179 (the “Wisconsin Uniform Limited Partnership Law” or “WUPL”) adopts the Revised Uniform Limited Partnership Act, with certain modifications, while updated Chapter 183 (the “Wisconsin Uniform Limited Liability Company Law” or “WULLCL”) adopts the Revised Uniform Limited Liability Company Acts. Since the WUPL and WULLCL are complete revisions of the law, there are many important changes.
This article highlights certain changes in the WUPL that will be of interest to those doing business in Wisconsin. A forthcoming article will highlight certain changes in the WULLCL that will be of interest to LLCs. This article is merely a broad summary of key points and does not replace reading the WUPL in its entirety.
More detailed articles on each respective subchapter of the WUPL will follow in due course as part of Boardman Clark’s Wisconsin Uniform Limited Partnership Law Series. All statutory references are to Wisconsin Chapter 179, 2021 stats., unless otherwise noted.
Applicability of WUPL
The WUPL’s provisions will apply to limited partnerships formed on or after January 1, 2023 (the “effective date”). However, any existing limited partnership has the option to opt in to the WUPL prior to the effective date by filing with a statement of applicability with the Wisconsin Department of Financial Institutions (the “Department”). Any limited partnership opting in to the WUPL before the effective date should do so only after fully understanding its provisions because the election is irrevocable upon filing.
Alternatively, if a limited partnership wants to remain bound by Chapter 179, 2019 stats. after January 1, 2023, it may file a statement of nonapplicability with the Department. Note, however, that that the WUPL provisions relating to filing or obtaining copies of records with the Department, receiving or corresponding to notices from the Department, and complying with administrative rules will still apply regardless of a statement of nonapplicability.
Permitted limited Partnership Names
Under the prior law, a partnership name could not contain a limited partner’s name and further prohibited the use of names which were the same as, or deceptively similar to, the name of any entity organized in the state or an entity registered in the state. In comparison, the WUPL provides for greater naming flexibility. Under the WUPL, a limited partnership’s name must only be “distinguishable on the record” from any person whose formation required filing documents with the Department, an existing LLP, a name registered to do business, any reserved name, or any name registered under Wisconsin law.
A limited partnership may even use a name that is indistinguishable from a name on the record if the limited partnership receives consent in writing from the relevant third party or receives a final judgment from a court of competent jurisdiction establishing the limited partnership’s right to use the name.
Finally, the WUPL allows the use of any partner’s name, whether general or limited.
Liability of Limited Partners
Under the prior law, a limited partner is not liable for the limited partnership’s obligations unless they are also a general partner or participate in control of the business. If the limited partner did participate in control of the business, they are liable only to persons who reasonably believe, based on the limited partner’s conduct, that the limited partner is a general partner.
Under the WUPL, any debts, obligations, or liabilities of the limited partnership are not the debts of a limited partner. This means that a limited partner is not personally liable, directly or indirectly, by contribution or otherwise, for a debt, obligation, or other liability of the limited partnership by reason of acting as a limited partner, even if the limited partner participates in the management and control of the limited partnership.
Further, a limited partnership’s failure to observe applicable formalities relating to the exercise of its powers or management of its activities is not a ground for imposing liability on a limited partner.
Fiduciary and Other Duties
The WUPL further provides for a robust framework of fiduciary duties that general partners owe to the limited partnership and to each other. The fiduciary duties owed by general partners are extensive and should be studied carefully to ensure total compliance.
For example, general partners owe both the fiduciary duties of loyalty and care. As part of the duty of loyalty, a general partner must, among other obligations, hold certain property, profits, or benefits derived by the general partner in trust for the partnership and must refrain from dealing as, or on behalf of, a person with interests adverse to the partnership. As part of the duty of care, all partners must refrain from engaging in grossly negligent or reckless conduct.
In comparison, limited partners do “not have any duty to the limited partnership or to any other partner” by means of their status as a limited partner. That is, limited partners have no duties of loyalty, care, or otherwise by nature of their limited partner status.
Rights of General Partners
WUPL provides that all general partners have equal rights in the management and conduct of the limited partnership and that any matter pertaining the partnership’s activities or affairs are to be guided by the general partner(s). Furthermore, unanimous general partner consent is required to:
- amend the partnership agreement;
- amend the partnership’s certificate to change from a limited partnership to a limited liability limited partnership (an “LLLP”) or from an LLLP to a limited partnership;
- sell, lease, exchange, or otherwise dispose of all, or substantially all, of the partnership’s property, other than in the usual course of the partnership’s activities and affairs.
This is in contrast to the prior law, which specifies that a general partner of a limited partnership takes on the same liabilities and restrictions and enjoys the same powers and rights as a partner in a general partnership.
Mergers, Conversions, Domestications, and Interest Exchanges
The WUPL provides updated rules and regulations for mergers and conversions affecting limited partnerships and new rules and regulations related to domestications and interest exchanges. In all cases, the relevant transaction must be approved in each respective jurisdiction.
Specifically, the WUPL allows one or more domestic limited partnerships to merge into one or more other constituent entities by following WUPL’s provisions and filing a proper certificate of merger with the Department. Further, one or more domestic or foreign entities may merge with or into a domestic limited partnership by following the same rules as applicable to the merger of domestic limited partnerships.
The WUPL also allows a domestic limited partnership to convert to another type of domestic entity or to any type of foreign entity by following WUPL’s provisions and filing a proper certificate of conversion with the Department. In addition, a foreign or domestic entity may convert to a domestic limited partnership by following the same rules as applicable to the conversion of a domestic limited partnership into another type of entity.
The WUPL allows a domestic limited partnership to domesticate as a non-United States entity subject to non-United States governing law while continuing to be a domestic limited partnership. Further, a non-United States entity may domesticate as a domestic (Wisconsin) limited partnership while continuing to be an entity subject to its non-United States governing law. In each case, the relevant entity must comply with the WUPL and a proper plan of domestication.
The WUPL permits a domestic limited partnership to acquire all of one or more classes of series of interests of another domestic or foreign entity by complying with WUPL’s provisions and a proper plan of interest exchange. Further, all of one or more classes or series of interests of a domestic limited partnership may be acquired by another domestic or foreign entity by the same means as for a domestic limited partnership.
Restrictions on Approval of Mergers, Interest Exchanges, Conversions, and Domestications
If a partner does not vote for or otherwise consent to a merger, interest exchange, conversion, or domestication transaction, that partner may be eligible to sell their partnership interest to the partnership. To gain this right of purchase, the proposed transaction must either (i) materially increase the partner’s current or potential obligations or (ii) treat the partner’s interests in the limited partnership in a manner different from the interests of the same class by any other partner.
The purchase price owed to the selling partner is the amount distributable to that partner if the limited partnership’s assets were sold and the partnership wound up, the sale price being equal to the greater of the partnership’s liquidation value or the value based on the sale of the partnership’s entire activities or concerns as a going concern without the partner.
The following is only an overview of some of the significant changes to Wisconsin’s limited partnership statutes, Chapter 179. Please see our upcoming articles for more detailed discussion of certain changes.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.