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  • April 20, 2016

    Wisconsin Enacts Revised Uniform Partnership Act

    Advisors should explore whether any new Wisconsin partnerships their clients may form should immediately “opt-in” or “opt-out” of the new Uniform Partnership Act, according to three Wisconsin business attorneys who helped facilitate the changes.

    Joseph D. Masterson, Thomas J. Nichols & James N. Phillips

    gearsApril 20, 2016 – Gov. Scott Walker, on March 30, 2016, signed into law a revised Uniform Partnership Act (UPA), making Wisconsin one of the first states to adopt a new version of the uniform law.

    The first UPA was promulgated by the Uniform Law Commission (ULC) in 1914 and eventually enacted in every state except Louisiana. The ULC approved a revised Uniform Partnership Act in 1997, and amended it thereafter several times for minor improvements, most recently in 2013 (UPA 2013).

    Over the past few years, the Business Law Section’s Partnership Committee, with input from the Department of Financial Institutions (DFI), the Legislative Reference Bureau (LRB), and others, worked to draft an update to Wisconsin’s Partnership Act (Wis. Stat. ch. 178) to align it with UPA 2013.

    Variations and Important Changes

    As with many uniform laws, Wisconsin’s law closely follows the substantive lead of UPA 2013, but there are substantive and procedural variations to more closely align revised Chapter 178 with established policy and procedure for Wisconsin business entities.

    These variations, as well as many other substantive considerations, are discussed in the Business Law Section Partnership Committee's Report on the Wisconsin Revised Uniform Partnership Act (the Act). The authors are members of the committee.

    Historically a general partnership has been the default form of for-profit business organization. A general partnership is formed whenever two or more persons associate for the purpose of engaging in a business for profit and no other form of business organization is chosen.

    The Act continues with the approach of defining basic default rules that apply to determine relationships among partners, and for the organization with third parties.

    A few of the default rules cannot be varied, but most of the organizational provisions can be modified by the partners in the partnership agreement. The Act also continues with the traditional rule that general partners are jointly and severally liable for the obligations of the partnership, but allows the partnership to elect limited liability protection comparable to the protections enjoyed by shareholders and limited liability company members.

    The Act makes a number of important changes that will vary the relationships among the partners and may change the way partnerships conduct operations. These considerations include (among others):

    Distinct legal entity. Under the Act, a partnership is a distinct legal entity that may sue and be sued in its own name, not merely an aggregation of individual partners. It is also more “robust” in that the admission or withdrawal of a partner doesn't necessarily cause a dissolution.

    Personal liability. The personal liability of a partner changes slightly under the Act. Except in a limited liability partnership, under the Act the partners are liable jointly and severally for all debts, liabilities, and obligations of the partnership. Under the prior law all partners are jointly and severally liable for any partner's wrongful act or omission when acting in the ordinary course of the business of the partnership or for the misapplication of money or property that constitutes a breach of trust, but are only jointly liable for other debts and obligations of the partnership (subject to other contractual agreements or guarantees).

    Joseph D. MastersonJoseph D. Masterson, Harvard 1978, is a partner at Quarles & Brady LLP, Milwaukee. He focuses on corporate and securities law, including general corporate and partnership issues. Reach him by email or by phone at (414) 277-5169.

    Thomas J. NicholsThomas J. Nichols, Marquette 1979, is a shareholder at Meissner Tierney Fisher & Nichols S.C., Milwaukee. He advises on tax and choice of entity issues as part of his business and corporate practice. Reach him by email or by phone at (414) 273-1300.

    James N. PhillipsJames N. Phillips, Iowa 1979, is a shareholder in the Tax and International Law practice groups at Godfrey & Kahn S.C., Milwaukee. He advises on tax structuring and other business and corporate matters. Reach him by email or by phone at (414) 287-9522.

    Rights and duties. The Act provides more specific guidance regarding the rights and duties of partners to each other and to the partnership (including fiduciary duties of loyalty and care and the contractual obligation of good faith and fair dealing), and more specific rules regarding the extent to which the partnership agreement can modify or override contrary statutory provisions.

    Specifying, limiting authority. The Act authorizes the public filing of statements of authority to specify or limit the authority of a person or position to bind the partnership with respect to persons other than partners, though such limitations are effective against third parties without knowledge only with respect to real estate in counties where the statements have been recorded.

    Annual reports. Under the Act, LLPs will now be required to file annual reports with the DFI. A partner in an LLP generally is not personally liable for a debt, obligation, or liability of an LLP solely by reason of being a partner, although an LLP can make an election for each of its partners to be liable for the partner's own acts or omissions and for those of persons under his or her actual supervision and control. This is the same as the law that applies to existing Wisconsin LLPs, which will be deemed to have elected to continue that treatment unless they file an “opt-out” election with the DFI under the Act.

    Interest purchase. The provisions for purchasing a dissociated partner’s interest will change, including much more detailed provisions regarding the buyout of the partner's interest.

    Mergers, exchanges, and conversions. The Act authorizes partnership mergers, interest exchanges, conversions, and domestications, including so-called “cross-species” transactions, with special protections for nonconsenting partners.

    Conclusion

    New Chapter 178 generally applies to partnerships on Jan. 1, 2018, but partnerships can elect to “opt-in” to be governed by new Chapter 178 any time after the law takes effect on July 1, 2016, and existing partnerships can elect to continue to be governed by prior law even after Jan. 1, 2018, by filing an "opt-out" election with the DFI before then.

    Over the next year, advisors should become familiar with the differences and explore whether existing partnership agreements need to be revised before the new law takes effect, and whether existing partnerships should opt-in or opt-out.

    Indeed, over the next several months, advisors should explore whether any new Wisconsin partnerships their clients may form should immediately opt-in or opt-out of the new law and reflect that choice in the partnership agreement.

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