Question

If the parties had been operating as a limited liability partnership, how would that have changed the result? Why did the court find that there was no limited liability partnership?

How does general partnership law treat a debt by one partner incurred in the course of partnership business?

Here, as in the case in Section 42.4.2 "Liability Issues in LLCs", there really is no inequitable result. Why is this true?

Answer 1

A Limited Liability Partnership , has similarities to the case of an LLC , in that the liability of the persons incorporating the LLP / LLC is limited.

The liability is limited to the extent of the amount due to their initially agreed capital contributions, as per the incorporation documents.

Aside from that amount, a partner does not tend to be liable for the debts incurred by the business (the LLP) in the course of the business, and the partner is not liable for the debts incurred by the other partner, in the course of running the LLP. This is different from the General Partnership law, where the liabilities of the partners is unlimited, whereby the partners are liable for the business transactions of the other partner and the firm, and the liability is unlimited (personal assets of the partner's can be annexed in the case of any recovery motion).

Hence , General Parnership law treats a debt by one partner in the course of the business, as unlimited to the other partner as well.

In general the corporate veil can be lifted in certain special circumstances, resulting in inequitable result, if the plaintiff can show that:

1. The interest and ownership is such that there is no difference between the entity and the owners

2. in case of fraud and misrepresentation

3. the individual Owners used funds of entity as if it were their personal funds

In such cases the liability could become unlimited on the owners.