Making Real Estate Work

A rose by any other name...

Posted In Real Estate

Tis but thy name that my confusion is;
Thou art a partnership, general, though not intended be.
What makes one so? it is not mere title, nor simple name,
Nor agreement, nor thought, nor any other part
Belonging to law. O! moniker altered to achieve desire:
What’s in a name? that which we call limited
But legalities fail will general remain;
So general will, though general not call’d,
Retain the full obligation owed
Without that title. General partnership, that thou might doff thy name;
But that name is, I know, a vital part of thee,
So limited cannot be.

Juliet was right. Simply calling a general partnership a limited partnership does not make it so. A general partnership requires no written agreement or documentation. It may be implied from the intentions of the partners inferred from the interactions among them. Formation of a limited partnership, on the other hand, requires the partners to satisfy the technicality, for example, of filing a limited partnership certificate in some public record.

Consider a circumstance in which partners sign a partnership agreement that includes the name “limited” in the name of the partnership and designates each partner as either general partner or limited. The partners even purchase real property in the partnership name; but they never file a limited partnership certificate.

The partnership is not a limited partnership, despite the terminology in the partnership agreement. It defaults to a general partnership. Property it purchases vests either in the partnership itself or the individual partners, depending on the applicable law. The partners are all general partners and therefore liable for the obligations of the partnership, without limitation to their investments in the partnership as limited partners would expect. What to do?

In Georgia the practical goal is to document a transaction upon which a title insurance company will insure title to the properties in a true limited partnership, assuming that is the type of entity in which the partners want to do business. In my experience a title company will require current title examination, the proper filing of a limited partnership certificate, recordation of affidavits describing the history, and recordation of deeds from the partners or the partnership (or both) to the limited partnership. Proper formation of the limited partnership, including filing of the limited partnership certificate, ameliorates the liability risk of the partners moving forward.  The partners may also want to execute mutual representations, warranties and indemnities for past actions if these are a concern.

Juliet’s reasoning extends here, to everyone’s surprise, I am sure, especially hers. But then, perhaps I go too far…

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