Limited Partnership Issues. Unsure of how to proceed

MN0207

New Member
Jurisdiction
Alabama
I am a limited partner in a limited partnership. There is one other limited partner. The General Partner is an LLC. I am a member of the LLC as is the other limited partner. It is a complicated situation, but to sum it up as best I can:
1. Limited partnership owned 2 commercial properties. One of the properties was sold by the LLC as the General Partner of the limited partnership, by my business partner, who signed the documents as "majority member".
2. I had been the manager of both properties for several years until I was forced out by my business partner who claimed she had the right to do so as majority member of the LLC. For 10 years prior to my management, it was managed by a property management company and they called me to authorize any major decisions. She hired her friend to manage and her friend makes all business decisions.
3. Over the years, before I was actively involved, my partner has withdrawn virtually all of her original contribution plus profits plus she caused the partnership to take out a loan, the proceeds of which were given to her in exchange for a promissory note that remains unpaid plus has 20 years of interest added to it. The loan took 15 years to pay off. Added all together, she has withdrawn her original contribution, plus her profits, and owes the partnership almost $200,000.
4. I have never withdrawn any of my original contribution. Her only business decision as majority member of the LLC before my management was to refuse to distribute any of my share of the profit to me. My capital account contains the vast majority of the total capital of all the partners. The LLC owns a 1% interest.
5. The property she sold was by far the greater income producer of the 2 properties. It was a stupid business decision and I objected to selling it. I told everyone, the business lawyer, the business accountant, even the buyer that I didn't want to sell it. It was sold anyway and after a year she finally allowed me around 5% of what she sold the property for.
6. I want out. She won't buy me out. I understand, as General Partner, the LLC can sell the assets, but it doesn't seem fair that she can claim to act through an LLC that only owns 1% and sell assets of a company that she has a negative interest in and hasn't been involved with, and then keep all proceeds. What is my best way out? I feel like the properties are mine because she has taken her share already and owes money to the business and I invested a lot of time and labor managing them. But, legally, what can I do to force the LLC or the partnership to dissolve, sell the remaining property, or give me control of it, and determine what I am owed and have that amount given to me? I can't afford a lawyer because her actions have financially devastated me because management of the company was my source of income and plan for my future and she took that from me.
 
.
6. I want out. She won't buy me out. I understand, as General Partner, the LLC can sell the assets, but it doesn't seem fair that she can claim to act through an LLC that only owns 1% and sell assets of a company that she has a negative interest in and hasn't been involved with, and then keep all proceeds. What is my best way out? I feel like the properties are mine because she has taken her share already and owes money to the business and I invested a lot of time and labor managing them.

The problem is that the properties are NOT yours. They belong to the LP, the general partner of which is a LLC that your partner evidently controls because she's got more than 50% of the member interests. So that puts her in the driver's seat in terms of making decisions. Why did you agree to this sort of set up in the first place for managing just two commercial properties? Given the limited facts available I'm not seeing any advantage to you in that set up. You could have simply done it with the LLC (or a LLP) directly owning the properties. The additional complexity would not seem to give you any better benefit.

Now, as to what to do to get out now. The first thing to do is read the LP partnership agreement and the LLC charter and operating agreement to see if it gives you a way to make the LP buy out your interest should you want out. If you had a lawyer draft these documents that should have been addressed in there. I hope you didn't just take some stock forms off the internet (or wherever else) when you set it up.

If there is no good way out for you in the partnership agreement and LLC charter & operating agreement you are likely left with suing to force a liquidation of the LP. I suggest you see a business attorney about that. Yes, I see you say you can't afford it, but without legal help you're not likely to achieve your goal of separating from this investment, at least not without caving in to your partner. Get at least an initial consultation. You can get that from most lawyers for free or for a low initial consultation fee and the lawyer can tell you where you stand and what it'll cost you to resolve this.
 
Thank you for the responses.

adjusterjack: You are very rude.

flyingron: The Limited Partnership has no problem affording a lawyer. It has one. Unfortunately, he is also my business partner's longtime personal lawyer. I can't afford to pay a lawyer if it involves a long legal battle.

Tax Counsel: I don't know why it was set up this way. The LLC was formed by my grandmother, mother and myself. I had just turned 18. My mother told me to sign some paperwork, so I did. The LP was just my grandmother and mother. I was uninvolved for 20 years until my mother passed away. I inherited her interest in the LLC and the LP.

I wasnt going to fight my grandmother over the profits of a business I wasn't involved in. I took over management, with my grandmother's consent and encouragement to try to improve profitability, which I did.

My grandmother does own more than 50% of the LLC. I shouldn't have assumed our familial relationship meant I could trust her not to sell the properties or make decisions solely to benefit her. Hindsight is 20/20.

I will contact a lawyer to see about liquidating the partnership. I just wanted to make sure that there wasn't any other way to get out of this business arrangement. Thank you.
 
No matter what fancy title an entity bestows upon you, unless you are being compensated accordingly, you are free to walk away with out explanation, a wave, or even a cheery goodbye.

You are free to "disappear" yourself and start your own business or work for an employer that compensates you for your contributions to the organization.

That is far cheaper than hiring a lawyer to litigate an issue while you wait for three years for the matter to be resolved.

As Billy Preston once sang, "Nothing from nothing leaves nothing..."

 
Thank you for the responses.
Tax Counsel: I don't know why it was set up this way. The LLC was formed by my grandmother, mother and myself. I had just turned 18. My mother told me to sign some paperwork, so I did. The LP was just my grandmother and mother. I was uninvolved for 20 years until my mother passed away. I inherited her interest in the LLC and the LP.

If it was formed prior to 1997 then I can see a possible reason for the structure being set up that way. Before then the tax classification of LLCs and LLPs was uncertain and without getting a specific ruling from the IRS (which was expensive) there was uncertainty in any LLC or LLP set up as to whether it would be classified as a corporation or partnership. So to get partnership tax treatment but get limited liability for the owners people set up structures like this one. After 1997 when the IRS simplified the tax classification of business entities, though, it probably would have been a good idea to restructure it to something less complicated.

I will contact a lawyer to see about liquidating the partnership. I just wanted to make sure that there wasn't any other way to get out of this business arrangement. Thank you.

Take copies of the LLC and LP documents with you when you see the lawyer. Hopefully there is something in them that might help you. Good luck.
 
Back
Top