Meeting 44 - October 2, 1996

MINUTES of the 44th meeting of the Ad Hoc Committee on Partnership Laws, held on October 2, 1996. These minutes were prepared by J. Dennis Hynes.

Persons attending the meeting: Wanda J. Abel, H. Gregory Austin, Clifford J. Calhoun, J. Dennis Hynes, Robert R. Keatinge, Charles P. Northrop, Michael A. Sabian, Anthony van Westrum, and James R. Walker.

Mr. Austin announced that the Board of Governors of the bar association has approved the 3/7/96 CRUPA draft of the committee, with the recognition that there would be some fine tuning by the committee.

A preliminary question was raised about the effect on title to real property held in a foreign state by a partnership of a merger of the partnership into a Colorado partnership or into a Colorado LLC, LLP, or LLLP. The issue was raised in an Email message on the LLC net and brought to the attention of the committee. It was noted in discussion that this is not a problem with regard to merger of corporations because one simply files a certificate of merger in the foreign state. And the fact that there would not be a certificate to file if one general partnership merged into another (neither of them being LLPs) was not viewed as a problem, because that situation exists today and has existed for many years. It was noted during the discussion that the partners themselves can prepare a certificate or affidavit and file it in the foreign state. In order to resolve any doubts, however, it was decided to call this matter to the attention of the real estate section. A corresponding question arises where Colorado land is owned by a partnership merging into an entity governed by the law of another jurisdiction. A copy of the Email message is attached to these minutes.

Messrs. Calhoun and van Westrum described for the committee the technical changes they made following the February 10 meeting. The changes are described in the minutes for the 43rd meeting, commencing on page 45 and continuing to page 62. All changes were accepted by the committee.

The discussion shifted to the effect of the "check the box" IRS proposal (which most likely will become effective January 1, 1997, it was assumed) on the committee's latest draft of RUPA. Mr. Keatinge introduced the topic by noting that the Joint Editorial Board recommended that the language of § 801(2) be changed to provide as a default rule that a partnership continue automatically after a partner's dissociation under the circumstances there described unless a majority of partners decide within 90 days after the dissociation to wind it up.

Section 801(2) of RUPA now provides that dissolution occurs automatically 90 days after dissociation of a partner under the circumstances there described unless a majority in interest of the remaining partners agree to continue the partnership. This language is tax driven. It is designed to ensure that a partnership will not be found to have continuity of life.

With the likely advent of the check the box approach, continuity of life will no longer be a matter of concern. Also, the Joint Editorial Board recommended that the phrase "majority in interest," which applies only in § 801(2), be scrapped in favor of a simple majority per capita vote, again on the reasoning that it is solely tax driven and that all other provisions of RUPA provide for a per capita vote as a default rule. Surprisingly, NCCUSL declined to adopt the recommendations of the Editorial Board, apparently relying on the unexplained statement of one lawyer that they weren't necessary.

It was assumed during the discussion that most people would expect continuance of the partnership upon dissociation of a partner unless they voted otherwise, especially now that a partnership is expressly characterized as an entity under RUPA. Also, it was assumed that most people would expect as a default matter to vote on a per capita, not per interest, basis. Because of this, the committee resolved to adopt the approach of the Joint Editorial Board and to change the language of § 7-64-801 as follows:

Also, the committee resolved that the definition of "majority in interest" in § 7-64-101(17) be deleted. It was used only in § 7-64-801(2)(a), and thus now is superfluous. Both of these changes will have to be reflected in the final version of the statute, which will be prepared by Mr. van Westrum. A three page memorandum by Mr. van Westrum explaining these changes is attached to these minutes.

No other changes to RUPA were suggested by the Joint Editorial Board. The matters of transferability of interest and centralization of management, addressed in RUPA by requiring unanimity for transfer of a full partnership interest and granting every partner management rights, were not changed because the rationale for RUPA §§ 401(6)(management) and (9)(unanimity for transfer) is not solely tax driven. The committee amended § 7-64-1202 (short title) and § 7-64-1204 (effective date) by changing the dates contained therein to reflect the fact that the statute will not be enacted until next year.

The committee concluded the meeting by reviewing and making minor changes to a two page memorandum prepared by Mr. Keatinge that describes the major changes made by RUPA. An unamended copy of the memorandum is attached to these minutes.