Public Act 92-740 (Act), now codified in 805 ILCS 206/1 et seq., is Illinois' version of the Uniform Partnership Act (1997) and became effective January 1, 2003. The Act marks the first significant change made to Illinois partnership law since 1917 when Illinois adopted its own version, 805 ILCS 205/1 et seq., of the Uniform Partnership Act (UPA or the Act) created by the National Conference of Commissioners on Uniform State Laws. In an Illinois Bar Journal article detailing the changes made to the Illinois UPA, the author points out two underlying themes of the new legislation. First, a partnership is now treated as an entity separate from its partners, as opposed to the former treatment of a partnership as an aggregate of the partners. Second, the Act's changes emphasize the contractual nature of the partnership agreement. See Stephen G. Frost, "Illinois' Revised Uniform Partnership Act," 90 Illinois Bar Journal 644 (2002). Summarized below are some of the significant changes the Act made to existing Illinois partnership law, organized by section.
Article I - General Provisions
Section 103 - The Partnership Agreement: Addresses the effect of a partnership agreement and lists nine provisions that cannot be waived in the agreement. This makes the Partnership Act comparable to Section 15-5 of the Illinois Limited Liability Company Act, 805 ILCS 205/1 et seq.
Under this section, the partnership agreement may not (1) vary the rights and duties under Section 105 except to eliminate the duty to provide copies of statements of all of the partners; (2) unreasonably restrict the right of access to books and records under Section 403(b); (3) eliminate or reduce a partner's fiduciary duties; (4) eliminate or reduce the obligation of good faith and fair dealing under Section 404(d); (5) vary the power to dissociate as a partner under Section 602(a); (6) vary the right of a court to expel a partner in the events specified in Section 601(5); (7) vary the requirement to wind up the partnership business in cases specified in Section 801(4-6); (8) vary the law applicable to a limited liability partnership under Section 106(b); or 9) restrict the rights of a person, other than a partner and transferee of a partner's transferable interest, under the Act.
Section 105 - Execution, Filing, and Recording of Statements: A new section that details the requirements for the five optional statements that are contained in subsequent provisions of the Act. These statements are as follows: (1) Statement of Partnership Authority (Section 303); (2) Statement of Denial (Section 304); (3) Statement of Dissociation (Section 704); (4) Statement of Dissolution (Section 805); (5) Statement of Qualification (Section 1001). Essentially, the statements are designed to give notice to the public of extensions of the partnership or limitations on the partnership.
Each statement specified by the Act and filed by the partnership must be executed by at least two partners. In addition, a partner, or another person authorized under the Act, must execute any other statements. Generally, the statements must be filed in the Office of the Secretary of State, but real estate statements must be filed in the Recorder's Office in the county where the real estate is located.
Article II - Nature of the Partnership
Section 201 - Partnership as an Entity: Provides that a partnership is an entity distinct from its partners and that a limited liability partnership continues to be the same entity that existed before the filing of a Statement of Qualification. The significance of this provision is that it expressly states that a partnership is distinct from its partners.
Section 203 - Partnership Property: Expressly provides that property acquired by a partnership is property of the partnership and not of the partners individually. Previously, the former had been provided, but it had not been clearly stated that partnership property is not the property of the partners individually.
Article III - Relations of Partners to Third Persons
Section 301 - Partner Agent of Partnership: This section addresses the general principle that each partner is an agent of the partnership for the purpose of its business. The key difference, albeit subtle, has to do with when a person is bound by a limitation on a partner's authority. The new language states that a person is bound if he or she had "notice" as opposed to "knowledge" of the partner's limitation.
Section 302 - Transfer of Partnership Property: Addresses how title to all partnership property passes and includes provisions of when a partnership may recover partnership property from a transferee. Generally, the provisions for transferring title are broader than previous legislation. For example, previously, title to only real property was addressed, now all property transfers are addressed.
Section 303 - Statement of Partnership Authority: New section that permits the filing of a Statement of Authority, specifying the names of persons authorized to execute instruments and granting or limiting authority of partners. It is important to realize that Section 303 addresses only the ability of partners to bind the partnership to third parties.
Section 305 - Partnership Liable for Partner's Liable Conduct: This section extends a partnership's liability to partners and adds new actions for which a partnership will be liable to individual partners. Originally, the remedy of a partner would be limited to a dissolution and an accounting. Under this section the partnership is liable to any person, including a partner, for loss or injury caused by a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course or with authority.
Section 306 - Partner Liability: Formerly, partners were severally and jointly liable for acts and omissions and jointly liable for all obligations. Now, partners are liable jointly and severally for obligations of the partnership, unless otherwise agreed by the claimant or by law. In addition, the liability shield has been expanded so that now a partner in a limited liability partnership is not personally liable for an obligation of the partnership solely by reason of being or acting as a partner. Thus, a partner in a limited liability partnership is now protected from contractual and other obligations of the partnership, but the partner is still liable for his or her own actions.
Section 307 - Actions by and against Partnership and Partners: This new section allows a partnership to sue and be sued in the name of the partnership. Also, a judgment against a partnership is not a judgment against the partners, and may not be satisfied from a partner's assets absent a judgment against that partner.
Article IV - Relations of Partners to One Another and the Partnership
Section 403 - Partner's Rights and Duties with Respect to Information: Under this section a partnership is no longer required to keep books, but if it does, it must keep them at the chief executive office instead of at the principal place of business. In addition, partners are granted access to partnership books and records and former partners are expressly granted the same access. The right of access is limited to "during ordinary business hours" as opposed to former wording that indicated "at all times."
Section 404 - General Standard of Partner's Conduct: Fiduciary duty is no longer required during the formation of the partnership. Thus, there is no duty of loyalty during agreement negotiations or prior to the time of the official partnership agreement.
Section 405 - Actions by Partnership and Partners: Subsection (a) provides a new action that allows a partnership to bring suit against a partner for a breach of the agreement or violation of a duty. Also, in 405(b)(3), a partner may file an action against the partnership for injuries caused by wrongful acts or omissions of a partner and essentially eliminates the need for filing of an accounting, which is also no longer required in other remedies.
Article V - Transferees and Creditors of a Partner
Section 501 - Partner Not Co-Owner of Partnership Property: Reiterates the fact that a partner is not a co-owner of partnership property and has no interest in transferable partnership property, whether voluntary or involuntary.
Section 504 - Partner's Transferable Interest Subject to Charging Order: Besides permitting a charging order for the benefits of a judgment creditor, as before, this section also allows a charging order for a judgment creditor or a partner and a judgment creditor of a partner's transferee. Subsection (b) also provides that a charging order constitutes a lien on the judgment debtor's transferable interest in the partnership. Subsection (e) specifically provides that the charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment out of a partner's transferable interest in the partnership.
Article VI - Partner Dissociation
Section 601 - Events Causing Partner Dissociation: The significant change under this section is that when a partner dissociates, or withdraws, from a partnership and the partnership has not dissolved, the partnership, as a legal matter, is the same partnership after the dissociation.
Article VII - Partner Dissociation Details
Section 701 - Purchase of a Dissociate Partner's Interests: Previously, when a partner dissociated and the partnership was not dissolved, the partnership was to redeem the partner's interest by paying that partner the "value" of his or her interest. Under the Act, the partner is now to be paid an amount equal to the "buyout price," or the amount the partner would receive if the assets were sold at the greater of liquidation value or the value based on a sale of the business as a going concern and then liquidated. The dissociated partner is entitled to interest until payment, but the option to share in profits in lieu of interest is no longer available.
Section 702 - Dissociated Partner's Power to Bind and Liability to the Partnership: Initially, the power of a withdrawn partner to bind the partnership to any creditor, who did not have constructive or actual notice of the withdrawal, extended indefinitely without any time limit. Now, the Act limits the authority of a withdrawn partner to bind the partnership to such a creditor for a maximum of two years and also provides that actual notice, via a statement of dissociation under section 704, terminates that partner's ability to bind.
Section 704 - Statement of Dissociation: Under this section, filing a statement of dissociation terminates, after 90 days from the filing of the statement, the apparent authority of a dissociated partner to bind the partnership to any creditor.
Article VIII - Winding Up the Partnership Business
Section 801 - Events Causing Dissolution: Lists the events that cause dissolution. Of particular interest is that a partnership at will dissolves when a partner expressly withdraws. In addition, a partnership for a term or for a particular undertaking dissolves when dissociation events occur and a majority of the remaining partners agree to wind up the partnership.
Section 802 - Continuation after Dissolution: As before, a partnership is not terminated on dissolution, but continues until the business is wound up. However, the Act also provides that after the dissolution occurs, but before the business is wound up, all the partners (including any dissociated partner who did not wrongfully dissociate) may waive the right to have the business wound up, which results in the partnership continuing as if the dissolution did not occur.
Section 805 - Statement of Dissolution: This new provision allows the filing of the statement of dissolution, which can be filed by any partner who has not wrongfully dissociated, and effectively cancels the statement of partnership authority.
Section 806 - Partner's Liability to Other Partners after Dissolution: Previously, the liability of the partners depended on the cause of the dissolution. The Act now provides that liability is the same, regardless of the cause of the dissolution.
Article IX - Conversions and Mergers
Of specific interest, Section 902 permits conversions of partnerships to limited partnerships and Section 903 permits conversions of limited partnerships to partnerships. Section 910 provides that Article IX is nonexclusive, thus allowing limited partnerships and partnerships to merge under other provisions or laws.
Article X - Limited Liability Partnerships
Section 1001 - Statement of Qualification: Partnerships file an initial application under Section 1001 and annual renewal statements under Section 1003. Section 1002 extends the permitted names of limited liability partnerships and includes "registered limited liability partnership," "limited liability partnership," "R.L.L.P.," "RLLP," "L.L.P.," and "LLP."
Article XI - Foreign Limited Liability Partnerships
Section 1101 details the law governing foreign limited liability partnerships. Of special note is Section 1104, which lists the activities that do not constitute transacting business in the state for purposes of the article.
Article XII - Miscellaneous Provisions
Provides the effective dates of the Act. After 2007 (January 1, 2008), all partnerships are governed by the Act. Prior to January 1, 2008, the Act governs only those partnerships formed after January 1, 2003. However, any partnership formed prior to January 1, 2003, may elect to be governed by the Act.
