10 ... 9 ... 8 ... RUPA's retroactive liftoff.

• Author: Beasley, James W., Jr.
• Position: Revised Uniform Partnership Act - Florida

Florida enacted the Revised Uniform Partnership Act (RUPA) in 1995, effective January 1, 1996, for general partnerships formed on or after that date. However, effective January 1, 1998, RUPA applies retroactively to all general partnerships, whenever they were initially formed.[1] The purpose of the two-year delay in the date of retroactive application is to give partners (and their lawyers) "an opportunity to consider the changes effected by RUPA and to amend their partnership agreements, if appropriate." Comment to [sections] 1006.[2] The two-year hiatus is almost over.

RUPA makes sweeping and fundamental changes in the law of partnership. Any partnership agreement drafted before January 1, 1996, should, at a minimum, be reviewed to determine what effect RUPA might have. Most partnership agreements drafted under the Uniform Partnership Act (UPA), which was in effect in Florida before January 1, 1996, will need substantial revision. Ironically, the more precisely a partnership agreement was drafted under the UPA, the more changes that will be necessary to accommodate RUPA. A reconsideration of a partnership agreement under RUPA may require a "complete renegotiation of the existing partnership agreement."[3] In considering RUPA, the practitioner will have to rely on the text of the statute, the official commentary, and academic publications. As of September 1997, there were no published decisions of any court in any jurisdiction interpreting RUPA.[4]

The primary purpose of this article is to alert Florida lawyers to the rapidly approaching retroactive effective date of January 1, 1998. This article suggests some of the major areas to be considered when analyzing the impact of RUPA on an agreement drafted under the UPA. (This article does not attempt to outline every consideration or issue that arises in drafting a partnership agreement.) The article concludes with a summary of the ethical issues confronting a lawyer who is asked to review and revise a partnership agreement under RUPA: a lawyer seeking to represent all partners as well as the partnership may find many ethical traps for the unwary.

The major changes made by RUPA and related points to consider when reviewing a pre-RUPA partnership agreement are discussed in the following sections.[5]

Freedom of Contract

Under the UPA, many specific provisions were variable by agreement; the ability to vary other provisions was uncertain. Generally, under RUPA, the provisions of the partnership agreement may vary any provision of RUPA, except the "nonwaivable" provisions listed in [sections] 103(b), which may not be varied or restricted to differing degrees.[6] This broad degree of contractual latitude provides a major opportunity and challenge to the drafter of an agreement governed by RUPA.

Entity Theory

The UPA theory of partnership was that it was an aggregate of its members, who held partnership property as tenants in partnership. UPA [sections] 25(1).[7] RUPA adopts an entity theory ([sections] 201), and the partnership itself owns partnership property ([sections] 203). If a partner wants to retain any type of interest in property contributed to the partnership, the partner must condition the transfer so that the property does not become partnership property or provide appropriate language in the partnership agreement. Otherwise, property contributed to the partnership becomes partnership property and the partner who contributed it has no right to ever get it back, even in liquidation. [sections] 204.

Authority of Partners

Under the UPA, every partner has the power to bind the partnership. UPA [sections] 11. Even if actual authority is limited by agreement, third parties can generally rely on the apparent authority of partners, unless they have notice to the contrary. Under RUPA, a partnership may limit the authority of specific partners vis a vis the outside world by filing appropriate notices in the public records. [sections] 303. Section 401(j) requires unanimous consent to authorize any partner to do any act outside the ordinary course of business. The drafter should consider what acts outside the ordinary course, if any, should be decided by a less than unanimous vote. Under RUPA, unless otherwise agreed, all votes are by partner, each having an equal vote, not by percentage of partnership interest. [sections] 401(j).

Liabilities of Partners to Third Parties

Under the UPA, partners have joint and several liability for wrongful acts chargeable to the partnership, but only joint liability for all other liabilities. UPA [sections] 15. RUPA makes all partners' liabilities joint and several ([sections] 306(a)), but requires in most circumstances that a creditor levy against the partnership's assets before having recourse to individual partners' assets ([sections] 307(d)).A partner is generally like a guarantor of partnership liabilities, not a primary obligor. A creditor who only needs to reach partnership assets can sue the partnership as an entity; to potentially reach the assets of a partner, the partner must be sued; otherwise, a judgment would only be good against partnership property. [sections] 307(c).[8]

Fiduciary Duties

RUPA dramatically alters the law of fiduciary duties among partners and between partners and the partnership. Florida RUPA changes RUPA:s fiduciary duty provision in a significant way, but even Florida RUPA raises questions about the extent to which traditional duties have been altered.[9] The academics differ on the extent and effect of the changes made by RUPA, strong evidence that...