An Introduction to the Colorado Uniform Partnership Act (1997)

• Publication year: 1998
• Pages: 5
• Citation: Vol. 27 No. 1 Pg. 5

27 Colo.Law. 5 Colorado Lawyer 1998.

1998, January, Pg. 5. An Introduction to the Colorado Uniform Partnership Act (1997)

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Vol. 27, No. 1, Pg. 5

The Colorado Lawyer
January 1998
Vol. 27, No. 1 [Page 5]

Articles

An Introduction to the Colorado Uniform Partnership Act (1997)
by H. Gregory Austin

SUMMARY

Effect and Effective Date

The Colorado Uniform Partnership Act (1997) governs all general partnerships, including limited liability partnerships, formed under Colorado law on or after January 1, 1998. It only governs general partnerships formed before that date and limited partnerships formed before or after that date that elect to be governed by it

Most Significant Changes

More comprehensive rules are provided addressing duties authority and liabilities of partners and management of the partnership, in the absence of specific agreement of the partners

Limitations on the freedom of partners to modify, by agreement, the relationships among themselves are listed in a single section. All other matters concerning relationships among partners may be negotiated.

A partnership need not dissolve upon a partner's withdrawal, death, expulsion, bankruptcy or other dissociation.

Partners' duties among themselves, subject to modification but not elimination by agreement, are specifically enumerated.

In the absence of agreement, rules are provided for the buyout of the interest of a partner who has withdrawn, died, been expelled or gone bankrupt ("dissociated") without causing a dissolution.

Partnership creditors generally must exhaust the partnership's assets before levying on the individual property of a jointly and severally liable partner.

Provision is made for central filing of statements to evidence the authority, or limitations on authority, of partners to bind the partnership.

Provision is made for central filing of statements of dissociation which, ninety days after filing, provide constructive notice of the dissociation of a partner from a continuing partnership.

Partners may resolve disputes through direct actions without the necessity of a dissolution and accounting.

Conversion of partnerships into other partnership forms and mergers among partnerships are facilitated.

Reasons for Existing General and Limited Partnerships to Elect to be Governed by the New Law

Avoidance of dissolution upon a partner's dissociation, in the case of general partnerships.

Validation of limitations on duties of partners among themselves.

Validation of other agreements among partners affecting rights and obligations.

Additional protection for partners' individual property against claims of partnership creditors until exhaustion of partnership assets.

Use of statements of partnership authority.

Use of statements of dissociation, which can protect both a dissociated partner and the continuing partnership.

Permitting resolution of disputes among partners through direct actions without the necessity of a dissolution and accounting.

The Colorado Uniform Partnership Act (1997) ("CUPA" or "new Act") was enacted in the 1997 session of the Colorado General Assembly,1 and became effective on January 1, 1998.2 CUPA now governs all general partnerships, including limited liability partnerships, formed under Colorado law on or after the effective date.3 General partnerships formed under Colorado law and existing prior to January 1, 1998,4 and all limited partnerships formed under Colorado law, to the extent that they are governed by general partnership law,5 will continue to be governed by the Colorado Uniform Partnership Law ("old Act"),6 unless they elect to be governed by the new Act.7

This article intends to assist practitioners in understanding and using CUPA. It outlines the genesis and development of CUPA; discusses principal changes effected by it; suggests reasons why existing general and limited partnerships might find it to their advantage to elect to be governed by it; and points the practitioner to texts, commentary, committee minutes, and other resources currently available to assist in answering questions that arise under CUPA.

GENESIS AND DEVELOPMENT OF THE NEW ACT

The Uniform Partnership Act ("UPA")8 was first adopted in 1914 by the National Conference of Commissioners on Uniform State Laws ("NCCUSL"). Colorado adopted the UPA in 1931 as the "Colorado Uniform Partnership Law."9 With the exception of 1995 amendments to recognize limited liability partnerships,10 the Colorado Uniform Partnership Law was not amended significantly between 1931 and 1997.

In 1986, after an extensive study, the American Bar Association ("ABA") Business Law Section issued a report entitled Should the Uniform Partnership Act Be Revised?,11 which answered the title question in the affirmative. In 1987, NCCUSL appointed a drafting committee to revise the UPA. In 1992, NCCUSL promulgated the Revised Uniform Partnership Act. That act marked a complete revision of the UPA. The 1992 version of the act was adopted by Montana and Wyoming. In large part in response to comments from the ABA Business Law Section Ad Hoc Subcommittee on the Uniform Partnership Act, NCCUSL revised the 1992 version of the act in 1993 and again in 1994 under the name, "Uniform Partnership Act (1994)" ("RUPA").12

In 1994, the Colorado Bar Association ("CBA") Business Law Section and Taxation Law Section established a committee ("CBA Committee") to consider RUPA for adoption in Colorado. Representatives of the CBA Real Estate Section and the CBA Bankruptcy Subsection participated on the committee. The CBA Committee (headed by this author, H. Gregory Austin, former chair of the CBA Business Law Section) included a professor and a practitioner, each of whom have written treatises on partnership law,13 two members of the ABA Business Law Section Ad Hoc Subcommittee on the Uniform Partnership Act,14 the chair of the committee that had most recently revised the Colorado limited partnership act,15 and several other leading practitioners and academics.16 After forty-four meetings, the CBA Committee produced a version of RUPA for introduction in Colorado. With minor revisions, the Colorado version was approved by NCCUSL. It was introduced as House Bill 1237 in the 1997 session of the legislature, passed, and signed into law by the Governor on May 21, 1997.

While the CBA Committee undertook its task with the consistent intention of preserving "uniformity" and making no change to RUPA without compelling reason, it decided to make a substantial number of changes. The changes fell primarily into four categories: (1) changes required to maintain consistency in use of terms within the act; (2) changes required to make provisions of the act consistent with provisions of Colorado's existing corporation law, limited liability company law, limited liability partnership law, and limited liability limited partnership law; (3) changes required to conform the act to Colorado public policy as enunciated in prior enactments by the legislature; and (4) addition of definitions to make the act more readily understandable to practitioners and laypersons.17 Almost every change was discussed and debated by the CBA Committee and was reported faithfully in the minutes of the meetings ("CBA Committee Minutes"), which are available to interested persons.18

In addition to Colorado, Alabama, Arizona, California, Connecticut, the District of Columbia, Florida, Iowa, Maryland, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, Texas, Virginia, West Virginia, and Wyoming have adopted versions of RUPA. Most other states are considering and, in many cases, revising, RUPA. It is apparent that many states will make substantial revisions to RUPA, presumably for the same reasons that changes were made by the CBA Committee.

While the UPA was adopted virtually without change by every state except Louisiana, this will clearly not be the case with RUPA. In practical effect, RUPA is being used more as a model act than as a uniform act. Practitioners can expect the same kinds of variations from state to state in general partnership law as are now found in corporation codes and limited liability company laws.

Some lawyers will be annoyed initially to find that they are dealing with a new Act that runs about thirty pages in the statute book without annotations, rather than the old Act that ran closer to twelve pages without annotations. On further examination, however, they will find that the greater part of the new Act is devoted to codification of existing law, and many of the fundamental principles of the old Act and case law are carried over into the new Act. Both lawyers and laypersons will find many answers to their partnership law questions in the new Act without having to resort to treatises and case law.

PRINCIPAL NEW FEATURES

Expanded Default Rules

While lawyers tend to deal mostly with partnerships that are formed pursuant to written partnership agreements, there is no requirement in the law for a written agreement and, indeed, the law specifically recognizes oral and implied agreements.19 Oral agreements are common in small service businesses. For example, two or more individuals who buy gardening equipment to provide lawn services for hire, or who buy a combine to harvest their neighbors' crops for a fee, have formed a partnership, whether they know it or not.20

To the extent that the partners fail to agree, orally or in writing, on some material aspect of the governance of the partnership or economic arrangements,21 "default rules" are provided by CUPA that are much more specific than those in the old Act. For example, as is...