SB657: Bill Text

Under current law, a partner is a fiduciary who must account to the partnership for any benefit, and hold as a trustee for it any profit, derived by the partner without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from use by the partner of partnership property.

This bill provides a broader and more explicit description of the duties of each partner to the partnership and to other partners and also specifies the extent to which these statutory duties may be overridden by the partnership agreement. Under this bill, unless the duty is permissibly modified in the partnership agreement (as discussed below), a partner owes to the partnership, and to the other partners, duties of loyalty and care, as described below. A partner must also discharge its duties and obligations, whether statutory or arising under the partnership agreement, and exercise its rights, consistently with the contractual obligation of good faith and fair dealing. However, a partner does not violate a duty or obligation solely because the partner's conduct furthers the partner's own interest.

Under the bill, a partner owes a fiduciary duty of loyalty that includes the duty: 1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct or winding up of the partnership's business, from use of the partnership's property, or from the appropriation of a partnership opportunity; 2) to refrain from dealing with the partnership, in the conduct or winding up of the partnership business, adversely or on behalf of a person having an adverse interest; and 3) to refrain from competing with the partnership in the conduct of the partnership's business. However, all the partners, or one or more disinterested partners with authority to act in the matter, may authorize or ratify, after disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty. Also, it is a defense to a claim of dealing adversely with the partnership (item 2, above) that the transaction was fair to the partnership.

Under the bill, a partner also owes a duty of care, in the conduct or winding up of the partnership business, to refrain from 1) willfully failing to deal fairly with the partnership or its partners when the partner has a material conflict of interest; 2) violating the criminal law; 3) engaging in a transaction in which the partner derives an improper personal profit; or 4) engaging in willful misconduct.

Under the bill, the partnership agreement may not alter or eliminate, or restrict remedies for the breach of, the duty of loyalty or the duty of care, except as described below; eliminate, or restrict remedies for the breach of, the contractual obligation of good faith and fair dealing, but it may prescribe standards, if not manifestly unreasonable, by which performance of the obligation is measured; or relieve a person from liability for conduct that violates the duty of care described in items 1) to 4) in the immediately preceding paragraph. However, the partnership agreement may specify the method by which an act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified after the disclosure of all material facts. The partnership agreement may also eliminate or limit a partner's fiduciary duty if it also relieves the partner of a responsibility and imposes it on another partner. Although the partnership agreement may not relieve a person from liability for conduct that violates the duty of care described in items 1) to 4) in the immediately preceding paragraph, it may, if not manifestly unreasonable, alter or eliminate, or restrict remedies with respect to, certain aspects of the duty of loyalty; identify specific types or categories of activities that do not violate the duty of loyalty or the contractual obligation of good faith and fair dealing; otherwise alter the duty of care; or alter or eliminate any other fiduciary duty. A court determines, as a matter of law, whether a term of a partnership agreement is manifestly unreasonable.

Dissociation of partners and dissolution and winding up of partnership

Under current law, the dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business. Dissolution may be caused by various events, including by the will of any or all partners or by the death or bankruptcy of a partner. However, a partner's assignment (usually by sale) of the partner's interest in the partnership does not of itself dissolve the partnership, although the assignee is entitled to receive only the partner's profits from the partnership and not any right to management or participation in partnership business.

This bill adopts the term "dissociation," as used in connection with a partner, and specifies when a partner's dissociation from the partnership occurs. Among other events causing a partner's dissociation from the partnership, a partner is dissociated upon the occurrence of any of the following: 1) when the partner withdraws from the partnership or is expelled from the partnership; 2) when an event occurs that, under the terms of the partnership agreement, results in the partner's dissociation; 3) when the partner becomes a debtor in bankruptcy, dies, has a guardian or conservator appointed for him or her, or is adjudged to be incapable of performing his or her duties under the partnership agreement; or 4) when the partnership dissolves and completes winding up. A person has the power to dissociate as a partner at any time, rightfully or wrongfully, by withdrawing from the partnership unless the partnership is an LLP and the partnership agreement provides otherwise; however, a partner that wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation. A partner's dissociation is wrongful if, among other things, the dissociation is in violation of a term of the partnership agreement. A dissociated partner has no right to participate in the management of the partnership. The obligations of the partnership and other partners to the dissociated partner are generally governed by the terms of the partnership agreement, although the bill contains certain provisions relating to partnership distributions to dissociated partners.

Under the bill, a partner's dissociation from the partnership does not automatically require dissolution of the partnership; a partnership is dissolved only upon the occurrence of specified events. For example, in a partnership for a definite term or particular undertaking, dissociation of a partner as a result of the partner's death causes dissolution of the partnership only if, within 90 days after the death, at least half of the remaining partners affirmatively act to dissolve the partnership. As under current law, under the bill a partner's sale of his or her interest in the partnership does not automatically require dissolution of the partnership or entitle the transferee to participate in the management of the partnership. It also does not, by itself, cause the partner's dissociation from the partnership.

This bill modifies some of the grounds under which a partnership is dissolved and its business must be wound up, including grounds for dissolution by court order. As new grounds for dissolution under the bill, a partnership is dissolved, and its business must be wound up, if the partnership does not have at least two partners for 90 consecutive days or if an event or circumstance occurs that the partnership agreement states causes dissolution. Also, under the bill, a court order is required for dissolution on the basis that the partnership's activities are or would be unlawful.

The bill also allows a partnership to rescind its dissolution unless it has already filed with DFI a statement of termination or a court has ordered dissolution. If a partnership rescinds its dissolution and meets certain requirements, the partnership may resume carrying on its business as if dissolution had never occurred.

Limited liability partnerships

Under current law, to become an LLP, a domestic partnership must file a registration statement with DFI that contains specified information. To do business in this state, a foreign LLP must file with DFI a foreign registration statement. Current law includes various provisions relating to these registration statements, amendment or termination of these registration statements, acceptable names for an LLP or foreign LLP, registered offices and registered agents for LLPs and foreign LLPs, and service on LLPs and foreign LLPs.

Under this bill, to become an LLP, a domestic partnership must file with DFI a statement of qualification, rather than a registration statement. However, a foreign LLP must still file a registration statement with DFI to do business in this state. The bill includes many provisions, including some based on RUPA and some that depart from the model provisions of RUPA, relating to procedures applicable to LLPs and foreign LLPs, including provisions related to maintenance of a registered agent and registered office, service of process on an LLP or foreign LLP, and DFI's revocation of an LLP's statement of qualification or foreign LLP's registration. The bill requires an LLP or foreign LLP to submit an annual report to DFI.

As under current law, the provisions of this bill afford the partners in an LLP a certain level of immunity from liability, although the bill includes some modifications to current law relating to LLP liability. Under current law, all partners in a partnership are generally liable as follows: 1) jointly and severally for loss or injury caused to a person who is not a partner by any wrongful act or omission of a partner acting in the ordinary course of the partnership business or with partnership authority; and 2) jointly for all other debts and obligations of the partnership. However, a partner in an LLP is not personally liable for any debt, obligation, or liability of the LLP, except that the partner may be liable for the partner's own actions or the actions of a person under the partner's supervision and control and for debts, obligations, and liabilities resulting from the partner's acts or conduct other than as a partner.

Under this bill, a partnership is liable for loss or injury caused to a person as a result of a wrongful act or omission of a partner acting in the ordinary course of the partnership's business or with the actual or apparent authority of the partnership. In a partnership that is not an LLP, all partners are generally liable jointly and severally for all debts, obligations, and other liabilities of the partnership. However, subject to an exception, in an LLP, a debt, obligation, or other liability of the LLP is solely the debt, obligation, or other liability of the LLP, not of the partners, and a partner is not personally liable for the debt, obligation, or other liability of the LLP solely by reason of being a partner. Under the exception, an LLP can make an election that this provision (under which a debt, obligation, or other liability of the LLP is solely that of the LLP and a partner is not personally liable) does not affect the liability of a partner in an LLP for the partner's own negligence or wrongful acts or for the negligence or wrongful acts of a person under the partner's supervision and control. The bill also specifies that an LLP's failure to observe formalities relating to the exercise of its powers or management of its business is not a ground for imposing liability on a partner for a debt, obligation, or other liability of the LLP.

The bill includes restrictions on an LLP in making distributions to partners, or to transferees of partners, under certain circumstances. An LLP may not make a distribution if, after the distribution, the LLP would not be able to pay its debts as they become due in the ordinary course of business or the LLP's assets would be less than its liabilities. If a partner of an LLP consents to a distribution that violates these restrictions and, in consenting to the distribution, fails to comply with the partner's duties of loyalty and care (as described above), the partner is personally liable to the partnership for the amount of the distribution that exceeds the amount that could have been distributed without the violation.

Mergers, conversions, and other business combinations

This bill specifies procedures for domestic or foreign partnerships, including LLPs, to engage in business-structure transactions in the form of mergers, conversions, interest exchanges, and domestications. In an interest exchange, a domestic partnership acquires interests of another domestic or foreign business entity, or has its own interests acquired by another domestic or foreign business entity. In a domestication, an entity governed by the law of a foreign country (a non-US entity) may domesticate as a domestic partnership under Wisconsin law while continuing to be subject to the foreign country's law and a domestic partnership may domesticate as a non-US entity subject to a foreign country's law while continuing to be a domestic partnership. The bill allows mergers, conversions, interest exchanges, and domestications to involve a diverse array of business entities, including business corporations, nonprofit corporations, limited liability companies, limited partnerships, LLPs, cooperative associations, and unincorporated nonprofit associations. Certain requirements apply to these business-structure transactions, including approval of a plan of merger, conversion, interest exchange, or domestication and filing with DFI articles of merger, conversion, interest exchange, or domestication, although the terms of the partnership agreement generally govern mergers, conversions, interest exchanges, and domestications. When the merger, conversion, interest exchange, or domestication becomes effective, certain results occur automatically, as a matter of law, with respect to such matters as assets, obligations, continued existence, and organizational documents of the parties involved in the transaction.

The bill also repeals a tax reporting requirement under current law that applies to corporations, LLCs, and limited partnerships. Under current law, if an acquired business entity in a merger or the converted business entity in a conversion owned a fee simple ownership interest in any Wisconsin real estate immediately prior to the merger or conversion, the surviving business entity must submit a report to the Department of Revenue within 60 days of the merger or conversion containing specified information relating to the merger or conversion and the Wisconsin real estate.

This bill eliminates this reporting requirement.

Partnership records and information

Under current law, subject to the provisions of the partnership agreement, partnership books must be kept at the principal place of business of the partnership and, at all times, each partner must have access to them and may inspect and copy them. Partners must also render, on demand, to any other partner true and full information of all things affecting the partnership.

This bill provides for a partnership to keep its books and records at its principal office. On reasonable notice, a partner may inspect and copy, during regular business hours and at a reasonable location specified by the partnership, any record maintained by the partnership regarding the partnership's business, financial condition, and other circumstances, to the extent the information is material to the partner's rights and duties under the partnership agreement or the statutes. The bill specifies information that the partnership must furnish to each partner, without demand by the partner, as well as information that the partnership must furnish to a partner upon demand by the partner. The duty to furnish information also applies to each partner, not just to the partnership. The bill also specifies the rights to information of a person dissociated as a partner. The bill allows a partnership to impose reasonable restrictions and conditions on access to and use of information furnished by the partnership.

Other changes

This bill includes numerous other substantive and stylistic changes from current law. The bill eliminates existing provisions, and creates new provisions, as to when a person is considered to have notice or knowledge of a fact, and also specifies when a person is considered to have given another person notice of a fact. The bill also modifies certain terms used in connection with partnerships, such as changing the term "registration statement" for an LLP to "statement of qualification" and changing the term "articles of dissolution" to "statement of dissolution."

The bill also includes numerous modifications from, or additions to, the model language of RUPA, including provisions relating to DFI procedures and fees.

Phase-in

The changes in this bill apply to a partnership formed on or after January 1, 2018, and apply, on January 1, 2018, to a partnership formed before that date unless 1) the partnership elects to be governed earlier by the new provisions of the bill, or 2) the partnership elects to be governed by the existing law applicable before enactment of the bill. When the provisions of the bill become applicable to a partnership, provisions of prior law relating to liability and legal actions continue to apply to obligations incurred prior to enactment of the bill and any provision of a partnership agreement that was valid before enactment of the bill remains valid.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB657,1 Section 1. 13.69 (1) of the statutes is amended to read:

SB657,9,6 13.69 (1) Except as provided in sub. (2m), any principal violating ss. 13.61 to 13.68 or a rule of the board promulgated under those sections may be required to forfeit not more than $5,000. In the case of a partnership other than a foreign or domestic limited liability partnership, each of the partners is jointly and severally liable for any forfeiture imposed under this subsection.

SB657,2 Section 2. 70.21 (2) of the statutes is amended to read:

SB657,9,10 70.21 (2) The personal property of a limited liability partnership shall be assessed in the name of the partnership, and each partner shall be liable for the taxes levied thereon only to the extent permitted under s. 178.12 178.0306.

SB657,3 Section 3. 71.80 (21) of the statutes is amended to read:

SB657,9,16 71.80 (21) Business entity conversion. Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76, 180.1161, 181.1161, and 183.1207, the conversion of a business entity to another form of business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207 shall be treated for state tax purposes in the same manner as the conversion is treated for federal tax purposes.

SB657,4 Section 4. 71.80 (21m) of the statutes is created to read:

SB657,10,4 71.80 (21m) Business entity interest exchange. Notwithstanding any provision of ss. 178.1131 to 178.1135, an interest exchange under s. 178.1131 shall be treated for state tax purposes in the same manner as the interest exchange is treated for federal tax purposes.

SB657,5 Section 5. 71.80 (22) of the statutes is amended to read:

SB657,10,10 71.80 (22) Business entity merger. Notwithstanding any provision of ss. 178.1121 to 178.1125, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, and 183.1201, the merger of a business entity with one or more business entities under s. 178.1121, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, or 183.1201 shall be treated for state tax purposes in the same manner as the merger is treated for federal tax purposes.

SB657,6 Section 6. 71.80 (22m) of the statutes is created to read:

SB657,10,15 71.80 (22m) Business entity domestication. Notwithstanding any provision of ss. 178.1151 to 178.1155, a domestication under s. 178.1151 shall be treated for state tax purposes in the same manner as the domestication is treated for federal tax purposes.

SB657,7 Section 7. 73.03 (58) (a) and (b) of the statutes are amended to read:

SB657,10,21 73.03 (58) (a) Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76, 180.1161, 181.1161, and 183.1207, to treat, for state tax purposes, the conversion of a business entity to another form of business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207 in the same manner as the conversion is treated for federal tax purposes.

SB657,11,2 (b) Notwithstanding any provision of ss. 178.1121 to 178.1125, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, and 183.1201, to treat, for state tax purposes, the merger of a business entity with one or more business entities under s. 178.1121, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, or 183.1201 in the same manner as the merger is treated for federal tax purposes.

SB657,8 Section 8. 73.03 (58) (c) and (d) of the statutes are created to read:

SB657,11,6 73.03 (58) (c) Notwithstanding any provision of ss. 178.1131 to 178.1135, to treat, for state tax purposes, an interest exchange under s. 178.1131 in the same manner as the interest exchange is treated for federal tax purposes.

SB657,11,9 (d) Notwithstanding any provision of ss. 178.1151 to 178.1155, to treat, for state tax purposes, a domestication under s. 178.1151 in the same manner as the domestication is treated for federal tax purposes.

SB657,9 Section 9. 73.14 of the statutes is repealed.

SB657,10 Section 10. 77.21 (1e) of the statutes is amended to read:

SB657,11,15 77.21 (1e) "Mergers of corporations entities" means the merger or combination of 2 or more corporations, nonstock corporations, limited liability companies, or limited partnerships, or other entities, or any combination thereof, under a plan of merger or a plan of consolidation permitted by the laws that govern the entities.

SB657,11 Section 11. 77.25 (6) of the statutes is amended to read:

SB657,11,17 77.25 (6) Pursuant to mergers of corporations entities.

SB657,12 Section 12. 77.25 (6d) of the statutes is amended to read:

SB657,11,21 77.25 (6d) Pursuant to partnerships registering as limited liability partnerships filing or cancelling a statement of qualification under s. 178.40 178.0901 or a corresponding statement under the law of another jurisdiction.

SB657,13 Section 13. 77.25 (6m) of the statutes is amended to read:

SB657,12,2 77.25 (6m) Pursuant to the conversion of a business entity to another form of business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207, if, after the conversion, the ownership interests in the new entity are identical with the ownership interests in the original entity immediately preceding the conversion.

SB657,14 Section 14. 77.25 (6q) of the statutes is created to read:

SB657,12,4 77.25 (6q) Pursuant to an interest exchange under s. 178.1131.

SB657,15 Section 15. 77.25 (6t) of the statutes is created to read:

SB657,12,6 77.25 (6t) Pursuant to a domestication under s. 178.1151.

SB657,16 Section 16. 77.61 (15) of the statutes is amended to read:

SB657,12,12 77.61 (15) Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76, 180.1161, 181.1161, and 183.1207, a business entity that converts to another business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207 shall be subject to the provisions under this subchapter applicable to liquidations, reorganizations, and business entity formations.

SB657,17 Section 17. 108.02 (20r) of the statutes is amended to read:

SB657,12,15 108.02 (20r) Partnership. "Partnership" has the meaning given in s. 178.03 178.0102 (11).

SB657,18 Section 18. Chapter 178 of the statutes is repealed and recreated to read:

SB657,12,17 CHAPTER 178

SB657,12,18 UNIFORM PARTNERSHIP LAW

SB657,12,19 subchapter I

SB657,12,20 general provisions

SB657,12,22 178.0101 Short title. This chapter may be cited as the "Wisconsin Uniform Partnership Law."

SB657,12,23 178.0102 Definitions. In this chapter:

SB657,12,24 (1) "Business" includes every trade, occupation, and profession.

SB657,13,3 (2) "Contribution," except in the phrase "right of contribution," means property or a benefit described in s. 178.0403 which is provided by a person to a partnership to become a partner or in the person's capacity as a partner.

SB657,13,5 (3) "Debtor in bankruptcy" means a person that is the subject of any of the following:

SB657,13,7 (a) An order for relief under Title 11, USC, or a comparable order under a successor statute of general application.

SB657,13,9 (b) A comparable order under federal, state, or foreign law governing insolvency.

SB657,13,10 (3m) "Department" means the department of financial institutions.

SB657,13,13 (4) (a) Except as provided in par. (b), "distribution" means a transfer of money or other property from a partnership to a person on account of a transferable interest or in the person's capacity as a partner. The term includes all of the following:

SB657,13,14 1. A redemption or other purchase by a partnership of a transferable interest.

SB657,13,18 2. A transfer to a partner in return for the partner's relinquishment of any right to participate as a partner in the management or conduct of the partnership's business or have access to records or other information concerning the partnership's business.

SB657,13,23 (b) "Distribution" does not include amounts constituting reasonable compensation for present or past service, payments made in the ordinary course of business under a bona fide retirement plan or other bona fide benefits program, or other payments made to partners for good and valuable consideration other than in their capacity as partners.

SB657,13,25 (4c) "Domestic" means, with respect to an entity, an entity whose governing law is the law of this state.

SB657,14,2 (4j) "Electronic" means relating to technology having electronic, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

SB657,14,3 (4p) "Entity" means a person other than an individual.

SB657,14,5 (4t) "Foreign" means, with respect to an entity, an entity whose governing law is other than the law of this state.