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have adopted a partial liability shield protecting the partners | | only from vicarious personal liability for all partnership | | obligations arising from negligence, wrongful acts or misconduct, | | whether characterized as tort, contract or otherwise, committed | | while the partnership is an LLP. The Act does not alter a | | partner's liability for personal misconduct and does not alter the | | normal partnership rules regarding a partner's right to | | indemnification from the partnership (Section 401(c)). Therefore, | | the primary effect of the new liability shield is to sever a | | partner's personal liability to make contributions to the | | partnership when partnership assets are insufficient to cover its | | indemnification obligation to a partner who incurs a partnership | | obligation in the ordinary course of the partnership's business. |
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| | | 2. Voting Requirement to Become an LLP |
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| | | The Act includes a new Section 1001(b) which provides that the | | decision to become an LLP is a major partnership event equivalent | | to an amendment of the partnership agreement. Therefore, the | | required vote equals the vote required to amend the partnership | | agreement. When the agreement is silent on these matters, the | | required vote would be unanimous. Where the agreement includes | | several amendment votes depending on the nature of the amendment, | | the required vote is that which considers contribution | | obligations since those obligations are the most affected by the | | amendments. Most states currently consider the required vote to | | become a limited liability partnership to be an ordinary | | partnership decision requiring only a majority consent. |
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| | | In becoming an LLP, each partner should consider a personal | | liability calculus. Where partnership assets are insufficient to | | indemnify a partner for an LLP obligation, each partner forfeits | | a right to receive contributions from other partners in exchange | | for being relieved of the obligation to contribute to the | | personal liability of other partners. This calculus will be | | different for each partner and will vary, for example, depending | | on the size and business of the partnership, the number of | | partners, the amount of insurance, and the relative risk of each | | partner's business practice compared to fellow partners. To | | adequately consider these varying interests, the Act adopts the | | vote required to amend the partnership agreement in special and | | general cases. |
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| | | 3. Effect of Becoming an LLP on the Partnership Agreement |
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| | | The last sentence in new Section 306(c) provides that when a | | partnership becomes an LLP, the resulting liability shield | | applies notwithstanding inconsistent provisions of the | | partnership agreement existing immediately before the vote to |
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