In Ratner v. Iron Stone Real Estate Fund I, L.P., the Court recently considered whether the duration of a limited partnership could be extended after its dissolution had already been triggered.
In this case, the partnership agreement provided that the term of the partnership lasted “until December 31, 2015, unless earlier terminated in accordance with this agreement or unless extended in the sole discretion of the general partner for one or more of two additional consecutive periods of one year each.” The partnership agreement further provided that the partnership “shall be dissolved and its affairs wound up upon the expiration of the term of the partnership.” Four months after the expiration of the term, on April 25, 2016, the general partner, by way of a memorandum to limited partners, unilaterally extended the term of the partnership for an additional eight years.
Predictably, certain limited partners disagreed. They demanded payment for their value of their interests and insisted upon the formal dissolution of the partnership. After their demand was rejected, they filed suit.
Pennsylvania’s Uniform Limited Partnership Act governs and regulates the conduct of limited partnerships in Pennsylvania. While generally a partnership agreement governs the duties, rights and obligations of the parties, there are some provisions of the Act which a partnership agreement may not vary. Notably, Section 8615(a)(16) provides that a partnership agreement may not “vary the requirements to wind up the partnership’s activities and affairs specified in section 8682(a), (b)(1), (d) and (e) (relating to winding up and filing of certificates).” Section 8682(a) provides that “a dissolved limited partnership shall wind up its activities and affairs and the partnership continues after dissolution only for the purpose of winding up.” The Act is silent as to whether the dissolution can be rescinded after it has already been triggered, and contains no language which allows for a vote to retroactively rescind the dissolution. Thus, once triggered, dissolution became irrevocable.
While the facts of the case are somewhat unique, there is a lesson to be learned, applicable to more than just limited partnership agreements. Stock purchase agreements, limited liability company operating agreements, and partnership agreements must all be carefully drafted so that they comply with statutory requirements. While intuitively parties may think that “anything can be agreed to,” that might not be the case and may result in litigation. If we can help in reviewing or drafting those documents, let us know.