Partnership Agreement

A program distribution involves a sponsor, a dealer-manager and several retail broker-dealers selling to their own customers. Which contractual arrangements govern the relationships?

1. A.A single master agreement signed by the sponsor and every participating firmWrong. The retail firms are not in contract with the sponsor.
2. B.Separate agreements between the sponsor and each retail broker-dealerWrong. That bypasses the dealer-manager, which is the party the sponsor contracts with.
3. C.A partnership agreement to which each selling firm becomes a partyWrong. The partnership agreement governs the program's partners, not its distributors.
4. D.A dealer-manager agreement with the sponsor and selling agreements beneath itCorrect. The distribution runs through a chain of two distinct contracts.

Why: There are two distinct contracts: the dealer-manager agreement between the sponsor and the dealer-manager, and the selling agreements between the dealer-manager and each participating broker-dealer. The retail firms are not in contract with the sponsor, which is why their compensation and obligations come through the selling agreement rather than directly from the program. Keeping the two separate matters because a term the sponsor agreed with the dealer-manager does not automatically bind a selling group member. Had a retail firm dealt directly with the sponsor without a dealer-manager, a single agreement between them would do the work of both.

An investor buys limited partnership interests in a Regulation D offering and six months later wants to sell them to a friend. What is the principal obstacle?

1. A.The partnership agreement will require the general partner to admit the buyerWrong. That is a real obstacle but it is not the securities-law one the question asks about.
2. B.The interests are restricted securities and cannot be freely resoldCorrect. A resale needs its own registration or exemption.
3. C.Regulation D forbids any resale of interests acquired under itWrong. Resale is constrained rather than prohibited outright.
4. D.The friend would have to be accredited to take the interestsWrong. Accreditation governed the original offering, not every subsequent transfer.

Why: Securities acquired in a Regulation D offering are restricted securities, so they cannot simply be resold into the market and any resale must satisfy a registration requirement or an exemption of its own. This is separate from, and additional to, the transfer restrictions the partnership agreement itself imposes on admitting a substituted limited partner. The restriction exists because the exemption was granted on the basis that the interests were not being distributed publicly, and a free resale would defeat that basis. Had the interests been sold in a registered public offering, this particular obstacle would not arise.

The limited partners of a program want a provision added to the partnership agreement requiring that a stated minimum share of cash flow be distributed each year. The general partner objects. What is the proper route for the limited partners?

1. A.Direct the general partner to make the distributions, since cash flow is a partnership matterWrong. Ordering a distribution under the existing agreement is management and is not theirs to do.
2. B.Vote to amend the partnership agreement, which is one of their enumerated rightsCorrect. Amendment is a reserved matter and the objection of the general partner does not block it.
3. C.Nothing, because the exclusive management power of the general partner makes the agreement unchangeableWrong. Overstates that power, since amendment is expressly reserved to the partners.
4. D.Vote to dissolve the partnership, the only collective action open to limited partnersWrong. Dissolution is not the only collective action available, and it is a drastic answer to a drafting problem.

Why: Amending the partnership agreement is one of the three matters reserved to the limited partners, so the change they want is within reach by vote even over the objection of the general partner. What they may not do is order a particular distribution, because setting distribution levels under the agreement as it stands is management. The distinction is between rewriting the rule the general partner must follow and taking over the decision itself. If the group instead wanted a distribution declared for the current quarter, no vote would reach it.

A group of limited partners in a real estate program is dissatisfied with results and asks the general partner to put four matters to a partnership vote. Which one falls within the enumerated voting rights of the limited partners?

1. A.Approving the annual operating budget proposed by the general partnerWrong. Budgeting is an ordinary management function that stays with the general partner.
2. B.Selecting the property manager for the largest building in the portfolioWrong. Hiring service providers is day-to-day operation of the business, not a reserved matter.
3. C.Approving the sale of all or substantially all of the assets of the partnershipCorrect. This is one of the three matters on which limited partners are entitled to vote.
4. D.Setting the amount of the quarterly cash distribution to partnersWrong. Distribution levels follow the partnership agreement and the judgment of the general partner.

Why: The voting rights of limited partners are a closed list: change the general partner, approve the sale of all or substantially all of the assets of the partnership, and amend the partnership agreement. Everything else is management, and management belongs exclusively to the general partner. Of the four matters raised here, only the asset sale sits on that list, so only it may properly be put to the limited partners. If the group wanted a standing say in budgets or hiring, the route would be to amend the partnership agreement, which is itself something they may vote on.