Both the Iowa Uniform Limited Partnership Act (Iowa Code Chapter 488) and the new LLC Act (Iowa Code Chapter 489) provide statutory default language that a partnership agreement or LLC operating agreement can only be amended by the unanimous consent of the partners or members. The unanimity requirement can be overridden by the terms of the respective agreements. Oh, really?
Not so held the In re: LJM2 Co-Investment, L.P. Limited Partners Litigation court. The opinion of the Delaware Chancery Court can be found at 866 A. 2d 762 (2004).
The limited partners of LJM2 tried to weasel out of their obligation to heed a capital call by amending the limited partnership agreement to eliminate the obligation (after the general partner had properly made the call!). They also canned the general partner, replacing it with a more friendly one.
A majority of the limited partners, but not all of the limited partners approved the amendments. The limited partners relied on a provision of the agreement that authorized amendments "in any respect" upon the agreement of a majority of the limited partners. However, this provision contained the proviso, and possible boilerplate term, that no amendment could change the percentage necessary for any consent unless the amendment was approved by the same percentage. So what is the catch?
The Delaware RULPA contained a default provision that an obligation of a limited partner to make a contribution may be compromised only by the consent of all partners. Iowa has a similar provision at Iowa Code Section 488.502. The Delaware Court read this default provision into the partnership agreement notwithstanding the "in any respect" language.
This decision should be a concern for Iowa limited partnerships since the Delaware and Iowa RULPAs are very similar. It is not an issue for Iowa LLCs because there is no similar provision regarding obligations to make agreed to capital contributions.
-Marc Ward
Comments