236 Planning and Forecasting
impractical in the case of nonassignable contracts, licenses, and government
approvals.
Partnerships
To discuss transferability in the context of a general partnership, one must
keep in mind the difference between ownership of partnership assets as ten-
ants in partnership and ownership of an individual’s partnership interest. A
partner has no right to transfer partnership assets except as may be authorized
by vote in accordance with the partnership agreement and in furtherance of
the partnership business. However, a partner may transfer her partnership in-
terest, and it may be attached by individual creditors pursuant to a charging
order. This transfer does not make the transferee a partner in the business, be-
cause partnerships can be created only by agreement of all parties. Rather, it
sets up the rather awkward situation in which the original partner remains, but
his or her economic interest is, at least temporarily, in the hands of another. In
such cases, the Uniform Partnership Act gives the remaining partners the right
to dissolve the partnership by expelling the transferor partner.
Corporations
No such complications attend the transfer of one’s interest in a corporation.
Stockholders simply sell or transfer their shares. Since stockholders (solely as
stockholders) have no day-to-day involvement in the operation of the business,
the transferee becomes a full-f ledged stockholder upon the transfer. This
means that if Bruce, Erika, and Michael decide to operate as a corporation,
each risks waking up one day to find that he or she has a new “partner” if one
of the three has sold his or her shares. To protect themselves against this even-
tuality, most closely-held corporations include restrictions on stock transfer in
their charter, their bylaws, or in stockholder agreements. These restrictions set
forth some variation of a right of first refusal either for the corporation or the
other stockholders whenever a transfer is proposed. In addition, corporate
stock, as well as most limited partnership interests and LLC membership inter-
ests, is a security under the federal and state securities laws, and because the
securities of these entities will not initially be registered under any of these
laws, their transfer is closely restricted.
Limited Partnerships
Just as with general partnerships, the partners of limited partnerships may
transfer their partnership interests. The rules regarding the transfer of the in-
terests of the general partners are similar to those governing general partner-
ships described earlier. Limited partners may usually transfer their interests
(subject to securities laws restrictions) without fear of dissolution, but transfer-
ees normally do not become substituted limited partners without the consent
of the general partners.