244 Planning and Forecasting
bind the partnership to unauthorized contracts and torts to the same extent as
the partners in a general partnership.
Limited partners will normally have voting power over a very small list of
fundamental business events, such as amending the partnership agreement and
certificate, admitting new general partners, changing the basic business pur-
poses of the partnership, or dissolv ing the partnership. These are similar to the
decisions that must be put to a stockholders’ vote in a corporation. The Revised
Uniform Limited Partnership Act, now accepted by most states, has widened
the range of decisions in which a limited partner may participate without los-
ing his or her status as a limited partner. However, this range is still deter-
mined by the language of the agreement and certificate for each individual
partnership.
Limited Liability Companies
An LLC which chooses not to appoint managers is operated much like a gen-
eral partnership. The operating agreement sets forth the percentages of mem-
bership interests required to authorize various types of actions on the LLC’s
behalf, with the percentage normally varying according to the importance of
the act. Although the LLC is a relatively new phenomenon, courts can be ex-
pected to deem members (in the absence of managers) to have apparent au-
thority to bind the entity to contracts (regardless of whether they have been
approved internally) and to expose the entity to tort liability for acts occurring
within the scope of the entity’s business.
An LLC that appoints managers is operated much like a limited partner-
ship. The managers make most of the decisions on behalf of the entity, as do
the general partners of a limited partnership. The members are treated much
like limited partners and have voting rights only in rare circumstances involv-
ing very significant events. It can be expected that apparent authority to act
for the entity will be reserved by the courts to the managers, as only their
names will appear on the Certificate of Organization.
LIABILITY
Possibly the factor that most concerns the entrepreneur is personal liability.
If the company encounters catastrophic tort liability, finds itself in breach of
a significant contract, or just plain can’t pay its bills, must the owner reach
into her or his own personal assets to pay the remaining liability after the
company’s assets have been exhausted? If so, potential entrepreneurs may
well believe that the risk of losing everything is not worth the possibility of
success, and their innovative potential will be diminished or lost to society.
Most entrepreneurs are willing to take significant risk, however, if the
amount of that risk can be limited to the amount they have chosen to invest in
the venture.