Limited Partnership Case Study

Case 18-3: Limited Partnership The legal issue in the McBeth versus Carpenter case involves the question of whether James Carpenter’s purchase and selling of the Texas property, without notifying Sandra McBeth, constitutes a breach of fiduciary duties under the limited partnership contract. The rule of law in this case is the fiduciary duties of partners under the law of limited partnerships (LP). A Limited Partnership is a public and formal process that must follow statuary requirements. The formation of the LP contract must have at least one general partner and one limited partner along with a signed certificate of limited partnership (Cross & Miller, 2015). The general partner is responsible for management of the partnership and full responsibility

They can also vote on amending certificates, sales or dissolution of the partnerships as well as have the right of access to partnership books and information regarding partnership business (Cross & Miller, 2015). McBeth becoming a limited partner in StoneLake Ranch, LP proves that she is a limited partner with James Carpenter (Cross & Miller, 2015). As a limited partner under the LP law, Sandra McBeth has the right to place a vote on sales decisions such as whether the Texas property should be resold for a profit and the right to know the profit information gained from reselling the Texas property; which Carpenter withheld from her. If only Carpenter would have disclosed his interest of reselling the property to McBeth, regardless if she agrees or not, would free him from breaching the duty of loyalty

Starting a corporation with only $1,000 indicates that the start of the corporation was thinly capitalized. In addition to being thinly capitalized, Banco Panamericano Incorporation extended a large credit to Loop Cooperation after three years without any reason (Cross & Miller, 2015). On top of this, the Greenblatt’s family fully operates Banco Panamericano Incorporation and one of the cofounder of Loop Corporation, Leon Greenblatt, is from the Greenblatt’s family. This situation already suggests a potential conflict of interest, as the Greenblatts have a strong representation in both Loop Corporation and Banco Panamericano Incorporation. When the stock market crashed, Loop Corporation intentionally did not pay Wachovia the $1.89 Million they owed. When Loop Corporation had the opportunity to take out more loans from Banco, the money was not used to repay Wachovia, and yet was used to compensate Nichols and Jahelka; members of Loop corporation. This compensation was made without issuing any W-2 forms. This evidence demonstrates that the creation of Loop Corporation was setup to not make a profit, to mislead and trick entities like Wachovia to extend credit lines for the owner’s