FLP by Estoppal

FLP by Estoppal

By: Martin M. Shenkman, CPA, MBA, JD

A family limited partnership (FLP) was formed, and it hired an investment manager. Years later, the FLP sued the manager for providing lousy advice. The manager moved to have the suit dismissed, claiming that the FLP was not properly formed, because the FLPs attorney failed to ever file the certificate of limited partnership that the family signed with the state. The court applied a theory of estoppal, in favor of the FLP. Estoppal refers to a legal concept that bars the making of a claim that contradicts previous conduct. In this case, the court held that since the investment manager had earned fees for years from the FLP, he could not now argue that the FLP was invalid. He was “estopped” from making his argument. The court held the partnership was valid, since both sides engaged in business in a mutually beneficial manner. The court extended the doctrine of corporation by estoppel to an FLP. Boslow Family Limited Partnership v. Glickenhaus & Co., 7 N.Y.3d 664 (Dec. 14, 2006). Hey, compare this real case to the estate tax FLP cases where the courts have seized on the miniscule violations of entity form to overturn FLPs and LLCs. Perhaps Judge Laro could be encouraged to ponder this case for a while (see Estate of Lillie Rosen).

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