10.1.20: Restrictions on the GPGP's Powers

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Abstract

The GPGP is usually granted plenary powers to deal with the partnership assets so that, as an attractive opportunity looms, the partnership is not faced with an officious lawyer on the other side questioning a manager's power to sign documents. However, certain powers are sensitive, particularly the power to borrow for purposes of leveraging partnership investments or to organize an SBIC, the latter implying the power and purpose to leverage due to the nature of SBICS.[1] So-called 501(c)(3) entities (e.g. educational institutions and foundations) may wind up with taxable income if their investments are leveraged, giving rise to "unrelated debt-financed income".[2] Hence, a prohibition on borrowing is ordinarily the price of admission for such nonprofit investors. Similarly, the use of certain trading strategies (e.g., short sales and commodities futures) are usually frowned on by nonprofit limited partners, since income from such activities may not qualify as income