partnership and adds the protection of limited liability.
Under limited liability, a person who qualifies as
a limited partner limits his or her maximum possible legal obligation to the total amount of investment in the business.
In a limited partnership, there are general
partners and limited partners.
Limited partners do not face liability for
business debts.
They also have no control over day-to-day
operations within the business.
In a limited partnership, general partners
fulfill the same roles and perform the same duties as they do in a general partnership; they also face personal liability.
Limited partners are protected by limited
liability.
A general partner in a limited partnership
operates almost in the same way as a regular partnership.
They face extensive liability but counterbalance
that with the rights to conduct the business, including the right to make decisions affecting the course of the business without seeking approval from the limited partners.
Advantages of Limited Partnerships
it provides a vehicle for individuals to invest money in a business without the threat of personal liability for business losses and debts. Limited partners share in both profits and losses of the business, but only to the extent of their investment. The limited partnership structure also has important advantages when it comes to personal income taxes.
Tax Consequences of Limited
Partnerships
Limited partners are permitted to "pass through"
business losses on their personal income tax returns or pay income taxes on business profits.
If a business shows a loss, that loss may
actually improve the limited partners overall tax liability for the year.
The Limited Partner's Contribution
In order to enter into a limited partnership
agreement, the limited partner must invest in the company. This investment is normally referred to as a contribution.
The extent of the contribution reflects the
percentage of the limited partners rights to profits from the enterprise.
Although a limited partners contribution usually
comes in the form of a cash investment, the law allows other types of contributions.
The Uniform Limited Partnership Act is liberal on
the topic of what constitutes a contribution, so long as the contribution consists of something of value. (Revised Uniform Limited Partnership Act 101 1976 version.)
Creation of a Limited Partnership
A limited partnership comes into existence only
after complying with the strict statutory guidelines.
The most important of the statutory
requirements is the certificate of limited partnership.
The Certificate of Limited
Partnership
All states require that any business considering
operating as a limited partnership must file appropriate documentation with the state.
One of the most important of these documents is
the certificate of limited partnership.
The General Partners
The certificate of limited partnership must
also identify the general partners.
These partners must be listed by name
and address.
Limited Partnership Agreements
The individuals involved in the business will draft
an agreement called the Limited Partnership Agreement.
This agreement determines how the business
will be run and how profits and losses will be shared among general and limited partners.
Distribution of Profits
One of the most important elements of the
limited partnership agreement is the issue of distributing profits.
The profits distributed among the limited
partners are generally determined by the limited partners percentage of ownership in the business.
Limited partnerships can disolve by heir own
terms or by juridical interaction.
Once dissolved, there is a period of winding up
business affairs before profits can be distributed to the partners.