Limited Partnerships

Limited Partnerships

Designed to eliminate the risk of losing personal

assets to business debts and/or judgments.

Takes the basic arrangement found in a general

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.