Limited Partnerships are a special form of partnership, often used where investors want the tax treatment that comes from a partnership relationship, without incurring personal liability for all of the partnership debts. Limited Partnerships (LP’s) consist of a General Partner, responsible for managing the business of the LP, and the Limited Partners, the silent investing partners that have no say in the business activities.
The main advantages of limited partnerships are:
Ø Limited partners have limited liability.
Ø Both Income and Losses are flowed through to limited partners.
Ø It is easy to attract investors to an LP.
Ø Allows for experienced general partners to use their expertise in running the business.
Ø Limited partners can leave without LP dissolution.
The main disadvantages of limited partnerships are:
Ø There are more filings, formalities, requirements with limited partnerships.
Ø It can be costly to form a Limited Partnership.
Ø General partners assume personal liability.
Ø Much due diligence is required before investing as you are trusting your money in the hands of the General Partner.
Both General Partners and Limited Partners can be corporations. There are many uses for Limited partnerships, including minimizing and deferring tax. If you have any questions on Limited Partnerships or other structuring questions don’t hesitate to contact us!
We’ll take a look at Partnerships next week!
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