Limited Partnerships

Question 1

What document, if any, creates a limited partnership?

Answer 1

The general partner files a certification of limited partnership w/ the state secretary of the state they will operate in.
LPs exist by virtue of state statute that recognizes 1+ partners as managing the business, while the rest participate only in terms of contributing capital or property.
LPs have at least one general partner (managing principal) & at least one limited partner (investing principal)

Question 2

Who is in charge of managing a limited partnership?

Answer 2

its general partner

Question 3

Are “big” & “small” decisions treated differently in a limited partnership?

Answer 3

The general partner of an LP makes decisions for the company.

Question 4

Who may own a limited partnership? Are there any restrictions?

Answer 4

Anyone above the age of 16 may own an LP. Families may own LPs as well.

Question 5

To what extent are owners liable for actions of a limited partnership?

Answer 5

Limited partners’ liability is limited to whatever the partner contributed to the partnership, so typically the general partner takes responsibility for damages.
Primary exception is if the limited partner engages in wrongful conduct on behalf the limited partnership & causes an injury resulting in damages and is therefore personally liable to pay damages to the injured party.

Question 6

Are some owners treated differently than others in a limited partnership?

Answer 6

Yes. General partners manage the business and are personally liable for any damages in the business within reason.

Limited partners may:
1. not participate in daily management of the business
2. not have authority to legally bind the partnership
3. not supervise employees
4. remain passive investors
5. engage in consulting
6. contribute expertise
7. access partnership info

Question 7

Absent an election, who pays tax on earnings of the business?

Answer 7

1. Limited partnerships do not pay corporate taxes
2. Tax is paid in accordance w/ each partner/s individual tax rate
3. General partner is responsible for filing an information return w/ taxing authorities

Question 8

What are family limited partnerships?

Answer 8

Basically a limited partnership that is used for estate planning for families of considerable wealth.
They enable generations to distribute asset (in the form of an IRS-recognized gift) to hairs using a method that allows them to claim a much lower market value.
Also help to avoid estate taxes after death.