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Limited Partnerships – The Pros & Cons

LP pic

There are a variety of different legal entities to choose from for your business. One that many partners consider is the limited partnership (LP). This type of entity is similar to a general partnership, but it provides the partners with separate and limited status. The primary benefit is that a LP can provide protection from liability.

It common for a LP to be used by businesses that want to partner on a single project or for a limited period of time. For instance, real estate development projects commonly use LPs. The general and limited partners work together on a construction project with the limited partners investing money while the general partners supervise the daily operations of the business venture. A LP is appealing to investors who want limited liability in order for them to invest their money.

Below are a few of the other benefits offered by forming a LP:

  • The LP contract is usually a privately signed document (not recorded or available to the public) and allows the parties and their agreement to remain anonymous
  • As a separate legal entity, the LP can own real property
  • Pass-through taxation benefits
  • Employee benefits can be deducted
  • Protection from lawsuits (If the entity is sued, the limited partners are protected or if the limited partners are sued, the LP’s assets can be protected).
  • Forming a LP assists with establishing credibility for the business

There are a few disadvantages of forming a LP. The general partner has the obligation to manage the business and is liable for the debts of the LP. Also, to form a LP and keep it in good-standing, you must fill out necessary paperwork as well as comply with certain corporate formalities. Finally, the authority among the partners of a LP is divided which can cause issues.

In order to form a successful LP, you need a detailed LP agreement. Let us help you draft your entity’s contract and properly maintain it once it is formed.

If you are interested in learning more about forming a limited partnership or any other type of legal entity, contact one of our seasoned attorneys to schedule your appointment.


Should Your Entity be a Limited Partnership?

Limited Business Partnership

Attorney serving Palm Bay, Florida

There are a variety of different legal entities to choose from when you are starting a business. The limited partnership (LP) is an important entity to consider if you want to have partners, but you want to be protected from liability.

The LP is typically used by businesses that want to work with a partner on a single project or for a limited period of time. In fact, the LP is commonly used in real estate development projects. The general partner is allowed to manage the daily operations of the construction job while the limited partners invest money. The LP is beneficial for investors who are interested in investing their money while having limited liability.

A few other pros of forming a LP include:

  • Anonymity can be maintained because the LP agreement is usually a private document
  • The LP is a separate legal entity that can own real property or other assets
  • There are pass-through taxation benefits, so profits from the LP are reported on the partner’s personal tax returns
  • Forming a LP can help with establishing legitimacy and credibility for the business
  • Employee benefits can be deducted
  • The LP provides protection from lawsuits. If a limited partner is sued, the property owned by the LP is protected. Additionally, if the LP is sued, the limited partners can be shielded from liability.

There are a few cons associated with forming a LP. The burden of running the business and the liability for the debts of the LP falls on the general partner. Also, in order to comply with the mandatory corporate formalities that keep the business in good-standing, you must keep up with a significant amount of paperwork. Finally, there is divided power among the partners, which can sometimes lead to difficulties.

If you are interested in learning more about forming a LP, contact Faro & Crowder, PA today.


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