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.