Limited Partnerships – The Pros & Cons

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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.

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