What is a Limited Partnership (LP)?
THE BASICS
- PARTNERSHIP OWNED BY GENERAL PARTNERS (THE POWER) 
  AND LIMITED PARTNERS (THE MONEY). 
 
- GENERAL PARTNERS = ACTIVE MANAGEMENT + PERSONAL LIABILITY 
 
- LIMITED PARTNERS = PASSIVE OWNERSHIP (JUST PROVIDE FUNDING) + LIMITED LIABILITY 

- USUALLY HAS A LARGER POOL OF RESOURCES THAN A GENERAL PARTNERSHIP SINCE 
  LIMITED PARTNERS FEEL SAFER WITH LIMITED LIABILITY. 

- PASS THROUGH TAXATION - PROFITS ARE DIVIDED BETWEEN PARTNERS AND REPORTED ON         THEIR PERSON INCOME TAXES.
KEY FEATURES
  • A limited partnership is an incorporated business, that offers a little more asset protection than a general partnership. The business is owned by at least one general partner and at least one limited partner
  • General Partner - A general partner is involved with the day to day administration of the business, but is also personally liable for it. Their personal property is at risk if the business incurs a lawsuit.
  • Limited Partner - A limited partner acts as an investor, providing capital and sharing in any profits (and losses), but is not involved in the management of the business.

         WARNING: If a limited partner wants to maintain their limited                liability, they must not take part in managing the business. The more      "active" they become, the more likely they will be held
         personally liable in the event of a lawsuit
ADVANTAGES
  • Combining resources – The partners share in the financial responsibilities of the business, meaning that there is a larger amount of money to work with.
  • More Investors - Limited liability for limited partners is likely to attract more investors, as they know they will not be held personally liable for the business.
DISADVANTAGES
  • Unlimited Liability for General Partners – General partners all share the risk of personal liability. You are not only responsible for your own actions, but also the actions of other general partners.

    FOR EXAMPLE: If one of the owners makes a poor business decision resulting in a debt, the personal assets of all the owners may be used to pay for it. This means you could lose your home to a bad idea that wasn't even yours!
      
  • Limited Power for Limited Partners - Since a limited partner is essentially an investor, what they put into the business is at the mercy of the general partners.
TAXATION
  • Pass-through Taxation – Each partner's portion of the income generated by the business is taxed as their personal income.
  • Self-employment Tax - While the business itself is not taxed, all partners are subject to the taxes of both an employer and an employee. This results in owners paying double the amount in FICA taxes.
LIMITED LIABILITY LIMITED PARTNERSHIPS
  • Recent law changes have created variations of a Limited Partnership, called Limited Liability Limited Partnerships (or LLLP) which follow the structure of LPs, but offer enhanced protections for general partners.
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