In the course of doing business, you may have come across many ways of structuring your holdings. Corporations, partnerships, and joint ventures can all be useful depending on your circumstances and goals. These entities may work perfectly in situations where your business partners are at arm's length – but what about when mixing family and business? When family members want to work with you, it can be a great opportunity to raise capital, but you may be concerned that they will interfere with your decision making. The limited partnership structure is available to allow you to bring in your family as investors, without giving up control of your vision.
What are Limited Partnerships?
A partnership exists where two or more people are carrying on business in common with a view to making a profit. A limited partnership is a partnership that consists of one or more general partners and one or more limited partners. A general partner manages the operations of the business and has unlimited liability for debts of the company. A limited partner on the other hand, is generally liable for only the amount of capital they contributed and is not entitled to manage the operations of the company. These limited partner investors can also benefit from using losses from the business to offset against other sources of income for tax purposes in certain circumstances.
A key feature of a limited partnership is that it restricts limited partners as investors from managing the business. Under the Partnership Act, if a limited partner takes part in managing the business, they lose their status of having limited liability and could be liable as if they were a general partner. In this way, a limited partnership can attract capital from investors, without the general partners having to include them in the decision making.
Customizing Your Limited Partnership
To create a limited partnership, a certificate of limited partnership must be filed, and partners will enter into a limited partnership agreement. This agreement can be customized in ways to ensure that the needs and expectations of all parties involved are met. For example, the partners can agree on how they will raise more capital, and what powers the general partners have to grant security over the limited partnership's assets. The partners could also decide to have certain matters require approval from the limited partners before moving forward. These are just a few examples of many ways that limited partnership agreements can be customized for your tailored needs.
Conclusion
There are many different ways to create a limited partnership to meet the objectives of your business, as well as many technical requirements for setting up a limited partnership. With the complex nature of limited partnerships, it is advisable to seek tax expertise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
