Forming a Limited Partnership
-The Basics

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Are you considering participation in a limited partnership? Limited parterships have the advantage in that they provide limited liability for the investors…but also the disadvantage that there must be a general partner that takes on full personal liability for the business.

What is a limited partnership?

A limited partnership is a partnership that provides for limited liability of investors, who are typically called “limited partners.” Although there may be an unlimited number of limited partners, there must be at least one general partner, who has full personal liability for partnership debts and has most management rights.

How do I go about forming a limited partnership?

A limited partnership can be formed only by complying with the requirements of your state partnership statutes, or laws. Generally, you need to file a certificate of limited partnership with your state and have a partnership agreement. Also, it is typical to find that the name of your limited partnership must contain the words "limited partnership," without abbreviation. Limited partnerships have flexibility in taxation, in that they may choose to be be treated as partnerships, with pass-through taxation, or as corporations.

Advantages:

* limited liability to investors

* centralized management by management by the general partner(s) rather than all the owners

* flow-through tax advantages of partnerships, without the 75-investor limit of an S corporation

Disadvantages:

* investors generally do not have a say in management

* general partner has full liability

* Ownership not transferable at will, must have consent of other partners

Although the information here is generally accurate, it is important to note that every state has different requirements for business formation of any business type-sole proprietor, partnerships, corporations and LLC’s. Consult with your state’s laws or an attorney to ensure that you are following the proper procedures for starting a limited partnership.

Learn about Creating Strategic Partnerships Here!

Limited Partnership or Limited Liability Partnership?
Learn about Limited Liability Partnerships here.

Learn about General Partnerships.

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