A family limited partnership can be used to transfer the vast majority (99%) of the shares in a business to family members (e.g., children) while enabling the entrepreneur to maintain absolute control over the business because of:

a. the IRS’ rules for family limited partnerships.

b. state laws for th…

Limited Partnership

Introduction

In limited partnership, limited partners have shares of ownership however, they do not take part to manage the partnership. They are neither liable for the amount which are greater than what they had invested in partnership. It contrasts to the general partners who play roles in daily operations of partnership, and are personally responsible for any liabilities of partnership. This paper therefore compares and contrasts the risks and benefits of being in a limited partnership in regards to corporate and partnership law.

In limited partnership, there tends to be some benefits or risks that a limited partner might face. One of the benefits of limited partnership for a limited partner is that, it is easier for the limited partnership to attract their investors since the capital that they invest in businesses is the liability for a limited partner. Limited partners on the other hand, benefits from the general partners by focusing the efforts they have in order for them to run the business. The limited partners also have the freedom to leave whenever they feel like, or they can be replaced with other people without the dissolving of the Limited partnership.

Other benefit of a limited partner is where, the partner benefits from simple operating structure. A partnership, as it is opposed to the corporation, seems to be simple to be established as well as, running it given that there are no forms which need to be filed or drafted. The partner only needs to file the certificate of partnership with the state office so as to register for the business name as well as, securing the license of that business. Because of that, annual filing corporation fees which are sometimes expensive are avoided when partnership is formed.

A limited partner also benefit in taxes advantage. In general partnership, there is flow of profit and loses from the business to the partners as compared to limited partnership, where taxes are levied on a limited partners’ income, though, a limited partner fails to experience the case, since they get to share the profits and losses as they participate in the business only (Stark, 2007).

A limited partner also benefits on liability limits in that, their liability for partnership’s debt is always limited to the money that individual partners contributes to partnership. This is different from the general partnership since any amount that is contributed usually becomes the asset of all the partners.

Another benefit of being in a limited partner is the benefit of flexibility. The decision can be easily made since the managers are the owners of the partnership when the business is small. It is different from the corporations where the shareholders, the directors, and the officers have some skilled knowledge of making decisions.

Conversely, there are some risks which a limited partner may indulge in when forming this kind of partnership. The limited partner may be risking in participating in limited partnership since they do not know whether there are chances of lack of making profit and whether there are clear guidelines that indicates who is doing what amongst the partners and how the business is to be conducted. The limited partner also risks given that there is no state regulations which are subjected to paperwork as compared to the general partnership (Goldstein, 2007).

The limited partner also risks on losing some benefits of limited partner status if they happen to take the active roles to conduct the activities of partnership, because of this, the general partners try to maintain the full personal risks. There is also a risk of a limited partner to just give out their capital contribution as it is provided in the agreement of partnership, however if the limited partners tends to participate in management of partnership business, the protected limited partner status may be lost and this makes it to become liable for all the risk (Haupt & Malange 2010).

Other risks include the risks of authority of partners. For example, when there is a contract and one partner happens to sign it, every other partner will fulfill it by bounding it legally. An example of this case is where by, one person who is in that partnership orders some computer equipments which are worth $ 5,000; it is as if his other partners placed the order too. However, if the business cannot afford to pay that bill, then the other members’ personal assets will be in line with the person who ordered for those computer equipments. This tends to be true even if the other partners are not aware of the contract (Goldstein, 2007).

References

Clarkson, K. W., Miller, R. L., & Cross, F. B. (2012). Business law: text and cases : legal, ethical, global, and corporate environment (12th ed.). London: South-Western Cengage Learning.

Goldstein, A. S. (2007). The limited partnership book. London: Garrett Pub..

Haupt, A., & Malange, N. J. (2010). Corporate law for commerce students: partnership, companies, and close corporations. London: Van Schaik Publishers.

Stark, K. J. (2007). Corporate and partnership income tax: code and regulations : selected sections (2007-2008 ed.). New York, N.Y.: Foundation Press.