Limited Partnerships for a Business

LP (Limited Partnership)

A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner.

The GPs are, in all major respects, in the same legal position as partners in a conventional firm: they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have joint and several liability for the debts of the partnership.

A limited partnership allows for pass-through taxation, as its income is not taxed at the business level. Income or losses are reported on the partners’ tax returns and any tax due is paid at the individual level. Limited partners can use losses to offset other passive income on their tax returns. General partners’ losses can be used to shelter other income up to the value of their investment in the partnership, since their losses are not usually considered passive.

Advantages of a limited partnership:

Limited partnerships are especially appealing to a business partnership where a single, limited-term project is the focus—such as the film industry, real estate or estate planning. Advantages of a limited partnership typically include:

  • Limited liability protection. Limited partners are not typically held responsible for business debts and liabilities.
  • Pass-through taxation. Income tax is not paid by the business. Profits/losses are reported on the partners’ tax returns, and any tax due is paid at the individual level.
  • Control over day-to-day operations. General partners in the limited partnership have full control over all business decisions.
  • Flexible management. Partners have more flexibility in management structure.
  • Fewer formal requirements. Limited partnerships face fewer formal requirements and paperwork than corporations.
  • Additional source of investment capital. Adding limited partners provides additional sources of investment capital without losing control, as with a business partnership.

How are limited partnerships formed?

In order to register a company as a limited partnership, formation documents must be filed with the appropriate state agency and applicable filing fees paid.

Types of Partnerships

An investment partnership is a type of business formation. It’s a partnership that’s generally structured as a holding company that’s created by individual partners or companies for investing purposes. These investments can be other businesses, securities, and real estate, among other things. 

A limited partnership is usually a type of investment partnership, often used as investment vehicles for investing in such assets as real estate. LPs differ from other partnerships in that partners can have limited liability, meaning they are not liable for business debts that exceed their initial investment. In a limited liability company (LLC), general partners are responsible for the daily management of the limited partnership and are liable for the company’s financial obligations, including debts and litigation. Other contributors, known as limited or silent partners, provide capital but cannot make managerial decisions and are not responsible for any debts beyond their initial investment. 

A general partnership is a partnership when all partners share in the profits, managerial responsibilities, and liability for debts equally. If the partners plan to share profits or losses unequally, they should document this in a legal partnership agreement to avoid future disputes.

Services we offer :

  • Name of partnership
  • Business address of Partnership
  • Registered agent’s Name and Address
  • Partnership’s Purpose
  • General Partners Names