What Is a Limited Partnership (LP)?

A limited partnership (LP) is a business structure where at least two partners own the company, but only one of them manages the business. The 澳洲幸运5官方开奖结果体彩网:general partner has full 澳洲幸运5官方开奖结果体彩网:liability for the business finances and is responsible for the actual 澳洲幸运5官方开奖结果体彩网:running of the business, while the other partner(s) only have limited liability up to the amount they invested. Limited partnerships are similar to 澳洲幸运5🔯官方开奖结果体彩网:limited liability partnership (LLP), but LLPs have no general partners.

Features of a Limited Partnership (LP)

Limited partnerships are often a simple way for individuals to combine resources in order to purchase assets like real estate. One person is the general partner who is responsible for managing the 澳洲幸运5官方开奖结果体彩网:business and its finances. Because of this, the general partner has unlimited liability. Onꦦ the other hand, limited partners do not involve themselves in the daily running of the business, so they're only liable for the amount of their investment.

A partnership might form when limited 澳洲幸运5官方开奖结果体彩网:partners bring money, property, skills or expertise to the business. However, once the limited partner has made their contribution, they must step back from the business or risk being treated as a general partner (and assume more liability). That said, limited partnerships are not usually taxed as corporations. Instead, they're 澳洲幸运5官方开奖结果体彩网:pass-through entities, so each partner reports the finances on their own 澳洲幸运5官方开奖结果体彩网:personal taxes.

Be aware that limited partnerships do not have to be permanent arrangements. For instance, if 🥀the partnership is investment-ba🧔sed, the partners might agree on a limited duration LP, so the partnership dissolves after the investments are liquidated.

While LPs offer great opportunities for individuals to pool resources, the structure can make it difficult for a partner to transfer their interest in the business to someone else. Specifically, they may need to get the approval of all other partners before making the deal.

Other Types of Partnerships

Limited partnerships have much in common with other types of 澳洲幸运5官方开奖结果体彩网:partnerships, but there are key differences, especially between general partnerships and limited liability partnerships.

General Partnership (GP)

Unlike an LP, where there is just one general partner, in a 澳洲幸运5官方开奖结果体彩网:general partnership (GP), all partners are responsible for 澳洲幸运5官方开奖结果体彩网:running the business and are fully liable. This also means all partners 澳洲幸运5官方开奖结果体彩网:share the profits equally unless a different arrangement is stated in the partnership agreement document.

You might see a type of general partnership called a 澳洲幸运5官方开奖结果体彩网:joint venture. This arrangement is made for a single project, so the partnership dissolves when the project is over. All the partners in a joint venture share liability.

Limited Liability Partnership (LLP)

As its name suggests, a limited liability partnership (LLP) is made up only of limited partners, who all have limited liability in the business. Unlike a limited partnership, there is no general partner, so all members can actively manage the business.

Limited liability partnerships spread the risk among partners, so one general partner isn't held fully responsible for debts and management decisions.

How to Form a Limited Partnership

Although there are regulations you must follow in order to establish a limited partnership, the process is fairly straightforward. Here's what you'll need to do:

1. Choose a State to Register In: You can register where you currently are, or research states that have the most advantageous taxes for your business and plan on registering there.
2. Pick a Name for your Limited Partnership: You must select a name not already taken. Usually, you'll end the name with "Limited" or "Ltd."
3. Write a Partnership Agreement: The 澳洲幸运5官方开奖结果体彩网:partnership agreement spells out each partner's rights, duties, and roles. Since you don't have to file this with the government, it's for your business use only. It should also spell out how the partners will share the profits and when the partnership might end.
4. Designate a Registered Agent like InCorp Services: When you select an agent, you allow them to receive business information and notifications, such as tax information and lawsuits.
5. File your Certificate of Limited Partnership: Each partner must agree to file the certificate with the state's Secretary of State office. The exact process will vary by state, so read the guidelines before heading to the office.
6. Obtain an Employer Identification Number (EIN): In order to file your federal taxes, you'll need an 澳洲幸运5官方开奖结🥂果体彩网ﷺ:employer identification number (EIN), which you can request from the .
7. Obtain all Required Business Licenses and Permits: Again, this varies by state and industry, but you'll need to get all the necessary permits and licenses before you start operating your business.
8. Open a separate Business Bank Account: To keep the 澳洲幸运5官方开奖结果体彩网:business finances separate from partners' personal accounts, you must set up a designated 澳洲幸运5官方开奖结果体彩网:business bank account.
9. Acquire Business Insurance: The general partner will want to purchase 澳洲幸运5官方开奖结果体彩网:business insurance to 澳洲幸运5官方开奖结果体彩网:protect the business against unexpected financial situations.

Advantages and Disadvantages of an LP

Some of the benefits of forming a li🃏mited partnership (LP) include:

• Limited partners have protection from financial risk.
• All partners report their income or losses on their personal taxes.
• The general partner actively manages the business.
• Relatively straightforward to establish.

However, the general partner accepts more risk than the limited partners. If the general partner needs additional support, limited partners cannot step in and help manage the business, or they'll lose their personal liability protection. It's also more challenging to transfer a partner's interest in the business should partners wish to adjust the roles.

LP vs. LLC vs. Corporation

It's easy to get limited partnerships confused with limited liability companies and corporations, but there are clear distinctions between each.

With a limited partnership, only the general partner actively manages the business but has unlimited liability. The limited partners invest in the company but don't manage the business and have limited liability. Conversely, every partner can provide input and supervision with an LLC. Because of this, partners in an LLC share the risk and liability.

Botꦜh LPs and LLCs differ from corpor𒉰ations, where instead of a general partner managing the company, a board of directors hires managers and oversees the running of the business. The board of directors is chosen by the shareholders, much like limited partners.

Both LPs and LLCs have pass-through taxation, meaning the profits get taxed as personal income. However, corporations must pay federal taxes on profits. Because of these requirements, it's more difficult to form a corporation than an LP or LLC.

The Bottom Line

Limited partnerships can help individuals to pool resources for a shared project. The risk to limited partners is only as much as their initial investment, which the general partner uses to run the business. Limited partnerships offer flexibility so partners can decide when to dissolve the partnership.