The Advantages of Limited Partnerships
Limited partnerships offer many advantages over other entity types, especially for businesses in which one partner wants to provide funding but not run the business on a daily basis. A limited partnership differs from a standard partnership because it has at least one general partner and at least one limited partner. A limited partner has no say in the day-to-day operations of the partnership, but usually they provide the bulk of the partnership’s funding. Limited partners do not face personal liability for the partnership’s debts beyond the loss of their original investment.
Making decisions may be much easier in a limited partnership than in other business types because the limited partners cannot participate in decision-making. The structure aids in raising money as well – if the partnership needs more funding, the general partners may sell partnership interests to investors, who then become limited partners. Thus, the general partners obtain more funding without giving up control, and investors may be more eager to spend money on the venture because they do not have to run it.
Further, limited partnerships require fewer formalities to set up and operate than corporations or some other entity types. Partners simply can reach an agreement to partner in a venture, file a Certificate of Limited Partnership with the California Secretary of State, then formally or informally make business decisions. Limited partners can transfer their partnership interests without the need to dissolve the partnership. The partners also can make agreements about transfer, dissolution, and continuity of the partnership agreement to their liking, for the most part.
Limited partnerships have straightforward taxation. The business’s profits and losses “pass through” the business to the partners, who are taxed on their individual income tax returns,based upon an IRS Form K-1 made for each partner after filing an IRS Form 1065 Partnership tax return.
In sum, limited partnerships are a common format for businesses with a specific, short-term goal and available investors who do not want to be involved. They are flexible and adaptable to specific business situations, with an ease of decision-making, taxation, and transfer of interests not present in many other business entity types. SeeCalifornia Corporations Code § 15900 et seq.
An experienced business attorney like Michael Leonard, Esq. of San Diego Corporate Law can help you evaluate which type of business entity is best for you. Named a “Rising Star” for 2017 by SuperLawyers, he has the experience and the insight to anticipate your business’s legal issues or prevent them before they arise. To schedule a consultation, e-mail San Diego Corporate Law or call Mr. Leonard at (858) 483-9200.