Limited Partnerships Between Corporate Entities Have Advantages
Partnerships and limited partnerships have many advantages over other types of business entities. Partnerships have one preeminent disadvantage, however — they lack a corporate shield that protects personal assets. However, partnerships can be formed by and between corporations and limited liability companies (“LLC”). When corporate partnerships are formed, the main disadvantage of partnership dissipates since the partners are legal entities that are already protecting the personal and family financial assets of the natural persons involved. For these reasons, a limited partnership might be the best business form for your next San Diego venture. If you are thinking of forming a partnership with another business in the near future, it is essential to retain experienced San Diego corporate counsel for advice and counsel.
A limited partnership is a partnership with one or more partners who are “limited” in terms of management and liability. In general, under California law, a partnership is any combination of natural persons or corporate entities that operate some sort of business for the purpose of making money. More specifically, the partners make the management decisions together, share in the profits (and losses) and are each individually liable for the business debts, obligations, and liabilities. With a limited partnership, one or more of the partners does not share in the management decisions and, therefore, is not held jointly and severally liable for the business debts, obligations, and liabilities beyond their investment in the partnership. This is the “limited” part of the partnership. In this respect, a limited partnership is similar to a manager-managed limited liability company where most members of the LLC have little or no control over the operation of the business.
Forming a limited partnership (“LP”) is straight-forward under California law. LPs are governed by the California Revised Uniform Limited Partnership Act. See Cal. Corp. Code, § 15900 et seq. Once the partners have agreed on the business purpose and the roles of the various parties involved, the limited partnership files a Certificate of Limited Partnership with the California Secretary of State. See Cal. Corp. Code, § 15902.01. The purpose of the Certificate is to put creditors on notice of the “limited-ness” of your partnership. Otherwise, creditors will incorrectly believe that they can seize the assets of any partner if a default occurs. An experienced corporate attorney should be consulted in forming a limited partnership to ensure that the filings are properly submitted and the limited partnership agreement is custom drafted to meet the needs of your business.
The name of the LP must be unique and must end with the words “Limited partnership” or the “LP” abbreviation. Beyond that, there are no “corporate formalities” such as annual shareholder meetings, the keeping of corporate minutes, board meetings, etc. The ease of formation is one of the main advantages of a limited partnership. In addition, there are these other advantages:
- An LP is automatically a “pass through” entity for taxation purposes;
- Once the limited partnership agreement is in place, adding additional limited partners is simple;
- Only the general partner is liable for judgments, liabilities, and obligations of the limited partnership; and
- An LP entity is dissolved with the filing of the proper form with the Secretary of State’s office.
Contact San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard’s law practice is focused on corporate, securities, contract, and intellectual property law for small and medium businesses in the San Diego metro area. Like us on Facebook.