Limited Partnership

What is it?
A limited partnership is an arrangement between one or more general partners and one or more limited partners for the conduct of a business. A limited partnership is similar in operation to a general partnership, but the limited partners are generally not personally liable for the partnership’s debts and obligations in excess of their capital contributions. The general partner of a limited partnership remains personally liable for the partnership’s debts and obligations.

How is it formed?
Most states require the filing of a formation statement for a limited partnership, and the filing of annual or biennial registration statements in future years. In addition, a Partnership Agreement is also commonly prepared for a limited partnership to describe the economic obligations and voting rights of the partners, and the management procedures and responsibilities of the general partner.

How is it taxed?
The taxation of a limited partnership is the same as a general partnership. However, the “passive activity” provisions of the tax code may apply to the limited partner(s) to limit their ability to deduct losses, and the “self-employment” tax provisions may apply to the general partner(s) increasing their annual tax liability. Accordingly, these tax issues should be considered when determining if a limited partnership should be formed.

Who uses it?
Limited partnerships are commonly used to form “joint ventures” between existing businesses, to own and operate real estate, and for businesses that plan on raising capital from “silent” partners.