Some Limited Partnership Benefits
Under most circumstances, a limited partnership limits the personal liability of its limited partners. This means that a limited partner will not be responsible for the obligations of a limited partnership unless the limited partner is also a general partner or, in addition to exercising the limited partner's rights and powers as a limited partner, the limited partner also participates in the control of the business. When a limited partner participates in the control of the business, that limited partner will be liable to those persons who transacted business with the limited partnership if the limited partner's actions caused the creditor to reasonably believe that the limited partner was a general partner.
Using a limited partnership to conduct business can have tax advantages, depending on several factors, including the limited partnership's expected revenues, the salaries of the owners, and the current tax rates for corporations or individuals. This is because the limited partnership's income is usually taxed only to the partners rather than to the partnership. This differs from a corporation whose income is taxed to the corporation and, if distributed, to the shareholder. Although a business could achieve the same objective by incorporating and electing S Corporation status, there are restrictions in the election and effect of S Corporation status that do not apply to limited partnerships.
THIS INFORMATIONAL MEMORANDUM FROM THE LAW OFFICES OF THOMAS D. SOLOMON is provided as a courtesy to readers to provide them with items of interest in the limited partnership area. It is not intended to be an exhaustive treatment of its subject matter but rather an overview of some of the pertinent elements of such subject. It is not intended to be legal advice or a legal opinion and should not be relied on in making legal or business decisions. If you have any questions, please call.