A Limited Partnership (LP) is similar to a general partnership but offers limited liability protection to some partners. In an LP, at least one partner will have unlimited liability (general partner), and another partner(s) will have limited liability equal to the amount of their investment (limited partner). Limited partners act as “silent partners” much like passive shareholders in a publicly traded company. This partner has no involvement in any management decisions.
Pros and Cons of Limited Partnership Setup
Pros of an LLC:
Limited liability protection. Limited partners are not typically held responsible for business liabilities or debt.
Eliminate double taxation. Profits and losses are reported on the partners’ tax returns, and any tax due is paid only once at the individual level.
Control over day-to-day operations. General partners have full control over all business decisions.
Flexible management. Partners have more flexibility in management structure.
Fewer ongoing formalities. LPs face less paperwork and fewer formalities than corporations.
Raise capital more easily. Adding limited partners provides additional sources of investment capital.
Cons of an LLC:
Risk to the general partners: In a Limited Partnership, the general partners carry the burden of the entire business. If the company is sued or enters bankruptcy, all debts and liabilities are the responsibility of the general partners. Also, each general partner has the ability to make decisions on behalf of the company, and those decisions become the responsibility of all the general partners, while limited partners have no decision making power.
Loss of limited liability: Limited partners lose all of their limited liability if they participate in any management functions within the company.
Increased paperwork: While they are less complicated than running a corporation, Limited Partnerships have more filing formalities than a typical general partnership.
How to Start a Limited Partnership
To setup a Limited Partnership, documents must be filed with the state and all applicable fees must be paid. Let us help you get started >
