A limited partnership agreement must have at least two types of partners:
Limited Partner (Investor)
A general partner owns, operates, and assumes liability for the business. The limited partners don’t have any control over business operations and have very little liability. Limited Partnership agreements are the entity of choice for many law, accounting and finance firms.
It’s also popular among businesses that focus on time-restricted projects, such as real estate and film production companies.
“What Are The Pros And Cons of Having A Simple Limited Partnership Agreement?”
Here’s the deal: Like just about every decision ever made, there are advantages and disadvantages to forming a partnership. Before you make the big move to sign even a simple partnership agreement, make sure you are aware of what you are getting yourself into. Of course, should you have any concerns, seek professional advice before signing on the dotted line.
Fairly easy to get investors because they (limited partners) have limited liability
General partners get the money they need to operate while still maintaining control over business operations
Limited partners can leave anytime without dissolving the business partnership
Pass-through taxation- business profit and loss are “passed through” to the partners for reporting on their own tax returns
Investment potential: Limited Partnerships can generate capital investments by adding more limited partners.
If you are the general partner, you are entirely responsible for debts and liabilities.
It is more expensive to create than general partnerships.
“Give Me An Example!”
Don't choose your business entity blindly!
You might think to yourself: “I’m still not sure about when I might need to be a limited partnership”. Here is a simple example of how a limited partnership works:
Let’s say Kristen opens up a business with Julie. Kristen is the limited partner and Julie is the general partner. As general partner, Julie is in charge of the operations of the business.
Kristen, the limited partner, has no power to make decisions about the business and how it is run. However, she can take part in any MAJOR business decisions that may affect the ownership or the structure of the business.
For the most part, Kristen is an ‘angel investor’ and cannot act on any other decisions about the running of the business.
“How Will I Be Taxed As A Limited Partnership?”
As a part of the set-up process, you will need to register with the IRS, state, and local revenue agencies. You also need to obtain a tax ID number or permit.
The best part? The business itself, as a partnership, doesn’t pay income tax! Instead, profits and losses are passed through to the partners who are responsible for including their share of the income on their personal tax return.
Partnerships do need to file an annual information return to report income, deductions, gains, and losses for the business.
In the best case scenario, a partnership combines the talents and unique skills of like-minded entrepreneurs and results in a successful business.
With cooperation and a thorough understanding of the rules surrounding this business structure, a partnership may be the perfect choice for your needs.
“Who Should I Use To Set Up My Limited Partnership?”
We reviewed many of the business entity websites and came up with only two that will do a limited partnership- BizFilings and LegalZoom. We chose BizFillings hands down.
They have better customer support and fewer customer complaints online. Our user experience with them topped the more complicated website of LegalZoom. BizFilings has live chat which LegalZoom does not. This was another big negative for LegalZoom.
We believe that the benefit of chatting live with an agent is extremely valuable in this day and age of instant gratification. It’s almost essential when you have a quick question- boom, you have live access to someone who has answers for you!
LegalZoom does offer a three-payment plan. BizFilings MIGHT offer this if you ask. (We did not ask)
Simply do a live chat with an agent at BizFilings to find out!
BizFilings also offers free extras with all of their packages. A free 800 number, a free credit card reader and more.
Lastly, they offer ‘Biz Comply’ with all of their packages. This service automatically lets you know when important due dates are coming up so you don’t miss filing important documents.
The bottom line is that BizFilings is great for all of your Limited Partnership needs! If you are unsure if a Limited Partnership agreement is right for you, simply use their Incorporation Wizard to find out.