Overview of the Fundamentals of a Limited Family Partnership
A limited partnership has one or more general partners, and one or more
limited partners. The limited partnership's general partner(s) have
the same rights and liabilities as partners in a general partnership –
namely the right to manage the partnership. They also have unlimited personal
liability for partnership debts. Limited partners, on the other hand,
have no managerial authority. Their personal liability is limited to their
investment in the partnership. They are as insulated from partnership
debts in the same way corporate stockholders are from corporate debts.
But corporate stockholders can lose their corporate shares to their personal
creditors. Partners in a limited partnership cannot lose their limited
partnership interest to their personal creditors. This is the major difference.
General and limited partners in a limited partnership contribute money,
assets or services for their partnership interest. The general partner
has the complete authority to manage the limited partnership.
Since the general partner can incur liability for partnership debts, the
general partner should be a corporation or LLC so creditors of the limited
partnership can only pursue the assets of that corporation or LLC as the
general partner. The assets of the general partners, stockholders or members
would remain safe. The corporation or LLC, which owns only a nominal interest
in the limited partnership would then have only modest exposure. We can
protect the few assets owned by the corporation or LLC through other asset
Limited partnerships operate similarly to general partnerships. Limited
partners contribute cash or other assets to the partnership and receive
distributions based on their partnership interest. Limited partners, do
not directly control the partnership or its assets. Historically, limited
partners were silent partners. They did not want their identity revealed
and did not want to run the company. They simply wished to passively invest
in the business and receive a profit. Limited partnerships today seldom
involve anonymity (although anonymity may still be a desirable feature).
A limited partner cannot manage or give orders or directives to the general
partner, but can provide advisory opinions. A limited partner's name
should not be part of the partnership name, nor should a limited partner
create the inference that the limited partner manages the business. If
a general partner is also a limited partner, that individual would have
unlimited liability as a general partner.
Limited partners have the right to review partnership's financial and
legal records (as corporate shareholders can inspect corporate records)
as well as the names of other partners, their addresses, contributions,
shares in profits and losses, partnership tax returns and access business
records not considered proprietary.
General partners must also give the limited partners the tax information
needed to complete their federal and state income tax returns. Unless
the partnership agreement says otherwise, limited partners cannot be required
to add more capital to the limited partnership. Nor may one limited partner
have rights over any other limited partner. The limited partners voting
rights are specified in the partnership agreement and the Uniform Limited
Partnership Act (ULPA).
YES, YOU CAN LOSE EVERYTHING!
You may think that your wealth is safe and that you don't need protection.
But don't delude yourself and accept reality — for every 60
minutes you spend making money, spend 60 seconds thinking about how to