Limited Partnerships are a great way to bring others into your business as passive investors.
Bring in passive investors in a way that goes easy on your taxes.
The main reason you start a Limited Partnership is for tax planning, because Limited Partnerships are not taxed. Instead, the income from the business flows through the partnership without being taxed and on to the partners, who are taxed. That’s a benefit over a Corporation, which is taxed on its own.
Protect your investors from liability (but make sure you've got it set up right).
The Limited Partners are only liable for the debts and obligations of the partnership up to the amount of their investment. So if you put in $10,000 into the partnership as a Limited Partner, that’s the maximum liability you have unless…
…if the Limited Partners take an active role in the operation and management of the partnership, they will lose their limited liability protection and can be fully responsible for the debts and obligations of the partnership. Tip: it’s a good idea to have the Limited Partners be Corporations to give you extra protection.
Run your business with a General Partner.
You’ll need at least one General Partner, and that’s the partner who is in charge of managing the business and operations of the partnership. Since it takes on that role, the General Partner is also the one liable for the debts and obligations of the partnership. Tip: because of this, it’s best to make the General Partner a Corporation to give you more protection.
All of this means that Limited Partnerships are better suited for a passive investment style. They’re intended to be a way for others to invest in the business and earn a return on their investment, but without taking an active part in the business. Instead, the General Partner is left to make the business decisions and manage the operations.
Don't worry, it's not as hard as you think. We've made it easy to put the pieces together.
The most frustrating projects are the ones where you just don’t even know where to start. We get that. When you click on Make a My Document, our Limited Partnership Agreement Guide will walk you through how to set up your Limited Partnership with helpful tips at each step.
You can also save your document and continue later if you need to think about things. So, let’s go through it together step by step.
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