The current state of business and commerce has necessitated the corresponding development of various bits of legal jargon that can befuddle even the most hardened businessman. If poring through the endless litany of new words and terms to remember presents a formidable enough challenge for these seasoned veterans, what more to the novice or even the merely relatively inexperienced ones? Thankfully there are many online sources, this article just being one of them, that can help you sort through the jumble and hopefully make the process as pain free as possible. Many web sites have been developed to help you in these and many other important business matters, among them is the site “LegalZoom”.
First a definition: just what is a Limited Partnership Agreement and perhaps more importantly how do you set up one? Well the best way to explain this very simply is by comparison. A Limited Partnership Agreement has many characteristics in common with the more familiar General Partnership Agreement yet has the added benefit of still offering limited liability protection to some of the partners within the corporation.
One of the stipulations of the Limited Partnership Agreement however is that at the very least one of the partners must hold the position of general partner with corresponding unlimited liability. In addition, at least one of the partners must be a limited partner whose liability is limited to the amount of his or her investment. In this type of business arrangement (one that is becoming more and more popular in today’s multi faceted and varied business climate), the designated limited partners will serve to function as “silent partners”. To further explain their role, these limited partners will typically have the privilege of making a capital investment much in the same manner as passive shareholders from within a publicly traded corporation but with the added restriction that they would have no direct involvement in the actual management and operational decisions of the said business.
Another important distinction is that Limited Partnership Agreements will in the vast majority of cases allow for what has come to be called pass-through taxation, as its income is not normally taxed at the entity level. The clear advantage of course is that Limited partners can then use any of the losses incurred to offset other passive income when it comes time to fill up their tax return forms. In addition, General partners losses can be and in fact are typically used to shelter other income up to the value of their investment in the partnership. The reason for this last stipulation is because their losses are not usually considered passive.
One of the most popular reasons for embarking on a Limited Partnership Agreement is that it is especially useful and desirable in many types of businesses where a one time, limited-term project is the driving goal, good examples of these would be real estate ventures or perhaps the financing of a motion picture for the film industry. Limited Partnership Agreements have also recently come into popular usage as some type of estate planning.