When forming a business, one needs to be aware of their options. Not all businesses look alike, and they certainly do not function alike either. Based on the needs, roles and goals of the business owner or owners, a business is formed to meet these needs the best way possible. In some cases, the best way to meet these objectives is to develop a limited partnership.
There are many benefits of having a limited partnership. While this also means that there are setbacks as well, the benefits might be appealing enough for one to consider this business formation over others. To begin, a limited partnership allows for pass-through taxation. This means that federal and state governments do not tax the partnership itself. Instead, it is the individual investors that report their profits and losses and are responsible for declaring this in their personal tax filings.
A limited partnership allows for the structuring of the business in such a manner so that the maximum personal exposure to losses can be known. This in turn makes it easier to raise capital. A limited partnership also allows for the ability to pool money from family and friends to make a major investment. This is perfect for situations such as starting a restaurant, building an apartment complex or acquiring an existing company.
There is flexibility with limited partnerships. This means you can customize an operating agreement, which is the contract used to govern how the partnership is run. It can also help with the allocation of profits and losses, ensuring that it complies with tax laws. Limited partnerships have the benefit of being managed in such a way that it can generate estate tax and gift tax benefits. A final benefit is the ability it has for hiring professionals to manage the partnership.
While there are many benefits to enjoy by starting a limited partnership, it is important to understand any disadvantages and drawbacks. This can help determine whether this is a right path for you. Seeking legal guidance will ensure you are well informed and have taken steps to protect yourself and the business you are starting.
Source: Thebalance.com, “Reasons to Form a Limited Partnership,” Joshua Kennon, April 7, 2017
