Software Club 210: Light Red/Club_Software_210_Light_Red_Micro_Star_1997.iso/sba/f112.sbe

Text File | 1997-01-01 | 4KB | 81 lines

@037 CHAP 2

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      │LIMITED PARTNERSHIPS:  ADVANTAGES AND DISADVANTAGES│
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State law provides for a special kind of partnership, the
limited partnership, in which the limited partners have
limited personal liability.  The limited partnership entity
is more regulated than the common garden variety general
partnership, but it allows investors who will not be
actively involved in the partnership's operations to become
partners without their being exposed to unlimited liability
for the debts of the business if it goes under.  The limited
partner risks only his or her investment, but must allow
one or more general partners to exercise control over the
business.  In fact, if the limited partner becomes involved
in the partnership's operations, he or she may LOSE his or
her protected status as a limited partner.

@IF114xx]If you are a limited partner in @NAME,
@IF114xx]you will want to take particular note of the fact that you
@IF114xx]could lose your limited liability if you get significantly
@IF114xx]involved in partnership decisions, although some new state
@IF114xx]limited partnership laws are beginning, at last, to allow
@IF114xx]limited partners to have some input into certain major
@IF114xx]decisions of the partnership to protect their interests,
@IF114xx]without giving up their limited liability protection.
@IF114xx]
General partners in a limited partnership are fully liable
for the partnership's debts.  Every limited partnership must
have have one or more general partners as well as one or
more limited partners.  In other words, someone has to be
responsible to creditors, since the limited partners are not.

State law in each state requires certain formalities in the
case of a limited partnership that are not required for
other partnerships.  To qualify for their special status,
such partnerships usually must file a certificate of limited
partnership with the secretary of state or other state or
county offices.  Establishing a limited partnership also
will generally require you to have a written partnership
agreement, as a practical matter, in @STATE.

@CODE: CA
Note that while California generally treats limited
partnerships like other partnerships for tax purposes, the
state now imposes an annual minimum franchise tax (the same
as for corporations) of $800 a year on limited partnerships
doing business in California, regardless of the partnership's
taxable income or loss.
@CODE:OF

Limited partnerships have one important advantage over
general partnerships for federal income tax purposes:  A
limited partner's distributive share of the partnership
income is generally NOT treated as self-employment income,
and thus is not subject to the federal self-employment tax.
However, general partners in a limited partnership are
subject to self-employment tax, to the same extent as
partners in a general partnership.

A limited partnership may also enjoy a similar advantage
with respect to LLCs.  Unless an LLC is properly structured
so that some members are clearly not "managing members,"
then all LLC members, like general partners in a general
partnership, will be subject to self-employment tax on
their share of the LLCs self-employment income.

Note that with the adoption of limited liability partnership
(LLP) laws in nearly every state, it is now generally
possible to set up a partnership or register an existing
partnership with the state as an LLP, and thereby obtain
limited liability for ALL the partners of the partnership.
There is no danger of a losing your limited liability in
an LLP if you become involved in its management, which is
a further advantage of LLPs over limited partnerships.
Accordingly, it is likely that limited partnerships will
largely be supplanted by LLPs in the future, due to the
advantages LLPs offer in comparison to limited partnerships.