Limited Partnerships—Pros and Cons
If you are considering a new business venture, you may be looking at setting up a limited partnership. Here are some of the advantages and disadvantages of this legal form:
The Advantages of a Limited Partnership
In a general partnership, the partners are “jointly and severally” liable for the obligations of the partnership. This means that each partner may be individually liable for the entire debt of the partnership, and that each partner shares liability with all partners for all debts of the partnership.
One of the principal advantages of a limited partnership is that a partner’s liability is limited to the amount of his or her investment. Each partner in a limited partnership makes an investment in the partnership in exchange for the partnership interest. If the partnership is sued, the partner may lose his or her investment, but won’t be personally liable for the debt. Conversely, if an individual partner is sued, the assets owned by the limited partnership are protected from seizure or attachment to satisfy a judgment.
A limited partnership enjoys the same tax benefits as a general partnership—the income earned in a general partnership passes through to the individual partner’s personal return. There is no partnership income that is separately taxable.
A limited partnership is also a separate legal entity, with the capacity to own property and to sue to protect its interests.
The Disadvantages of a Limited Partnership
The principal disadvantages of a limited partnership are:
- A significant increase in documentation and paperwork
- The general partner (all limited partnerships have at least one general partner) is still jointly and severally liable for the debts of the company
- A limited partnership typically must have regular meetings and file certain documents to comply with business laws
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At Barnard, Mezzanotte, Pinnie, Seelaus & Kraft LLP, we have protected the rights of individuals throughout Delaware since 1980. We offer a free initial consultation. To schedule an appointment, call us at 610-565-4055 or 302-594-4535 or contact us online.
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