How to Determine the Values of a Limited Partnership


Business structures are created by statutes or laws and vary by state. Limited partnerships represent types of unincorporated businesses that differ from incorporated businesses, like corporations, insurance companies, or non-profits. There are at least three types of limited partnerships available, all of which decrease liability among the partners. All partnerships are formed with two or more parties.

Determine the type of partnership that exists. For instance, a business could be formed as a limited liability partnership, limited partnership, or limited liability limited partnership. The key feature among limited partnerships as opposed to general partnerships is that limited partners are not personally liable for business errors or debts. Unless there is a specific contractual obligation, partners' assets, such as their homes or cars, will not be affected by the partnership's debts.

Calculate the partnership's fair market value. Although there is no precise way to generate the fair market value of any non publicly traded business, it essentially represents what a seller and a buyer would consider the partnership's total worth if the transaction was conducted at arms-length, without negotiations. For example, if a tire partnership was publicly traded and each of its 100 stocks were worth $100, then you could value the business at $10,000.

Assess the values of the partnership's assets. Calculate the price the partnership would receive if it sold all of its assets, such as equipment and property. Asset values differ significantly for a partnership that is a service industry versus one that is production oriented. Asset value calculations are similar to liquidation values, which occurs when a business closes and sells everything, though usually at a discounted rate.

Estimate the partnership's book value, which represents the equity or worth reflected in financial records. For example, if a partnership has $50,000 in total assets and $15,000 in total liabilities or debts, then assets minus liabilities equals equity of $35,000. While a book value calculation generates a figure, it typically does not reflect the optimal value, such as if you could sell your assets for $60,000 in the current market or settle liabilities for $10,000.

Consult with qualified professionals for further assistance. Accountants, investment bankers, real estate brokers and securities brokerage firms all can generate business valuations. Make sure to ask for credentials, which should highlight a professional's past experiences.

Tips & Warnings

  • Some partnership values will be greater in the future, such as if the business has surpassed a stiff learning curve. Thus, also estimate future stream of earnings.
  • There is no universal valuation method that will be accepted by all. When analyzing a partnership's valuation, ask about why a particular method was used; however, many partnerships will present different valuations, especially for potential buyers or investors.

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