What Are the Benefits of Limited Partnership?
A limited partnership occurs when two or more individuals form and operate a business. In a limited partnership, at least one person has to act as the company's general partner. Another person must act as a limited partner. A general partner has a responsibility for managing the company's daily affairs, while a limited partner has no involvement in the company's managerial affairs.
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Considerations
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When business owners form a limited partnership, a separate legal entity comes into existence that has a separate identity from the owners of the company. A limited partnership has the same powers granted to an individual. That means a limited partnership has the ability to sue or get sued, accumulate assets and debts, as well as enter into contractual agreements. The limited partner in the business has limited liability protection from company debts and obligations. In the case of a limited partner, he cannot lose his home, car and other personal assets as a result of his investment in the business. A limited partner's liability does not extend beyond the amount invested in the company.
Taxation
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An advantage of a limited partnership concerns the tax treatment that occurs. A limited partnership gets treated like a pass-through entity. This means that both the limited and general partners of the business report profits and losses from the company directly on their personal income tax returns. Income from the limited partnership may get divided among the partners in a different way each year in an effort to minimize each partner's tax liability. A limited partnership does not file taxes as a business entity.
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Raising Capital
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A limited partnership has an easy time attracting investors, since an individual can invest as a limited partner without risking his personal assets. Furthermore, investing in a limited partnership offers individuals the opportunity to earn a return without having direct involvement in the company's day-to-day affairs. With the investment capital provided by limited partners, it affords general partners the ability to concentrate on managing the operational affairs of the company, as suggested by the Legal Zoom website.
Other Benefits
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Having the expertise of more than one person at the company's disposal can work to the advantage of a limited partnership. Partners in a limited partnership can share the workload so that they have more time for personal interests. Another benefit of a limited partnership concerns the continuity of the business. The company can continue its operation in spite of a partner's departure. Furthermore, a limited partnership has a simple management structure that allows partners to respond quickly to a variety of business situations.
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