Do Limited Partnerships Have To Be Registered?

The partnerships that limit personal liability for business debts.

Limited partnerships (LPs) and limited liability partnerships (LLPs) are both businesses with more ane owner, but unlike general partnerships, limited partnerships and express liability partnerships offer some of their owners express personal liability for business debts.

What Is a Limited Partnership?

In limited partnerships (LPs), at least one of the owners is considered a "general" partner who makes business decisions and is personally liable for business debts. But LPs also accept at to the lowest degree one "limited" partner who invests money in the business just has minimal control over daily business organisation decisions and operations. The advantage for these limited partners is that they are non personally liable for business debts.

The limited liability partnership (LLP) is a like business construction merely it has no general partners. All of the owners of an LLP have limited personal liability for business concern debts.

In society to better understand LPs and LLPs, information technology'southward helpful to compare them to general partnerships.

What is a General Partnership?

In the business organization earth, the word "partnership" ordinarily refers to general partnerships. A general partnership is a business concern that has more than one owner and that has non filed papers with the country to create a specific entity such as a corporation or limited liability company (LLC). (Click here to acquire more than nigh full general partnerships.)

In a general partnership:

all partners (called general partners) are personally liable for all business debts, including court judgments
each individual partner tin can be sued for the full corporeality of whatsoever business debt (though that partner can, in turn, sue the other partners for their share of the debt), and
each partner has "agency say-so" for the partnership -- that is, each partner tin bind the whole business organization to a contract or business deal.

How Are Express Partnerships Different?

A limited partnership has at to the lowest degree one general partner and at least one limited partner. The general partner has the same role as in a general partnership: controlling the company'due south mean solar day-to-day operations and being personally liable for business organisation debts.

The part of express partners, all the same, differs in a few ways:

Limited partners do non play an agile function in the business organization. The limited partners (virtually LPs have more than than one limited partner) contribute financially to the business organisation (for example, a limited partner might invest $100,000 in a real estate partnership) simply have minimal command over business decisions or operations, and commonly cannot bind the partnership to concern deals.
Limited partners are not personally liable. In return for giving up management power, limited partners get the benefit of protection from personal liability. This ways that a limited partner tin't exist forced to pay off business debts or claims with personal assets. A limited partner, all the same, can lose his or her fiscal investment in the concern.
Express partners face slightly unlike taxation rules. For income tax purposes, limited partnerships by and large are treated like general partnerships, with all partners individually reporting and paying taxes on their share of the profits each year. Express partners, as a dominion, do not have to pay self-employment taxes; because they are not active in the business, their share of partnership income is non considered "earned income" for purposes of the self-employment tax.

Limited partners demand to sympathize that they can become personally liable if they exercise not stick to their passive role. If a limited partner starts taking an agile role in the business organization, that partner's liability tin become unlimited. If a creditor can show that a limited partner took acts that led the creditor to believe that he or she was a general partner, that partner can exist held fully and personally liable for the creditor's claims.

Some states take carved out exceptions to this "agile role in the business organisation" rule. These exceptions commonly permit a express partner to vote on problems that affect the basic structure of the partnership, including the removal of general partners, terminating the partnership, amending the partnership agreement, or selling all or most of the assets of the partnership, without jeopardizing limited partner status.

What Is a Limited Liability Partnership?

Some other kind of partnership, chosen a limited liability partnership (LLP) or sometimes called a registered limited liability partnership (RLLP), provides all of its owners with limited personal liability. LLPs are particularly well-suited to professional person groups, such every bit lawyers and accountants. In fact, in some states LLPs are only available to professionals.

Professionals often prefer LLPs to full general partnerships, corporations, or LLCs because they don't want to exist personally liable for some other partner's problems -- particularly those involving malpractice claims. An LLP protects each partner from debts against the partnership arising from professional malpractice lawsuits confronting another partner. (A partner who loses a malpractice conform for his own mistakes, however, doesn't escape liability.)

Forming a corporation to protect personal assets may be besides much trouble. In addition, some states (including California) won't allow licensed professionals to form an LLC.

Limited Partnerships vs. LLCs

An LLC is like to a limited partnership in that it provides liability protection to the owners of the business, and the owners have flexibility in deciding how the business will exist managed. However, unlike limited partnerships, all of the owners of the LLC take limited liability protection. For more than information, check out LLCs and Limited Liability Protection.

In addition, states typically have dissimilar formation paperwork for LLCs than for LPs. Further, while partnerships use partnership agreements to delegate rights and responsibilities, LLCs use operating agreements to outline the internal operating procedures.

To learn more almost choosing between an LLC and an LLP, check out LLC vs. LLP: What Is the Departure?.

How to Create an LP or LLP

Creating a limited partnership or limited liability partnership is washed at the land level. Each state has its own rules, but in general, you must pay a fee and file papers with the state, usually a "document of limited partnership" or "document of limited liability partnership." This document is like to the articles (or certificate) filed by a corporation or an LLC and includes information virtually the general and limited partners. Filing fees for LPs and LLPs are similar to those for corporations and LLCs.

For more data on limited partnerships, including how to draft a limited partnership understanding, get Course a Partnership: The Complete Legal Guide, by Ralph Warner and Denis Clifford (Nolo).