If you are thinking about starting or growing your business, you should think about which form of business entity you will use. As a business lawyer Memphis, TN uses to help navigate decisions such as this, we can help guide you in choosing the most advantageous form of legal business entity for your situation. We will help you in thinking through the practical and legal considerations.
The most important issues are the cost to create and maintain the entity, taxation, continuity of existence, ability to transfer ownership interests, management, control and exposure to personal liability.
Generally, the basic forms for a business entity include sole proprietorship, general partnership, limited partnership, limited liability company, and corporation. The choice of entity and the best ownership structure often involves many factors specific to a particular business, and, for this reason, you should consult an experienced business lawyer.
In this post, we will focus on the Limited Partnership. A limited partnership is similar to a general partnership in certain aspects and similar to a corporation in others.
Basic Characteristics of a Limited Partnership
In a limited partnership, there are limited partners and general partners. By complying with certain statutory requirements, the limited partners in a limited partnership have only limited liability for partnership debts, obligations and other liabilities. However, limited partners cannot participate in the management of the company.
Rather, the general partner manages the limited partnership. The general partner can also have personal liability for partnership debts, obligations and other liabilities.
What Happens if a General or Limited Partner Dies?
If there is at least one more general partner, the death or withdrawal of another general partner in a limited partnership will not result in a termination of the partnership. A limited partner is more like a shareholder of a corporation in that his or her withdrawal or death will not affect the continuity of the partnership.
Transferability of Ownership Interests
Usually, the ownership interest in a limited partnership held by a limited partner cannot be freely transferred because of restrictions in the partnership agreement of the limited partnership.
Limited partnerships are taxed similarly to general partnerships. Each partner must declare his or her share of partnership income or loss on his or her individual income tax return, which share is reported on a Schedule K-1 from the income tax return filed by the limited partnership.
If you need help with setting up your business, or if you’re thinking of changing the way your business is currently set up, contact the trusted business lawyer.
Thanks to our friends and contributors at Wiseman Bray PLLC who have significant experience in business formation and organization.