Reasons to Form a Limited Partnership, LP

Reasons for Forming a Limited Partnership

Forming a Limited Partnership may be an option for your business. You may recognize the acronym “ LP ” after a law firms partner names, real estate partners names or a physician's name. Often people do not use their names as the brand of their companies due to liability. An LP offers a number of additional shields and with the proper structure, LP's provide safety measures for the partners, different from other types of corporations.

The main reasons for forming a Limited Partnership are asset protection, lawsuit protection, credibility, tax savings, deductible employee benefits, anonymity, ease of raising capital, and creating a separate legal entity for personal protection. A Limited Partnership has a broad range of powers beyond that of a Sole Proprietorship . Additional shields vest in court by separating liability apart from business debts.

When forming a limited partnership , a separate legal person is created. He is a partner. As the head of the Limited Liability Company, the General Partner can control the limited partnership or the Limited Partners . With a Limited Liability Company having a Limited Partnership as a partner, the General Partner, the General Partner is protected from being personally liable.

Asset Protection

Lawsuits come from one of three directions: accidents (negligence), business (contract law) or personal (tort law). When a business is sued, there are provisions in the law so that either a Limited Partnership or a corporation can protect an individual from being sued personally (as long as the Limited Partnership has a corporation or Limited Liability Company as its General Partner).

However, when someone is personally sued, the Limited Partnership may provide better protection. A Limited Partnership has one or more general partners and one or more limited partners. A corporation has shareholders. Corporate law allows stock to be confiscated in a personal lawsuit. In contrast, there are provisions in the law such that when someone is personally sued, the partnership interest in his Limited Partnership may be protected from being taken away from him. This is one reason why the Limited Partnership has become a popular choice for owning assets such as real estate.

Anonymity

When an individual owns an asset in his own name, such as a business, an investment property or an automobile, it provides an easy target for anyone who is performing an asset search, which is what an attorney does before initiating a lawsuit. If no assets can be located in his name, this may decrease the chance that litigation will be pursued. Placing assets in the name of a Limited Partnership provides a cloak of privacy between the individual and those contemplating legal action against him. This privacy further is enhanced when "nominee" partners are listed.