SIMPLE LIMITED PARTNERSHIP: CHARACTERISTICS AND ADVANTAGES - DUDAS - 2024

A simple limited partnership is a partnership formed by a minimum of two partners: a limited partner, also called a manager or general, and a limited partner. The managing partners are responsible for the administration of the company, including all its personal and commercial assets.

A simple limited partnership is a form of partnership similar to a general partnership, except that while a general partnership must have at least two general partners. A simple limited partnership must have at least one limited partner and one limited partner.

Limited partners are responsible for the portion of the company's liabilities that is equal to their capital contribution to the company. The managing partners are in the same legal position as the partners of a conventional company.

These partners have management control, share the right to use company property and share the profits of the company in predefined proportions, but have full responsibility for debts incurred by the company.

characteristics

- They are relatively inexpensive and easy to create. It is essential to have a prior agreement on such a partnership to clarify managerial responsibility, ownership and distribution of benefits.

- It is managed by a managing partner with unlimited liability, backed by other limited partners whose responsibilities are limited to the amount of capital they have contributed as an investment in the company.

- The company name can be that of one or more of the managing partners, with an addition indicating that this is the name of a company. The company may also have a special business name. The name of any limited partner should not be mentioned in the name of the organization.

- It has relatively few operational formalities, low to medium administrative costs, and clear rules for increasing capital.

- They have no shareholders. Each limited partner has a specifically established interest percentage in the entity's income.

- Limited partners do not receive dividends, but are entitled to their share of the income.

- The managing partner is responsible for the total assets and liabilities of the company.

Use of simple limited partnerships

They are generally used for two main purposes:

Develop commercial real estate projects

In these, the managing partner is the manager of the project operation, and the limited partner is the investor who contributes the money to the company and obtains a return on the income stream of the project already completed.

A limited partner is a passive investor. Shopping centers and housing complexes are just a few of the typical projects that could be managed using a simple limited partnership.

To be used as an estate planning avenue

In this case, the managing partner is the parent who owns the assets (generally commercial real estate) and the limited partners are the heirs of the managing partner.

Simple limited partnerships are generally formed by individuals or corporations that wish to maintain 100% control of an asset or project, while including investors or heirs in the income obtained by the partnership. Therefore, they are also widely used in the film industry.

Advantage

- The financial strength of the limited partners is used together with the managerial strength of the managing partners.

- Limited partners have a limited exposure of their personal assets, since they are not fully responsible for the debts of the company but only up to the amount of money contributed personally by each of them to the capital of the company.

- Heirs can receive payments without having received the assets, which minimizes the consequences of the wealth tax, while safeguarding the flow of income.

- The managing partners have full control of the entity and its assets. Important decisions are made by the managing partner.

- Each partner, manager or limited partner can own any part of the business. There is no minimum or maximum capital contribution level for any partner.

- With regard to the number of partners, there is no limit on the number of partners that may be in the partnership.

- It is not required to publish financial reports. Only general financial information is needed to run the business and meet the needs of bankers, vendors, taxes, and limited partners.

- It is not necessary to file a separate tax return for the company. Each partner is personally taxed on her share.

Disadvantages

- Limited partners cannot intervene in the management of the company or in the decisions that are made, they can only keep themselves informed of the operation.

- The managing partners do not have any legal distinction. Your personal assets are unprotected. The personal assets of the managing partner can be seized to resolve legal claims.

- Has some limits on expense deductions. Taxable income is subject to the individual's personal tax rates.

- The partnership ends with the death or retirement of one of the partners.

- The company can only carry out commercial or industrial activities.

Example

Ben, Bob, and Brandi are partners in a bookstore called Brandi S. en C. Under their partnership agreement, Ben and Bob are limited partners. They are the investors and each of them contributed $ 50,000 to set up the store.

Brandi is a book expert; therefore, she is the one who runs the bookstore. Brandi is the managing partner, contributing $ 1000 of capital to the partnership.

After a year of operation, a bookstore was opened right next to Brandi S. Bookstore in C. As a result, the bookstore lost many customers.

Brandi has been in arrears for the bookstore rent for several months and has not paid the bills for the last three book shipments. In total, Librería Brandi S. en C. owes its creditors $ 200,000, and they have filed several lawsuits to collect that money.

How to collect the debt?

Creditors can request this payment from any or all of the partners. Because Ben and Bob are limited partners, neither of them can be held personally liable for more than the amount invested.

This means that Ben can be held liable for no more than $ 50,000, just like Bob.

On the other hand, Brandi is a managing partner. Your personal liability for business debts is unlimited, even if you've only contributed $ 1,000 of capital. Brandi can be personally sued for the total of $ 200,000.

If the creditors have already collected from Ben and Bob, she will be held individually liable for the remaining $ 100,000, with any of her personal assets, such as her car or other property, being liable to her.

References

1. Investopedia (2018). Limited Partnership - LP. Taken from: investopedia.com.
2. Business Development Bank of Canada (2018). Limited partnership. Taken from: bdc.ca.
3. Company Setup (2018). Simple Limited Partnership. Taken from: companysetup.ae.
4. Delaware Inc. (2018). What is a Limited Partnership? Taken from: delawareinc.com.
5. Devin Scott (2018). General Partnership vs Limited Partnership. Delaware Inc. Taken from: delawareinc.com.
6. Study (2018). What is a Limited Partnership? - Definition, Advantages & Disadvantages. Taken from: study.com.