--- goreebeth...@aol.com wrote: > I'm asking once again for information about forming partnerships- the > LEGAL does and don'ts about drawing up the agreements. Ray Goree > goreebeth...@aol.com >
I am a financial planner and my clients frequently use Limited Partnership agreements both for conducting businesses and for holding assets. I consider the Limited Partnership to be one of the very best structures for holding assets. Here are some of the basics. A partnership is two or more people (or legal entities) pooling capital in an effort to make a profit. There are two types of partnerships. General Partnerships and Limited Partnerships. General partnerships require very little formality and can under some circumstances actually be inferred to exist even in the absence of any written agreement. General Partnerships are very dangerous and should be avoided. This is because all the partners have the legal ability to bind the partnership financially. Each general partner also has unlimited personal liability for the obligations (debts) of the partnership. Unless you are related by blood or married to the other person, a General Partnership is extremely unwise from the standpoint of personal liability. The other type of partnership is the Limited Partnership. The exact details can vary from state to state but all 50 states have adopted some version of the Uniform Revised Limited Partnership Act. In general terms: 1. Limited Partnerships are created pursuant to the statutory laws of your state. 2. There must be a minimum of one General Partner and one Limited Partner. 3. The general Partner must be a resident of the state. 4. Usually partners may be juristic entities (e.g. corporations, LLC's, trusts, other partnerships, etc.). They are usually natural persons. 5. The General Partner(s) have all of the management and control while Limited Partners, unless they are also General Partners, are prohibited by law from participating in management. In layman's terms, Limited Partners are the proverbial "silent partner." 6. General Partners have unlimited liability under most circumstances. Some states do permit corporate General Partners. 7. Limited Partners' liability is limited to the amount of their contribution to the capital of the partnership. 8. Limited Partnership agreements need to be in writing. 9. You are required to file a "Certificate of Limited Partnership" with the Secretary of State of your state. (The form and fees & etc. are on the sec. of State web page for each state BUT NOT THE PARTNERSHIP AGREEMENT which you need to draft (or have an attorney draft if you are not sure). 10. Partnerships are transparent or "pass through" entities for federal income tax purposes. That means the Partnership pays no federal income taxes on it's income. It files a 1065 informational tax return. Profits (and losses if any) are passed through to the partners on a pro rata basis. That is usually the % they contributed to the capital of the partnership, but not always. 11. Partnerships are excellent for asset protection. A partner in a partnership is almost impossible to collect money from even if you win a lawsuit against one. However, the IRS has issued a Revenue Ruling that the party "winning" the lawsuit and obtaining a charging order against the partner has "constructive receipt" of the income WHETHER THEY EVER COLLECT IT OR NOT! They then owe federal income taxes on phantom income they never receive. The result is VERY few lawsuits against partners in partnerships. I hope all this is helpful. If you are confused, or did not understand much of this, by all means get an attorney to draft your agreement and file it with your Secretary of State. It is a relatively simple and inexpensive thing to do. Finally, I am NOT an attorney. Nothing in this letter is legal or accounting advice. This is only for information. If you have questions consult a lawyer in your state. The bar association, AOPA, EAA, and others may be able to direct you to a lawyer. If anyone wants to contact me off the list it is agat...@yahoo.com Good Luck, Dean Allen __________________________________ Do you Yahoo!? The New Yahoo! Shopping - with improved product search http://shopping.yahoo.com
