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@037 CHAP 2
┌─────────────────────────────────────────────────────┐
│ LIMITED PARTNERSHIPS: ADVANTAGES AND DISADVANTAGES │
└─────────────────────────────────────────────────────┘
"A limited partnership is a business arrangement where,
at the outset, the limited partners have the money, and
the general partners have the experience, and at the
end, the roles are reversed. Try to remember that."
-- Jenkins' Eighth Law of Business Survival
State law provides for a special kind of partnership, the limited
partnership, in which the limited partners have limited personal lia-
bility. The limited partnership entity is more regulated than the
common garden variety general partnership, but it allows investors
who will not be actively involved in the partnership's operations to
become partners without their being exposed to unlimited liability for
the debts of the business if it goes under. The limited partner risks
only his or her investment, but must allow one or more general part-
ners to exercise control over the business. In fact, if the limited
partner becomes involved in the partnership's operations, he or she
may LOSE his or her protected status as a limited partner.
The general partners in a limited partnership are fully liable for the
partnership's debts. Every limited partnership must have have one or
more general partners as well as one or more limited partners. In
other words, someone has to be responsible to creditors, since the
limited partners are not.
State law in each state requires certain formalities in the case of a
limited partnership that are not required for other partnerships. To
qualify for their special status, such partnerships usually must file
a certificate of limited partnership with the secretary of state or
other state or county offices. Establishing a limited partnership
also will generally require you to have a written partnership agree-
ment, as a practical matter, in @STATE.
@CODE: CA
Note that while California generally treats limited partnerships like
other partnerships for tax purposes, the state now imposes an annual
minimum franchise tax (the same as for corporations) of $800 a year
on limited partnerships doing business in California, regardless of
the partnership's taxable income or loss.