Monster Media 1996 #14/Monster Media No. 14 (April 1996) (Monster Media, Inc.).ISO/business/sba961.zip/F112.SBE

Text File | 1996-01-01 | 3KB | 64 lines

@037 CHAP 2

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      │LIMITED PARTNERSHIPS:  ADVANTAGES AND DISADVANTAGES│
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State law provides for a special kind of partnership, the
limited partnership, in which the limited partners have
limited personal liability.  The limited partnership entity
is more regulated than the common garden variety general
partnership, but it allows investors who will not be ac-
tively 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 limit-
ed partner risks only his or her investment, but must allow
one or more general partners 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.

@IF114xx]If you are a limited partner in @NAME,
@IF114xx]you will want to take particular note of the fact that you
@IF114xx]could lose your limited liability if you get significantly
@IF114xx]involved in partnership decisions, although some new state
@IF114xx]limited partnership laws are beginning, at last, to allow
@IF114xx]limited partners to have some input into certain major deci-
@IF114xx]sions of the partnership to protect their interests, without
@IF114xx]giving up their limited liability protection.
@IF114xx]
The general partners in a limited partnership are fully li-
able for the partnership's debts.  Every limited partner-
ship 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 limit-
ed 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
agreement, as a practical matter, in @STATE.

@CODE: CA
Note that while California generally treats limited partner-
ships 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 do-
ing business in California, regardless of the partnership's
taxable income or loss.
@CODE:OF

Limited partnerships have one important advantage over gen-
eral partnerships for federal income tax purposes:  A limit-
ed partner's distributive share of the partnership income is
generally NOT treated as self-employment income, and thus is
not subject to the federal self-employment tax.  However,
general partners in a limited partnership are subject to
self-employment tax, to the same extent as partners in a
general partnership.