Partnerships are one of the simplest types of business structures. A partnership allows people to pool their resources, knowledge and abilities to join together to create a business enterprise. While partnerships have some benefits, they also have risks as well. Partners can be held personally liable for the debts and judgments against the business. Many people who are interested in becoming co-owners in a partnership are not comfortable taking on this risk.
Fortunately, there are options that make it possible to have an ownership stake in a partnership without putting all of your personal assets at risk. A limited partnership provides protections and limits the liability of some co-owners. To determine if a limited partnership is the right business organization for you, it is advisable to speak with an experienced San Diego business formation lawyer. Sepahi Law Group, APC can provide assistance with determining whether a limited partnership is the best solution and can provide advice on other business forms that may be right for you.
Understanding Limited Partnerships
Limited partnerships, or limited liability partnerships (LLPs) as they are frequently called, allow for some co-owners of a partnership to limit the risk of loss to the amount invested. When a limited partnership is created, there must be both a general partner and a limited partner. The general partner is actively involved in running and managing the business. The limited partner is an investor only, and does not play an active role. The limited partner does not work for the business or make decisions on operations.
The general partner in the limited partnership has full liability for losses, just as he would in a standard partnership or if he was operating as a sole proprietor. The limited partner, however, is not going to be held responsible if the partnership is sued or goes into debt. Even if the partnership goes bankrupt, the maximum amount that the limited partner can lose is the money that he invested in the organization.
Limited partnerships benefit the limited partner, but do not provide protection to the general partners. General partners are still jointly and severally liable for losses. This means that a general partner could lose his home or his other personal assets if the company gets into debt or loses a lawsuit. This, unfortunately, can occur even if the other general partners are the ones who incur the debt or who engage in wrongful behavior that leads to a lawsuit. Before entering into a limited partnership as a general partner, you need to understand this risk.
It may also be beneficial to explore other alternatives to limited partnerships that provide protection to all owners, rather than just to some owners. For example, a limited liability company (LLC) may be a better solution because all of the co-owners can limit their potential losses.
An experienced San Diego business formation lawyer can provide assistance with choosing the right structure for your business and with completing the required paperwork to get your organization started. Call today to schedule a consultation with Sepahi Law Group to learn more about how an attorney can help you.