A business limited partnership, though seemingly a complex term, means exactly what the title specifies. In business relations, business owners fall into one of two categories: general partner and limited partner. General partners retain the most financial and legal liability involved with the continued operation of a business or corporation, while limited partners attempt to mitigate their financial and legal liability through the limited partner position. Limited partnership patrons are only held liable for their personal investment in the company, whereas a general partner of a business or company garners unlimited liability when involved in a business limited partnership.
Business limited partnerships are used more often then not as a money making vehicle as the limited partner must file taxes separate from the general partners involved. Even though limited partners are associated with the general partners and the business as a whole, they are considered a separate taxable entity. All limited business partnership tax and asset earnings are filed with the individual state revenue departments as well as part of a federal income statement due to the unique state laws each state implement to cope with the earnings of limited partners in a business. Additionally, business limited partnerships also can avoid being taxed as corporations when meeting certain criteria as well.
The criteria for a business limited partnership to avoid taxation as a corporate entity includes:
- Having a centralized management
- Length or duration of the partnership
- The possibility of ownership being transferred
- Various state statutes, laws, and regulations
Additionally, a business limited partnership highlights the fact that the agreement of ownership can be overridden at anytime and that these business partnerships are not created by the partners but by statute. Another important caveat to note is that the requirements by each state’s unique laws may or may not promote an advantageous environment for business-limited partnership, as well as mandate more or less stringent reporting policies.
Associated with the business limited partnership is the limited liability partnership agreement recognized under United States law. Not all 50 states across the country have enacted the use of limited liability company law, however the ones that have are Arkansas, Colorado, Delaware, Florida, Georgia, Maryland, Nevada, Texas and Kentucky. Even in some of these states, there are restrictions on the types of business that can be deemed a business limited company partnership such as in Kentucky.
In order to form a business limited partnership, one must have all of the proper limited partnership forms, federal licenses and permits, register a name for the corporation, acquire an Employer Identification Number from the IRS, obtain a state ID number from the Department of Revenue, write a limited liability partnership agreement, and file a certificate of limited partnership with the Secretary of State. All of these steps must be followed without exception when filing limited company registration, and almost always will require the counsel of a business lawyer. Any business looking to form a business limited partnership has to file all the required paperwork and obtain all the required licenses and documentation prior to any benefits from business limited partnership beginning to take effect.
In a business limited partnership, the general partners operate daily operations of the business, while the limited partners are more of a silent or passive voice. Some of the more common forms that a business limited partnership takes include real estate venture, venture capital firms, and entertainment or dining owners. There are advantages and disadvantages to a business limited partnership. General partners take on the majority of the personal liability, and there often is significantly more paperwork, filings, and state requirements involved in this type of business partnership than other partnerships. The main advantages of a business limited partnership are easier attraction and incentive to involve investors, the lack of contractual length obligations for limited partners, and the retained rights of the general partners in the company.