Can a Corporation Be a Partner in a Limited Partnership?
Can a corporation be a partner in a limited partnership? Yes, a corporation can be a partner in a limited partnership as well as in a general partnership. 3 min read
2. Perks of Partnering With a Corporation
3. Some Partnership Exceptions and Limits
4. Corporations as Individuals in Partnerships
5. Limited Partnership and General Partnership
Updated November 9, 2020:
Can a corporation be a partner in a limited partnership? Yes, a corporation can be a partner in a limited partnership as well as in a general partnership. However, when it is a limited liability partnership, things can get a bit complicated owing to the legal requirements involved. For instance, different states have different corporate laws governing corporations, which are commonly referred to as “corporation codes.”
How the Law Sees a Corporation
One of the reasons a corporation can enter into a partnership is that a corporation is seen as an individual by the law and, as a result, is capable of doing most of the things an individual can do, some of which are below:
- Own property
- Buy property
- Sell property
- Receive profit from business
- Sue other parties
- Get sued by other parties
- Enter into partnership
Perks of Partnering With a Corporation
Making a corporation a partner may have some advantages in some circumstances because it possesses significant financial and legal protection for the people that run it. Again, a corporation can enter into a partnership with another corporation or an individual. In some partnerships, a corporation with a more active role may be included in the functions of the business, while other partnerships may include a corporation with the aim of helping to control the other partners' financial liabilities.
Another benefit of forming a partnership is the combination of various skillsets and resources of the partners. Again, the fact that corporations are usually made up of many shareholders makes it possible for a business to widely explore the resources of its partnership. Furthermore, if the leader of a corporation chooses to give up their office or dies, the partnership won't be affected because the corporation's board of directors can take over leadership.
Some Partnership Exceptions and Limits
As a general rule, a C corporation is permitted to go into a partnership. But, as it often happens in cases concerning corporate law, there are major exceptions. Some C corporations aren't free to join every kind of partnership, and only qualified individuals are permitted to participate in limited liability partnerships. S corporations, like every other corporation, can be partners in general partnerships.
Corporations as Individuals in Partnerships
In a partnership, corporations would be given various liabilities and responsibilities just like an individual in a partnership. Also, the government taxes corporations as they tax people. Alternatively, a corporation can be exempted from taxation. Corporations have been given the right, by the Supreme Court, to offer political donations just like a person would. However, the corporation isn't allowed to vote in elections.
Limited Partnership and General Partnership
Corporations and individuals can go into a limited partnership or a general partnership. In a general partnership, all partners, including corporate ones, operate the business on a daily basis. All partners are also equally expected to pay taxes, debts, and run other expenses. Limited partnerships, on the other hand, are different. Typically, investors enter into a limited partnership when they don't want to be actively involved in the daily, detailed running of the business.
The partnership is said to be limited because each partner's liability is limited. For instance, if a corporation plans on investing in a company that is starting up, the limited partners won't be expected to actively run the business on a daily basis. They won't also be expected to take responsibility for the debts incurred by the business. That's because the limited partnership offers them greater legal protection than a general partnership.
A general partnership isn't a legal structure. However, it's considered an official relationship between a set of people running a business together. Owing to the liability exposure that general partners have, the business of the general partners may decide to become a corporation. When they become a corporation, they are open to complete liability as general partners. But their corporation will protect them from personal shareholder's liabilities
Though a limited liability partnership offers higher legal protection, it gets a bit complex when a corporation is introduced into the business arrangement. Therefore, it's highly advised that you speak with a lawyer in your state to learn the precise laws in handling limited partnerships involving corporations as partners.
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