Continuity of Limited Partnership
Continuity of limited partnership is important to the partnership, a legal entity apart from the owner for legal purposes in a state.3 min read
Continuity of limited partnership is important to the partnership, a legal entity apart from the owner for legal purposes in a state. Different types of partnerships include:
- General Partnership — this is a partnership with partners in a general role. General partners are part of the partnership control and management and are each liable for partnership obligations. For example, a general partner would be liable for torts and lawsuits. Limited partners do not face the same obligations.
- Limited Partnership — this partnership is limited and general partners. General partners are involved in partnership management and are liable for partnership obligations. Limited partners, however, do not take part in the day-to-day management of the partnership, and they are not personally liable for partnership obligations such as torts.
- Limited Liability Partnership — a limited liability partnership is a partnership where each partner can participate in daily management, but without liability. It is similar to a company that is a limited liability business.
How Partnerships Are Formed
Partnerships such as general, limited and limited liability partnerships are agreements between partners. However, there are different rules and laws for the various partnerships. General partnerships are often formed without filing state documents.
Limited liability and limited partnerships require partners to filed certificates with the state. This requirement is necessary because a limited partnership is a special type of partnership. Limited partnerships are formed to permit individuals to form into a partnership that permits a flexibility of general partnerships while allowing any partners to have special rights, protections, and duties for the limited partners. Major highlights of limited partnerships are based on the organization's creation, maintenance, continuity, control, and personal liability.
Basis for a Limited Partnership
Partners must file limited partnerships with state governments. The partnership application must list the name, state the business purpose and contact information for all limited and general partners. The formation of general partnerships requires written agreements between all partners and must indicate if any partners are limited partners. Only one general partner is needed, but there can be several limited and general partners.
Any partners must be involved with initial filing processes and must update the information as needed. This may include updating any changes in ownership such as when partners enter or exit the partnership. When partners become general partners or limited partners, the records and filings require updating.
Continuity of Limited Partnership
Continuity of limited partnership is the same as in general partnership. Limited partnerships will always have partnership agreements and these include provisions managing business continuity and outlines what happens if there is an automatic event of partner disassociation, such as member's personal bankruptcy, death or withdrawal from the partnership.
Ownership is important to consider in limited partnerships. Both limited and general partners own the limited partnership according to the percentage given in the partnership. The default partnership rules concerning ownership do not apply to a limited partnership because it cannot function without a limited partnership that allocates ownership. The ownership interest allocated is based on the percentage of capital of either physical resources or funds.
Control in a limited partnership is the same as a general partnership. General partners have authority to act for the partnership. Limited partners cannot be involved in management. For example, an individual with limited partnership cannot exercise managerial control over any person or business activity. Legally, a limited partner who exceeds restrictions can lose the limited partner designation and be labeled a general partner, taking on responsibilities of a general partner such as being responsible for personal liabilities of the partnership.
Some states allow limited partners to take restricted roles in the business without becoming a general partner. These limited roles are serving as a consultant to the partnership, serving as a guarantor of partnership liabilities, voting on major partnership decisions, inspecting records, receiving returns of capital the partner invested and receiving a partnership reimbursement based upon ownership interest.
Finally, a general partnership is liable for debts and obligations for the partnership. In contrast, a limited partnership is not personally liable for debts and obligations. In limited liability partnership, no partners are personally liable.
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