When starting a business in Dallas, it’s important to understand the ins-and-outs of limited partnership (LP) definition so you can make the best decision for your business. A limited partnership typically consists of two types of partners: partners with unlimited liability and limited partners with, predictably, limited liability. Depending on the structure of the partnership, limited partners’ liability may be further limited. The individuals who serve as the general partner of the limited partnership assume full responsibility for the actions of their business.

However, understanding the definitions and parameters of an LP can be difficult without the right guidance. Whether you need a one-time consult or an entire freelance legal department, UpCounsel’s network of experienced lawyers has you covered. In the US, UpCounsel’s attorney network consists of some of the most experienced lawyers who understand local regulations and limitations regarding limited partnerships. Through UpCounsel, you can access high quality attorneys on demand and additional resources for your business.

When deciding what's best for you and your business, there are several things to consider when it comes to limited partnership definition. These are the five most important.

## 1. Taxation of the Partnership by the U.S. Internal Revenue Service

According to the Internal Revenue Service, limited partnership taxes are based on the income associated with the general and limited partners. For example, as noted by the IRS, the taxation of the limited partnership is also subject to the ordinary business income of the limited partnership. The tax returns that are to be filed by the limited partnership are additionally split between the income generated by the partnership as well as the income taxes due to the Internal Revenue Service. However, limited partners generally may not be liable for the partnership's tax debt.

## 2. Definition of Limited Partnership Agreement

The second important element to consider when discussing limited partnership definition is the limited partnership agreement. This is the document used to establish the roles, functions, and responsibilities of each partner in the partnership. The limited partnership agreement must also address a variety of topics, such as the rights of the partners, how the partnership will be managed, how the partnership's profits and losses will be distributed, how decisions are to be made, and what other partners are responsible for what activities. As with any business agreement, the limited partnership agreement should be written and signed by all partners in order to ensure the partnership's legal standing in the eyes of the law.

## 3. Role and Responsibilities of the General Partners

The general partners are the individuals responsible for the day-to-day operations of the partnership. This includes managing the business, drafting the limited partnership agreement, and making important decisions. A general partner is also obligated to handle the day-to-day functions such as recruiting new partners, collecting and distributing profits, and any other duties in service of the limited partnership.

## 4. Limited Partners' Roles and Responsibilities

The primary role of limited partners is to provide the necessary capital in order to fund the partnership. To protect themselves from personal liabilities, limited partners should not, in most cases, participate actively in the daily operations or management of the partnership. Additionally, limited partners may not engage in other activities such as borrowing money for the partnership or acting as a signatory on legal documents. That being said, limited partners may have some say in certain decisions and operations of the partnership, as outlined in the limited partnership agreement.

## 5. Dissolution of the Limited Partnership

When a limited partnership is dissolved, the funds and profits generated by the business must be distributed amongst the partners, after any debts or liabilities have been satisfied. Additionally, if the business has not been structured properly, the assets and liabilities of the partnership may need to be liquidated in order to pay off debts. Any remaining funds may then be divided amongst the partners as outlined in the limited partnership agreement; this process can be difficult if the partnership agreement sets no guidelines for dissolution or liquidation of the partnership.

By following the above steps, you can ensure that you understand the roles and responsibilities of each partner in a limited partnership. With the help of UpCounsel, you can also gain access to experienced lawyers who can guide you through the legal documents and regulations that are relevant to limited partnerships in your state. If you are looking for quality legal services, UpCounsel can provide you with a one-time consultation or a complete freelance legal department.

Understanding the limited partnership definition is key when forming a business. With the help of UpCounsel and the right guidance, you can make the best decisions for your business and ensure that it's in compliance with all of the legal regulations in your state.

Topics:

Limited Partnership Definition,

Limited Partnership Agreement,

Limited Partnership Taxes