Limited Partnerships: An Overview for Businesses in Chicago
When it comes to business structure and liability protection, the limited partnership (LP) is an option that is worth exploring3 min read
When it comes to business structure and liability protection, the limited partnership (LP) is an option that is worth exploring. Limited partnerships are a form of legal partnership that have been used for years by businesses of all sizes due to the liability and tax advantages that come with it. This article is directed at businesses in Chicago and provides an overview of the limited partnership structure, with an emphasis on local regulations and rules.
A limited partnership is a business organization composed of two or more partners who share control of the business with varying levels of involvement. The main advantage of an LP is that there is an unlimited number of partners who have resources and expertise in different areas, without necessarily bearing joint responsibility. The partners can be individuals, businesses, or other entities, such as trusts or foundations.
The individuals in limited partnerships are known as General and Limited Partners. The General Partner takes on the most responsibility, making financial decisions, signing contracts, and performing other actions on behalf of the LP. The other type of partner is a Limited Partner, who invests their money in the LP but does not actively have any management role. The Limited Partner is therefore legally limited to the amount of money they put into the LP in the form of capital.
In terms of management, the General Partner generally runs the day-to-day operations of the LP. Depending on the size and complexity of the LP, the General Partner may be required to hire additional personnel in order to meet their obligations. In terms of liability, Limited Partners are not liable for the debts and obligations of the LP, while the General Partner is liable for any claims or other losses brought against the LP.
In the US, limited partnerships are regulated by the Internal Revenue Service (IRS), the Securities and Exchange Commission (SEC), and other federal and state agencies. The individual state's laws will also determine the formation and structure of an LP. It is important to note that LPs are subject to certain taxes and regulations, some of which vary from state to state.
When it comes to forming an LP in Chicago, the first step is to choose a name for the partnership. This must be in compliance with the business filing rules set out by the Illinois Secretary of State. The next step is to draw up a Limited Partnership Agreement, which defines the rights and responsibilities of the partners, outlines a management hierarchy, and establishes the financial structure of the partnership. This agreement must be signed by all the partners and filed with the Illinois Secretary of State.
Although limited partnerships are a viable business structure for businesses within any sector, there are several circumstances where they could be especially beneficial. If a business has several owners with varying levels of involvement, as well as in the case of investment groups or joint ventures, an LP could be beneficial. Additionally, an LP can provide tax incentives for both companies and individuals.
When considering whether a limited partnership is the right business structure for a company in Chicago, it is important to seek the advice of experienced business lawyers. UpCounsel offers access to high quality attorneys that have a strong understanding of local regulations and laws. With profiles of online attorneys displaying client ratings and reviews, businesses can make an informed decision.
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