What is a Family Limited Partnership?
It seems to be common to go into business with family. The fact that it happens isn’t such a surprise. But what you may not have known is that there is actually a specific type of business entity, especially designed for those who want to own a business, and go into business with, family.
What is a Family Limited Partnership?
A family limited partnership is a partnership where interest in the business is owned by family members. There must be an operating agreement, which will state how much of the business each partner or family member owns.
There are a lot of similarities between a family limited partnership and a general partnership. One such similarity is the types of partners; general partners have an ownership interest in the business, but they also are responsible for the daily activities of the company—essentially, running the business. They tend to own the most shares in the business.
Limited partners do not handle the operation of the partnership, and may do little or nothing at all—except investing in the business. With a family limited partnership, this can be a good way of involving a relative who wants to help in the business’ success, and make some money, but who doesn’t want to or who can’t actively work for the partnership.
Succession, Wealth and Estate Planning
One big advantage of a family limited partnership is succession. Because all owners are family members, if a partner dies, the new partner will presumably be another family member, or else, the remaining surviving partners/family members, will be able to buy out the interest and keep the partnership in the family.
Family members can also gift parts of or interest in the limited partnership to family members while still alive, which can have some estate planning tax benefits as well.
And of course, as the partnership does well, and thus, the partners individually do well, that wealth is being kept in the family.
In fact, one primary reason why people choose family limited partnerships is keeping wealth in the family; between family members who are partners, and the estate planning and succession benefits, a family limited partnership is a great way to ensure that the business provides for family for years to come.
Potential Drawbacks
One disadvantage to a family limited partnership, is that only family members can be owners. Yes, this is also an advantage. But if you wanted to include a non-family outsider with special expertise, or a close friend, or someone who wants to invest a lot of money, you may be restricted in how you can incorporate that person into the partnership.
There are some restrictions on how much of a partners’ personal assets may be at stake if the partnership owes money—partnerships get more protection than non-incorporated sole proprietorships, but not the full protections that corporations would receive.
Is a family limited partnership right for you? Call the West Palm Beach commercial litigation attorneys at Pike & Lustig today.
Sources:
investopedia.com/terms/f/familylimitedpartnership.asp
smartasset.com/estate-planning/family-limited-partnership
