General partnerships are disliked as business entities because partners are exposed to all kinds of debt exposures. Limited partnerships may solve this problem.
The limited partnership is almost the same as the name implies. The business consists of one general partner and then a group of limited partners. The general partner is responsible for operating the business activities. People dealing with limited partnerships are essentially dealing with general partners and their employees. However, limited partners are in their own position.
Limited partnerships, like corporations or LLCs, protect against liability to limited partners. If the partnership is sued for something, the limited partner can not be named as a defender in the case. Oh, but there is a trade-off for this protection. In order to maintain the protection of liabilities, limited partners can not participate in daily work. In reality, this means that a limited partner is essentially a deep business pocket. They donate funds and make the business run, but I will not do anything else. You are often seeing this type of business used for restaurants and other high-risk business ventures.
What if you are considering investing in limited partnerships but also wanting to participate in business execution? Depending on the laws of your country, there may be a way to do this. It works this way. The limited partnership general partner will be transformed into a company. Afterwards, the limited partner will invest in companies in exchange for shares in corporate stocks. One or more limited partners may be hired by the company as an employee who helps to run the business.
This is a viable unique strategy in some states, but not in other states. Please obtain talented legal advice from your local lawyer before implementing it. If it is feasible in your situation, it can be a wonderful way to approach high risk business ventures.
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