Understanding what a partnership is, in general, can help you comprehend what a limited partnership is.
A partnership is an arrangement of two or more people who run a business together for profit. A partnership is created when two or more participants in a business have the right to control the business and the opportunity to share in the profits. Then, the parties are referred to as partners.
General partnerships, limited liability partnerships (i.e., LLPs), and limited partnerships are the three forms of partnerships. The level of liability each partner may incur as a member of the partnership will depend on the type of partnership created.
An LP is What?
A limited partnership is a particular kind of business partnership that allows each member to get legal protection from personal accountability for the debts, losses, and breaches incurred by the entire company. Because it permits all partners to have limited liability, a limited partnership differs from other types of partnerships. This limited liability is based on how much each partner has invested in the company. A limited partnership enterprise is also managed by one or two partners, known as general partners.
In contrast, each member in a general partnership is jointly and severally liable for the losses sustained by the partnership. This can occasionally put partners at a disadvantage, particularly if they have a smaller role in the partnership or have made smaller financial contributions to the company than the other general partners.
Despite being referred to as a limited partnership, each limited partnership must include at least one general partner to be legally constituted. The limited partnership’s management decisions and day-to-day operations will be under the general partner’s control.
A limited partner can only be held accountable for the amount of their investment in the limited partnership and has only limited control over the partnership. As a result, they are primarily in charge of limited partnership investing tasks.
Is Withdrawal from a Limited Partnership an Option?
In contrast to a general partnership, a limited partnership allows a partner to leave the company without immediately dissolving it. This is merely one of the crucial characteristics that set a limited partnership apart from a general partnership.
Limited partners must notify the partnership and file the proper paperwork (i.e., documents related to the withdrawal) with the State when they intend to leave a limited partnership.
Contrary to a general partnership, where a partner’s withdrawal typically results in the dissolution (termination) of that partnership, a limited partnership requires the other partners to buy out the withdrawing partner. A general partnership may also end if one or more of its partners pass away or become disabled.
What Happens if I Have a Limited Partnership Dispute?
As was already mentioned, the degree of liability that can be attributed to each partner is one of the key differences between the three partnerships. This will make it easier to decide which partner should be held accountable for the partnership’s financial losses.
Limited partners often have liability limited to the amount of their contribution to the limited partnership. However, a partner will likely be held personally responsible for any harm or losses they caused if they acted outside the bounds of their responsibilities as a limited partner.
For instance, a limited partner may be held personally responsible for their activities if they pretend to be a general partner and begin making management decisions or acting in that capacity toward a third party.
On the other hand, it is more probable that the overall limited partnership will be liable for any injuries or losses that follow if the limited partner was acting within the bounds of its obligations, which are often outlined by the provisions of an entity’s partnership agreement.
In rare circumstances, a partnership’s several participants may be held jointly liable for the partnership’s debts or for paying a plaintiff’s damages award. This will rely on the specific circumstances of the case, the liability agreement made and signed by a partner and their partnership organization, as well as the facts of the individual case.
What Conditions Must an LP Meet?
The following conditions must be met in Arizona before an LP can be formed:
- File a Certificate of Limited Partnership: To create an Arizona Limited Partnership, the partners must submit a “Certificate of Limited Partnership” to the Secretary of State and pay a filing fee.
- Verify Your Limited Partnership’s Name: Additionally, the LP must be given a name, and you must confirm that it is both original and distinct from any other corporate entities or trademarks in Arizona.
No Written Consent Is Necessary Further than the Certificate of Limited Partnership.
No other written agreements are required to form a limited partnership.
Arizona law does not set a maximum for the number of partners, but it does mandate that limited partnerships have a minimum of one general partner and one limited partner.
What Documentation is Required to Form an LP?
The partners must submit a “Certificate of Limited Partnership” to the Secretary of State together with the appropriate filing fee in order to establish an Arizona Limited Partnership. The following must be stated in the certificate:
- The business title
- Office location
- Address of LP’s representatives
- Name and address of every LP partner
What Perks Does an LP Get in Arizona?
In Arizona, forming a limited partnership has a number of advantages. These advantages are:
- Limited Liability: Limited partners who create an LP and make financial contributions only have a limited amount of liability. This means that the limited partners’ liability in the event of bankruptcy would be restricted to the amount of money they contributed or invested in the business.
- Tax advantages: In an LP, the earnings and losses pass via the company to the partners, who each pay taxes on their individual income tax returns and receive a portion of the gains and losses. Less paperwork is required to form an LP than a corporation.
- No Annual Meetings: According to Arizona law, limited partnerships are not required to hold annual meetings, submit reports to the Arizona Corporation Commission, Arizona Secretary of State, or any other state agency, or pay any yearly fees.
What Drawbacks Do LPs in Arizona Face?
Limited partnerships do have some drawbacks in Arizona. Some of these include limited partnerships having fewer corporate decision-making rights than general partners. The general partners consider it a risk if they start participating in the LP. Additionally, limited partners typically must pay self-employment tax because, unlike the general partners in the company, their income is not considered for tax purposes.
Where Can You Find the Ideal Attorney?
The rules governing limited partnerships’ obligations and protection are complex. Each case’s facts and those of a limited partnership may be distinct. State-by-state variations in limited partnership laws are possible.
If you require assistance with the limited partnership regulations in your area, you should engage a local Arizona corporate attorney. You can get your lawyer’s help with filing, document creation, and partnership agreement negotiation. Additionally, an attorney can represent you in court if you need to file a lawsuit relating to limited partnership laws. Use LegalMatch to find the right attorney today.
