Who Gets the Liability in a Limited Partnership

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Whenever you start a business, capital is always the issue. The next issue is who’s going to take the fall in the instance that the business fails. That’s an important part of how you’re going to get that capital because that is one of the things that investors will look at and consider before putting in any money in your venture.

As you know, there are many kinds of businesses but only a few of them will fit the earliest structure of your business. If you’re starting out on your own and you need capital, getting a partner in on the idea could help raise that capital. But there’s always the issue of risk. Who’s going to take the risk? Will one take more risks than the other?

The answers to those questions depend on the kind of business you intend to take. If you’re taking on a partner, it’s not possible for you to have a sole proprietorship, for example. You’re going to start looking into the kinds of partnerships you can register and still be recognized by your state as a legitimate business. There are different kinds of partnerships. But if capital is your main issue, a limited partnership is for you.

 

What Is A Limited Partnership?

It’s an agreement that only one person will take complete liability, while the other partners have limited liability. Here’s what that means:

  1. The person with complete liability means that they’ll have to incur all the debts that the company owns in the instance of bankruptcy. They’ll be the ones losing out the most if the business fails because they’re going to be assigned the liabilities of the business.
  2. On the other hand, a person with limited liability means that the extent of their liability is limited to how much capital they’ve put in or what their stake is in the company. They can only lose as much as they’ve invested, and what that’s worth in terms of stake in the company.

 

Why Are Limited Partnerships Great For Start-ups?

First of all, the main reason that they’re great for new businesses is that limited partnerships can fund businesses in their early stages, without the proponent having a major loss in the venture. Smaller businesses don’t have to take on all the risks because one of the workarounds the unlimited liability partner is to have a juridical entity take on that much liability. That means corporations or reputable mortgage brokers can help you start up your business.

For the juridical person taking on the unlimited liability, they’ll be taking on the most risk. Sometimes, it means that they’ll be a silent partner. Other times, depending on how the partnership agreement is written, they can help you run the business, especially on the financial end. It’s less for your business acumen to worry about, and less risk for you to get your idea off the paper.

Secondly, purchase orders can easily be given a line of credit if one of the partners has good credit. Given how one of the partners can be an existing, established business, that’s pretty likely. Even though it means higher risk for that partner because their credit is on the line, they’ll be able to benefit from it later on. They’re going to help you help them get rich.

Lastly, they’re only taxed once as an entity. Partners won’t have to file self-employment taxes. So that means you’ll have to pay fewer taxes than what a corporation will normally pay.

 

How to Start Your Own Partnership

It will help to look into what the Small Business Administration (SBA) has listed in terms of filing permits to start your own limited partnership. You can also read through the Uniform Limited Partnership Act of 2001 so that you’ll be well-versed in the legalities of a limited partnership, or you can hire someone to explain it better to you if you don’t have the time.

Make sure you get proper consultation before jumping into any business venture and before you shake any hands. The good thing about limited partnerships is that they’re not as formal as other business types, but they still need a partnership agreement to work. A partnership agreement will outline the responsibilities of each partner, and any other terms they need to agree on (including their stake in the business).

 

Starting small businesses can help the economy grow and provide jobs for Americans to help feed themselves and their families. It is a major risk for any one person to take. That’s why limited partnerships are usually the most ideal form of business for start-ups.

Meta title: Being in a Limited Partnership Without the Liability
meta desc: If you want to start a business but don’t want to completely go bankrupt in the end, a limited partnership could be the way to go. Read on to learn more about it.