Corporate Finance Tutorials
- Business Ownership
- Holding Company (Parent Company)
- Subsidiary Company
- Privately Held Company
- For Profit vs Nonprofit Organizations
- Public Company vs Private Company
- S Corporation (S Corp)
- Trust Account
- C Corp vs S Corp
- Non Profit vs Not for Profit
- Class Action Lawsuit
- Bank Draft vs Certified Cheque
- Front Office vs Back Office
- Entrepreneurship vs Management
- Corporation vs Incorporation
- Corporation vs LLC
- C Corporation
- Limited Partnership (LP)
- LLC vs Partnership
- LLC vs Sole Proprietorship
- LLC vs Inc (Corporation)
- Joint Venture vs Partnership
- Sole Proprietorship vs Partnership
- Types of Bankruptcies
- Chapter 7 vs Chapter 13 Bankruptcy
- Chapter 11 vs Chapter 13
- Bankruptcy vs Debt Consolidation
- Key Man Clause
- Proxy Vote
- Licensing Vs Franchising
- Private Sector vs Public Sector Banks
- Time vs Money
- Equity Capital
- Debt Capital
- Debt vs Equity
- Types of Credit Facilities
- External Sources of Finance
- Letter of Credit (LC)
- Line of Credit
- What is Money Market?
- Callable Bonds
- Mezzanine Financing
- Subprime Loans
- Leveraged Finance
- Microfinance Loan
- Stocks vs Bonds
- Loan to Value Ratio – LTV
- Loans vs Advances
- Lending vs Borrowing
- Imputed Interest
- Trust Account
- Cost of Refinancing
- Mortgage Banker vs Broker
- Mortgagee vs Mortgagor
- Best Money Market Books
- Cost Center Vs Profit Center
- Economic Order Quantity Eoq
- Buying Vs Leasing
- Mortgage Vs Hypothecation
- Lease Vs Rent
- Deficit vs Debt
- Internal Reconstruction Vs External Reconstruction
- Corporate Finance Careers
- Corporate Finance Interview Questions
- Corporate Finance Career Path
- Best Corporate Finance Books
- CFO Job Description
- Project Finance Jobs
- How To Get Into Project Finance
- Careers After Bfm Baf
- Jobs For B Com Graduates
- Finance vs Marketing
- Finance vs Consulting
- Career in Banking Sector
- Careers in Finance
- Careers in Commerce
- Career and Scope After B.Com
- Corporate Finance vs Investment Banking
- Corporate Finance vs Project Finance
- CEO vs President
- CFO vs Controller
- Director vs Executive Director
- BPO vs KPO
- Insurance Agent vs Broker
- Twitter Profiles To Follow In Finance
- Wall Street Movies
Source – Tribune star
What is a Limited Partnership?
The limited partnership is wherein two or more partners forms a business, with at least one general partner vs one limited partner, where the latter is liable only to the amount of capital invested. It is also known as a silent partnership or limited liability partnership.
Advantages of a Limited Liability Partnership
- Distributions – The income received is in the form of distributions. And the plus of having distributions is that part of it may be taxed as ordinary income, the part may be treated as capital gains, and part may remain untaxed if it is the return on invested capital.
- Limited risk – In case the business suffers losses or incur debt, the limited partner has to give up only the capital invested.
- Tax benefit – The limited partnership classifies as a flow-through entity, wherein the investor is taxed for the profit or losses made and not the business. This avoids double taxation, unlike stock dividends. Since the limited partnership is a passive income, the losses can be used to offset other such income.
- Passive Income – It has the scope for passive income because there are businesses which require investor’s money without ownership dilution. For example, a commercial real estate project, wherein the General Partner manages the entire project and the Limited Partner invest money and gets a return out of the finished project.
- Safeguards personal assets – A limited partner’s personal assets cannot be seized in case the business meets bankruptcy or becomes insolvent.
- No Managerial burden – In a Limited Liability partnership, it is the General partner who makes all the day to day managerial decisions and limited partner is only informed of all the business activities. For example, the general partner keeps the limited partner updated about all the financials but expects nothing more in return.
Example of Limited Liability Partnership
Let’s say, “X” runs a food café business and has “Y” as his partner. In this business, X is the general partner whereas Y is a limited partner. “Y”, has infused $1 million in the business as a capital investment. The money helps “X”, pay for his staff expenses and purchase raw material. “Y”, does not participate in running the business but receives monthly share out of the profits.
Therefore, Yearns a passive income from the food café business and X, keeps his limited partner updated about the finances and position of business but expects nothing more in return. Y’s investment risk is limited to the chance of food café business running into losses. Y is not liable for the business debt in case “X” fails to pay his suppliers. In nutshell, Y’s investment has a greater upside potential with the profit business makes but limited downside risk with the money he invests.
Difference between General Partnership and Limited Partnership
|Particulars – General Partnership vs Limited Partnership||General Partnership||Limited partnership|
|Definition||It is when partners agree to share all profit, assets, financial and legal liabilities of the business.||It is when the partner’s liability is limited to the amount of capital invested.|
|Profit sharing||Profit and losses are shared equally between the partners.||Profit and losses are shared based on the amount of capital invested.|
|Management||The general partner has complete control over the business and sits over the management.||No control over the management.|
|Personal Liability||The general partner is held liable for any debt incurred by the business, as well as their assets can be taken over in case of bankruptcy.||Neither their assets can be seized nor they face a debt burden of the business.|
|Legal power||General partners can legally bind decisions and deals.||No such legal power|
|Business structure||Simple||Complex, as it involves both types of partners – General and limited.|
With all said and done about the limited liability partnership, we can easily conclude that it is best suited when you are planning to start a business on your own and have friends or family members interested in investing money into it but not active there to participate in it.
Few examples of businesses where limited partnership works best are the real estate industry, small and medium scale business, professional knowledge ones like a lawyer and so on. And if you are looking for active participation as well as control in the business and don’t require to raise capital then the limited partnership is not the right choice.
So, it is a matter of what your objective is and resources available at your disposal before you plan a business.
This has been a guide to what is Limited Partnership. Here we have discussed the advantages and the difference between general vs limited liability partnership along with an example of a limited partnership. You may learn more about our articles below on corporate finance –