Limited partnerships are formed by two or more individual owners associating to carry on a business for profit, and filing a certificate of limited partnership and affidavit of capital contributions. It would be a big mistake for two or more individuals to go into business together as partners without a written partnership agreement.
Assets are typically owned by the limited partnership and deployed in the business venture. Problems can arise when business assets are not properly designated as being owned or not being owned by the partnership. Care needs to be given to each asset used by the business to make clear who owns the particular asset in question.
Liabilities, such as for office supplies and the like, are generally owed by the limited partnership. In the event the limited partnership shall fail, the general partners are typically responsible for the unpaid debts of the business, and the limited partners are typically not responsible for any unpaid debts.
A limited partnership is operated under the name of the limited partnership. The owners may wish to use a business name different from the name of the limited partnership, and may protect the use of the business name by making a fictitious name filing with the Florida Secretary of State.
A new limited partnership can generally be created, and assets transferred to it, in a tax free transaction. The profits and losses from the operations of a limited partnership are reported on IRS Form 1065 for federal income tax purposes. The separate share of each partner is reflected on the Schedule K-1s to the partnership's tax return. The separate share is then reported on each of the partner's individual income tax return (Typically IRS Form 1040). The limited partnership must keep separate books and records for the partnership's financial activities. The State of Florida does not impose an income tax on the profits or losses of a limited partnership. The partners report and pay their respective shares of partnership profit and losses. If there is a corporate partner, the partnership must file an information return with the Florida Department of Revenue (Form F-1065).
A limited partnership obtains an Employer Identification Number for use with its business' bank accounts and employment tax returns. The collection and remittance of sales and use taxes, as well as ad valorem (property) taxes, are generally the same for any type of business entity, including a limited partnership.
A limited partnership may have real estate associated with its business operations. As with other assets, the limited partnership typically owns any real estate used incident to the business operations of the partnership. If the property is owned by one of the partners, another business entity or a third party, the limited partnership typically pays rent to the owner for its use of the real property. Limited partnerships are a very common form of owning and managing real estate.
Sale or Exchange
Limited partnerships typically own all of the assets used in the business, any sale or exchange of the business can be a sale or exchange of the assets and liabilities of the business or of the partnership interests.
Businesses operated as a limited partnership need to actively manage their business risks. The assets and liabilities of the business belong to the limited partnership, but the general partners can be responsible for any partnership debts. So it is essential that the limited partnership obtain appropriate insurance coverage (hazard, liability, workers' compensation, and the like). Any unexpected claims that are not covered by insurance can be the responsibility of the general partners. The limited partners, on the other hand, are typically not responsible for the partnership's debts.
The partner's interest in the limited partnership generally becomes part of the deceased partner's probate estate, and are ultimately distributed in accordance with the terms of the partner's last will and testament. Depending on the nature and extent of the business' assets and liabilities, it may be impossible for the heirs and other partners of the business to continue the limited partnership's business after a partner's death. As part of the written limited partnership agreement, it is very important for the partners to come up with a business succession plan that includes consideration of the death, disability, bankruptcy, retirement, and or other withdrawal of a partner from the partnership.
Dissolution and Winding Up
A limited partnership may continue under certain circumstances even in the event of dissolution. The partners should consider the income tax consequences to the termination and winding up before they decide to actually end the business operations.
Limited partnerships are generally used as the parent company in closely held family tiered business structures.
Additional resources provided by the author
Go to http://dor.myflorida.com for a summary of the filing and paying consequences of the various business entity choices in Florida. Or you can go to http://www.irs.gov for a summary of the filing and paying consequences of the various business entity choices for federal income tax purposes.