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What EB5 investors should know about company forms

Posted by attorney Linda Liang

General Partnership Partnership is established once two or more persons enter into agreement for profit. Partnership has the following characteristics: 1) Each partner is personally liable for business debts, taxes or tortious liability. For example, if a partnership defaults on a payment to a creditor, the partners' personal assets are subject to attachment and liquidation to pay the creditor. 2) By default, profits are shared equally amongst the partners. However, a partnership agreement may provide for the manner in which profits and losses are to be shared. 3) Each general partner is deemed the agent of the partnership. Therefore, if that partner is apparently carrying on partnership business, all general partners can be held liable for his dealings with third persons. 4) By default, each general partner has an equal right to participate in the management and control of the business. However, partnership agreement may designate certain partners to manage the partnership along the lines of a company board. Limited Partnership A limited partnership, as general partnership, has two or more partners. The difference is that some partners are general partners, some are limited partners. While general partner has unlimited personal liability, a limited partner's liability is limited to the amount of his or her investment in the company. LP's are creatures of statute since they must file with the state to form them. Because of the limited liability of limited partnerships, they often are used as vehicles for raising capital. The limited partnership is a separate entity and files taxes as a separate entity. Limited Liability Partnership An LLP allows all the partners receive limited liability protection. In a LLP, all the partners can take an active role in managing the day-to-day affairs of the business. In order to form LLP, an LLP must first register with the Secretary of State. An LLP formed in another state must register with the Secretary of State where they conduct business. Key Features The LLP is a flexible form of business. It is designed primarily for specific professional services. The partners will decide the structure of the organization and the distribution of profits and losses. A formal, written partnership agreement is advisable. An LLP does not pay income tax. The items of income, deductions, and credits "flow down" from the partnership to each partner. Each partner is responsible for paying taxes on their distributive share. The LLP allows each partner to actively participate in management affairs. The LLP provides limited liability protection to each partner. A LLP remains in effect based on partners agreeing to a termination date.

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