What is a limited partnership?

This is best explained through an overview of the various entities available to investors.

Shareholders own a Corporation, formed by filing a charter with a state government. The corporation is taxed on its income. The shareholders are only taxed on dividends paid to them by the corporation. Shareholders do not pay tax on the corporation's income. The shareholders only risk the cost of their investment in the corporation, they bare no responsibility for the general affairs of the corporation.

A partnership is comprised of two or more people or entities coming together for an enterprise, without any particular state charter. The partnership does not pay tax, but passes through all items of income and loss to the partners. The partners pay tax on partnership earnings. Each partner, unlike a corporate shareholder, undertakes responsibility for the entire operations of the partnership. If the partnership were to be sued and judged liable, each partner bares full responsibility for the damages. A corporate shareholder has no such direct liability.

A limited partnership combines corporate limited liability with partnership taxation. The limited partnership, formed by filing a charter with a state government, consists of a general partner and one or more limited partners. The charter details the rights and powers of the limited and general partners, percentages of ownership, and distributions of profits. The general partner manages the business. As in a corporation, the limited partners are passive investors liable only for the value of their investment. As in a general partnership, limited partnership income is taxed at the partner level, not at the entity level.

A limited liability company is a corporation that passes through income and loss to the shareholders but offers shareholders the same limited liability as a limited partner or corporate shareholder. You could say a limited liability company is a corporate version of a limited partnership.

How is my limited partner interest protected?

The Certificate of Limited Partnership must be recorded with the State of Washington as a public record. The Certificate refers to a Schedule A of the limited partnership agreement, which lists the names and percentage interests of the limited partners. The deed for the investment property is held in the name of the limited partnership. The deed is also of public record. This means the property cannot be sold, mortgaged or altered without complying with the terms of the limited partnership agreement.

For further information please contact:
Mathew Collins,
Ambler Collins, Eden House, 59 Fulham High Street, London, SW6 3JJ
Telephone: 020 7371 0213
Email: mathew@amblercollins.com

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