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Limited Partnership

Limited Partnership. By Jack Gruca, Abbie Thomson, and Alex “Alex” Medrano. What is a Limited Partnership?.

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Limited Partnership

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  1. Limited Partnership • By Jack Gruca, Abbie Thomson, and Alex “Alex” Medrano

  2. What is a Limited Partnership? • A limited partnership is an arrangement where a person can help a business without being involved in the affairs of the partnership. If you are a limited partner, your liability to the firm is limited to the amount you invest in the company. To stay a limited partner, you take no part in the management of the company or act on behalf of the company. If you do this, you become a general partner.

  3. Advantages of a Limited Partnership • It is easy to get a profits from the business with minimal effort. • If the business does poorly, the limited partner is protected from legal issues. • Limited partners do not receive Self-Employment Taxes • Does not do any work for the business or businesses they’re partnered with • Sits back and makes bank • You can still have companied paid expenses such as a car

  4. Disadvantages of a Limited Partnership • If the business suffers a loss, each partner is held responsible for this. • This can be avoided if you start the business with enough partners to prevent one partner from having to take more than half of the business losses. • All of the partners aren’t protected from liability. While the general partner has all the power, they also has most of the liability. • There is a lot of paperwork required up front. The paperwork varies from state to state

  5. Disadvantages of a Limited Partnership • Because the limited partner is protected from the most of the liability, they are also limited in the role they can play in the running of the business. • It is difficult for the limited partner to withdraw the investment. • You have no say in the business or they become a general partner.

  6. Setting Up a Limited Partnership • First you need to obtain a Certificate of LP form • Local secretary of state offices have the forms available • They're also available online on a state’s website • After receiving the form, file it and pay the fee • You now have a limited partnership up and running • Here’s a website for the procedure for forming an LP in the state of Georgia http://sos.ga.gov/corporations/filing_procedures_lp_2001.pdf

  7. How are They Taxed by the IRS • Limited Partners and General Partners are taxed the same with little differences • Partnerships are considered “pass-through” entities • All profits and losses pass through the business and go to the partners who pay taxes on their share of profits • The share of profits are usually set up on a written partnership agreement • Partners estimate the amount of taxes they have to pay each year • The IRS collects payment every quarter (April, July, October, and January)

  8. How are They Taxed cont… • Every partner gets taxed on their share of profits whether they want to or no • There is no negotiating, It’s required by the IRS • If a partner did not receive their profits for that week, quarter, or year it will still be taxed • The IRS requires every partner to pay Self-Employment Taxes but Limited Partners • Limited partners aren’t actively doing anything for the business, but investing, their share isn’t considered “earned income” • So they don’t have to pay Self-Employment Taxes

  9. Examples??? • 1: Lawyers • 2:Accountants • 3:Real estate • 4:Film Industry

  10. Citations • http://www.investopedia.com/terms/l/limitedpartnership.asp • http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Partnerships • http://www.nolo.com/legal-encyclopedia/how-partnerships-are-taxed-29710.html

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