A limited partnership is formed by filing a certificate of limited partnership with the California Secretary of State. Each limited partnership must have at least one general partner and one limited partner though it may have as many of each as it wishes. The general partner is responsible for the operation and management of the limited partnership. Unlike members in a limited liability company or shareholders in a corporation, the general partner in a limited partnership retains full liability for the obligations of the limited partnership. Limited partners, on the other hand, are not subject to the liabilities of the limited partnership so long as the limited partners truly do not participate in the day-to-day, ordinary management of the partnership. To the extent a limited partner does participate in the management of the limited partnership, the limited partner could be deemed a general partner and incur the full extent of the limited partnership's liability. Often the general partner in a limited partnership will be a limited liability company or a corporation. This provides the benefits of a limited partnership with a limited liability entity absorbing the liability of the partnership.
The limited partnership possesses the same advantageous pass-through tax treatment as a general partnership, but avoids the California gross receipts tax obligations of a limited liability company. You should always carefully discuss all tax implications with your certified public accountant or other qualified tax professional.
Limited partnerships are most often used where one person or organization will be managing the day to day operations of a business and the limited partners seek to merely serve as passive investors.
To discuss whether this business form is suited to your situation, please contact The Alvarez Firm to schedule an appointment.