Most people agree that families are an important part of society. Families provide a place for people to support each other in many ways, including personal growth and financial needs. Sometimes family members will even go into business with each other. One form of this type of business is the family limited partnership. For many, setting up a family limited partners offers some important benefits.
Making the Decision
Forming a family limited partnership may not be an easy decision. It’s important to consider all the consequences.
Using this type of business structure, people may transfer their wealth while reducing members’ taxable estates and protecting certain assets. The family limited partnership also takes advantage of the IRS annual gift tax exclusion. However, this may cause greater IRS scrutiny of your family limited partnership. Generally, a family limited partnership must be an actual business interest, not just a method of avoiding taxes.
Before making the final decision, family members may want to discuss other options with an attorney.
Forming the Family Limited Partnership
Once the decision is made, this type of entity is formed just like a regular limited partnership. The partners need to prepare and file a Domestic Limited Partnership Certificate with a county probate judge. A fee is required.
Alabama does not require that the partners prepare a written partnership agreement. However, having an attorney prepare a written document that sets out your partnership is generally a good idea.
Operating the Family Limited Partnership
A family limited partnership usually has two types of partners: general and limited. One or both parents may serve as general partner, making all management decisions. The limited partners generally do not manage the family limited partnership’s operations.
The general partner forms the partnership, then provides shares to the limited partners. Typically, the limited partners enjoy limited liability for the actions of the partnership. Instead, the general partner shoulders the liability, if any.
Will You Benefit from a Family Limited Partnership?
If properly set up, a family limited partnership may provide your family with benefits for years to come. If done incorrectly, you could be facing unintended and unpleasant consequences.
Call Bruce Adams. He has the skills and experience to help with your business concerns. Please contact us at 256-237-3339 to set up an appointment or use the convenient Contact form on our website. From our office in Anniston, Alabama, we represent clients in surrounding Calhoun, Cleburne, Etowah, and St. Clair Counties.