Partnerships are a way to establish or reconfigure a business entity that allows two or more people to be participants in a business. There are two types of Partnerships: General Partnership and Limited Partnership.
A General Partnership is a business entity where all partners are active managers of the business. This means the partners actively participate in the roles of the business. General Partners are also personally liable in the business.
A limited partnership has at least one General Partner and at least one Limited Partner. Limited partners have limited legal exposure, while the General Partners are personally liable for the business.
Limited Partnerships and the Family Business
Limited Partnerships may be used by family run businesses where the family wants to include the younger generation in the business, but limit their control over the business while insulating them from personal exposure. Parents adding children as limited partners is a way to transfer wealth on a discounted basis. Transferring Limited Partnership interests will generally involve discounts for the lack of marketability for the interests in the entity and also a discount for the minority (“Limited” partnership) interest being transferred. These discounts allow for more value to be transferred to the children at a lesser transfer cost.