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Limited Partnerships


Two or more partners conducting business jointly, with one or more liable only to the extent of the amount of money invested. Limited partners obtain direct access to income and expense flow.


What is a Limited Partnership?

Limited liability partnerships occur when two or more partners have joined to conduct business and one or more of the partners are only liable to the extent of the amount of money invested. While each partner is responsible for contributing resources like labor or property, limited partners have no voice or voting power when it comes to company decision making. They are sometimes referred to as “silent partners”. The general partner or partners are responsible for day-to-day operations of the company. General partners are also liable for the entirety of the company’s obligations and debts, referred to as unlimited liability.


Limited partners can be a valuable source of capital, and are a chosen method of organization for many law, accounting or finance firms. A limited partner’s income is not taxed at the business level, but rather passed through for personal tax reports. A company can also have more than one limited partner, allowing it to generate more capital investments.


When you invest in a limited partnership, you are purchasing limited partnership units (LP units). Tax rules and characteristics of LP units differ from stocks. Master Limited Partnerships (MLP) are the partnership units that are available for public trade. These partnerships require a contract, called the limited partnership agreement, between limited and general partners that specify the timeline for quarterly required distributions (QRD). These are similar to dividends, but are mandatory. A missed QRD constitutes an event of default.


Family limited partnerships are also a way for families to pool their money for investing. This may provide tax advantages and other benefits, but each family should carefully consider the disadvantages this investment vehicle may offer as well.


How to Invest in a Limited Partnership

Investors are encouraged to do adequate research or contact a broker/financial advisor, attorney or CPA to determine if limited partnerships are an appropriate investment. Once you have determined that a limited partnership is suitable for you, it can be purchased with your Self-Directed IRA or other retirement account at Mainstar Trust. Click here to find out how to use a Mainstar Trust account to invest in a Limited Partnership product.