What is a special limited partnership? Many businesses opt to organize themselves as special limited partnerships because of the various tax benefits and protections they offer. This article will dig deeper into what a special limited partnership is and what its purpose is. Keep reading to learn more about this type of business organization.
What is a special limited partnership?
A special limited partnership is a legal entity that combines the features of a general partnership and a corporation. It offers the limited liability protection of a corporation while still allowing for the flexibility and tax benefits of a general partnership. It can also be defined as a business structure that offers certain tax benefits and protections not available to other types of businesses. In this case, a Special limited partnership (SLP) is typically used by real estate investors, venture capitalists, and hedge fund managers. This is because these business types often involve high-risk investments and need the extra protection that an SLP provides.
● General partners
Additionally, an SLP is a business organization in which there are two types of partners namely the general partners and limited partners. The general partner manages the day-to-day operations of the business and has unlimited liability for the debts and obligations of the partnership. This means that if the business gets sued, the general partner can be held personally liable for any damages. For this reason, the general partner typically has a lot of control over the business. They are the ones making the major decisions and are usually the ones with the most knowledge about the business.
● Limited partners
The limited partners, on the other hand, only have liability up to the amount of their investment and are not involved in the management of the partnership. This means that they are not held personally liable for any debts or obligations of the partnership. Limited partners typically invest money in the business but do not have a say in how it is run. For this reason, they are often considered to be passive investors.
What is the purpose of a special limited partnership?
● Limited liability protection
The main purpose of an SLP is to provide limited liability protection to the limited partners. This means that if the business goes into debt or is sued, the limited partners will not be held personally responsible for these debts. As a result, they will not have to worry about losing their personal assets, such as their homes or cars. Only the assets of the partnership, such as the property or investment portfolio, will be at risk.
● Tax benefits
The SLP also offers tax benefits to its investors. For instance, an SLP can pass on losses and tax deductions to its investors. This is beneficial for businesses that make high-risk investments as it allows them to offset some of their losses. In addition to this, the general partner can also deduct any losses from the business on their personal income taxes. On the other hand, the limited partners can defer paying taxes on their share of the profits until they receive the money.
An SLP can also choose to be taxed as a partnership or a corporation. This flexibility allows businesses to choose the tax structure that is most beneficial for them. For instance, if an SLP is taxed as a corporation, the business will have to pay corporate income taxes. However, if it is taxed as a partnership, the business will only have to pay taxes on the profits that are distributed to the partners. This means that the business can retain more of its profits.
● Raise capital
Another purpose of an SLP is to raise capital for investments in high-risk ventures while still providing limited liability protection to the partners. It is also used as a way to pool resources and expertise so that businesses can more easily make large investments. For instance, a group of investors might form an SLP to invest in a new real estate development project. By pooling their resources, they will be able to more easily finance the project and have a greater chance of success. More often than not, this type of entity can be used for businesses that want to raise money from investors, but don’t want to give up the management control that they would with a traditional corporation.
If you’re considering setting up an SLP, it’s important to seek professional legal and financial advice to ensure that it’s the right decision for your business. Rest assured that with a little bit of research, an SLP can be a great way to protect your business and its investors.