Limited Partnerships

A partnership with one or more limited partners, who do not have personal liability for the partnership's obligations, and one or more general partners who have active control over the management of the partnership business and who are personally liable for partnership debts. The death, bankruptcy, withdrawal, removal, or incompetence of a general partner dissolves the limited partnership unless the partnership agreement provides to the contrary or a majority in interest of the limited partners elect to continue the business (and they elect one or more general partners if there is no remaining general partner). A limited partnership with a corporation or limited liability company as general partner will have the same limitation of liability as a limited liability company and no additional gross receipts tax (but it will have two minimum franchise taxes).

How Formed? Form LP-1 (See the Appendix for a sample of the Certificate of Limited Partnership) is signed by the general partners and filed with the Secretary of State. (Filing fee is $70.00) Names of limited partners are not disclosed. All partners are required to enter into a limited partnership agreement.

Taxation: Subject to "minimum franchise tax" in California ($800.00). Otherwise, generally taxed as any other partnership. Heightened concern with the "substantial economic effect" regulations under Internal Revenue Code §704(b). Nonrecourse debt may be added to the basis of the limited partners' interests. Limited partners' shares of partnership income are generally not treated as "self-employment income" unless characterized as "guaranteed payments" or under certain other circumstances.