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California Limited Partnership – Who Are The Owners?The California limited partnership is a solution to the problems of liability exposure found in general partnerships. Given the complexity of the entity, one might wonder who are the owners? Who Are the Owners? To understand the nature of the California limited partnership, we need to take a step back. The simple question is why would one not just form a general partnership for simplicity purposes? The answer is liability. General partnerships are very common. If two or more people form a business without designating a specific business entity, they are automatically considered a general partnership. From a tax perspective, this is a positive as the finances of the business pass through to their personal tax returns. From a liability perspective, however, there is a massive amount of risk. Why? Well, each partner is jointly liable for all the debts of the general partnership. If your partner gets drunk at a business meeting and then kills someone in his or her car, you are both liable for any monetary judgment. Your exposure includes your business assets and your PERSONAL assets. In short, a total nightmare. A California limited partnership gets around this by giving limited partners liability protection so long as the do not participate in the daily activities of the business. In practical terms, the limited partners are basically restricted to contributing money or assets and taking out a percentage of profits. So, who are the owners of the California limited partnership? Well, every limited partnership must have a general partner and then a number of limited partners. Each of these parties is an owner of the limited partnership. Their ownership interest is dependent upon how the business is set up and the contributions of each limited partner. In most cases, the general partner is given a minimal amount of ownership since it is exposed to liability, while the limited partners are given larger interests depending upon the amount they contribute. |
