In the past few years, the Family Limited Partnership (FLP) has gained popularity as an asset protection, tax planning, and estate planning vehicle. A Family Limited Partnership is a partnership made up of family members. Typically, the parents are the general partners, controlling the partnership and making all decisions. The limited partners are often children or grandchildren who receive gifts of partnership interests.
General Partnerships
In order to understand an FLP, it is best to first understand a General Partnership. A General Partnership is formed when two or more people intend to work together to carry on a business activity. No local or state filings are required to create this type of partnership. This is different than a corporation, which does not come into existence until Articles of Incorporation have been filed with the Secretary of State.
The distinguishing feature of a General Partnership is the unlimited liability of the partners. Each partner is personally liable for all of the debts of the partnership. That includes any debts incurred by any of the other partners on behalf of the partnership. Because each of the partners has unlimited personal liability, a General Partnership is the single most dangerous form for conducting one’s business. Not only is a partner liable for contracts entered into by other partners, each partner is also liable for the other partner’s negligence.
Limited Partnerships
A General Partnership has potentially harsh consequences for each general partner. One way around the unlimited liability is a type of partnership known as a Limited Partnership. A Limited Partnership consists of one or more general partners and one or more limited partners. The same person can be both a general partner and a limited partner, as long as there are at least two legal persons who are partners in the partnership. The general partner is responsible for the management of the affairs of the partnership, and he has unlimited personal liability for all debts and obligations.
Limited partners have no personal liability. The limited partner stands to lose only the amount which he has contributed and any amounts which he has obligated himself to contribute under the terms of the partnership agreement. The Family Limited Partnership (FLP) is one such Limited Partnership.
For more information, please call our office
856-663-3800 for your FREE estate planning consultation
or visit us online:www.NJTrustLawyer.com
