All business entities are formed pursuant to state law. In the case of an LLC, the laws may vary widely between the states. That is not true of a limited partnership. The limited partnership is formed pursuant to a Revised Limited Partnership Act which has been adopted by all the states of the country. An examination of the limited partnership act in, for instance, North Carolina will reveal it to be almost identical with the limited partnership act in Montana. Because of this fact, the limited partnership is one of the most stable of all entities. It has historical stability in that it has been around since 1916. All state and federal courts have examined and ruled on it and judges know how a limited partnership is operated and viewed.

The limited partnership provides tremendous asset protection. If a limited partner is sued, the judgment creditor cannot touch any of the assets owned by the limited partnership. They belong to the partnership and not to the individual. Therefore, they cannot be seized to satisfy the judgment. Additionally, the judgment creditor cannot apply to a court for an order to take the limited partnership interest from the judgment debtor. The court does not have the statutory authority to do this. All the court can do is issue a charging order whereby the limited partnership must pay the profits of the judgment debtor to the creditor. After the judgment creditor has received full satisfaction of the judgment, he/she is out of the picture and has never obtained any ownership interest in the partnership. And, to make matters worse for the judgment creditor, even if there is no distribution of profits by the general partner, the judgment creditor must pay taxes on the monies he/she would have received if there had been a distribution of the profits. Attorneys generally will not apply for a charging order because they know their clients will not recover any money under the order, and the clients will have to pay taxes on those monies. That would result in a malpractice lawsuit against the attorney, something they do not like.

Also, the limited partner is not liable for the debts of the limited partnership. The limited partner is a passive investor in the partnership. He/she has no management rights or responsibilities. Those rights and responsibilities are reserved for the general partner. Consequently, if there is a lawsuit against the partnership, the limited partner can, possibly, lose all of his/her investment into the partnership, but is not liable for any additional damages.

The general partner is, however, liable for the debts and obligations of the limited partnership. This is one of the weaknesses of the limited partnership. A lawsuit against the partnership can be collected from the general partner personally if there are not sufficient limited partnership assets to satisfy the judgment. The use of a C corporation as the general partner will eliminate this problem, for the general partner corporation will not hold any assets, so its seizure will not be a financial loss for anyone.

Contact CSS Nevada for additional information on the benefits of using a limited partnership in your asset protection structure.

Disclaimer: The content on this website has been prepared for informational purposes only. It is not intended to be nor do we constitute legal or tax advice. Each situation with relation to corporate and clients needs are unique and must be consulted directly on an individual (one to one) written contract basis with Corporate Support Services of Nevada, Inc. (CSS NEVADA). Content within website and videos are only examples of strategic asset protection strategies.