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Limited Partnership

A Limited Partnership (LP) refers to a legal business structure that includes at least one General Partner (GP) and one or more Limited Partners (LPs).

  1. General Partner (GP): The GP is responsible for managing the day-to-day operations of the partnership, including making decisions related to the real estate investment, such as acquisition, financing, management, and sale. They have unlimited liability, meaning they are personally responsible for the debts and obligations of the partnership.
  2. Limited Partners (LPs): The LPs are typically passive investors who provide capital to the partnership but do not participate in the day-to-day management of the real estate investment. Their liability is limited to the amount of their investment, meaning they cannot be held personally responsible for more than the money they’ve put into the partnership.

Limited Partnerships are often used in real estate investments as they allow for a pooling of capital and expertise. The GP often brings real estate know-how, while the LPs contribute funds. This can enable investment in larger or more numerous properties than would be possible for an individual investor or small group.

The structure of a Limited Partnership also offers tax advantages. The income, gains, losses, deductions, and credits of the LP pass through to the individual partners, avoiding double taxation. This means that profits are only taxed at the individual partner level and not at the partnership level.

Investing in an LP also offers the benefit of diversification, as an individual investor can be part of a partnership that owns multiple properties, spreading the risk.

Limited Partnerships are governed by a partnership agreement, a legal document that outlines the rights, responsibilities, and obligations of the General Partner and Limited Partners, as well as the distribution of profits and losses. The agreement is vital to the functioning of the LP and is generally crafted with the assistance of legal professionals to ensure that it complies with applicable laws and regulations.