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You've probably been told at some point that you need an estate plan -- a will, power of attorney, etc. -- some directive of what is supposed to happen after you pass. But what happens to small businesses when an owner dies?
There are times when estate planning and small business law cross over. The family limited partnership is one of those times. It's a vehicle used by small businesses to manage the continuity of their business and to effectively plan for the future.
So, what is a family limited partnership and how can it help your small business?
All in the Family
The family limited partnership is a tight partnership that's held within a family. It's run by members of one family. Just like any partnership, it falls under the laws of partnership, both under state law and taxation law.
It's a limited partnership, which under state law means that it can have more than one class of partners. Typically, it would have general partners and limited partners. But it needs to have more than one member.
The general partner would be the overall manager, managing the investments and the overall operations of the partnership. The flip side is that the general partner shoulders the risk.
The limited partners don't have risk but don't have management responsibilities, either.
A family limited partnership holds assets and the partnership interests get passed down to future generations or younger members of the family. From an estate planning perspective, this is great.
But for business owners, the most beneficial part of the family limited partnership is the idea that the partnership can provide for the succession of a business to family members. The partnership agreement can designate the future ownership of the business.
If you need help created a limited family partnership for your small business, contact an experienced business organization attorney in your area.