The Port Law Firm in Florida often deals with business owners who are searching for the best way to protect their assets. As the owner of a company, you may be at greater risk of being held liable for various occurrences in both your professional and personal life. To avoid having your personal assets attacked should a business emergency occur, it is important to have a strong asset protection plan in place. While there are numerous options for protecting assets, a limited partnership may be the right choice for you and your company. Keep in mind that state laws and regulations differ, so speak with an asset protection expert to determine what options are available to you.
Your first step in determining if limited liability will offer you the best protection is to understand exactly what is meant by the term. Limited partnerships are formed under state law. The structure creates general partners and limited partners. General partners control the companies investments, distributions, and various decisions made by the business. General partners have personal liability for the debts of the company, but limited partners do not. Limited partners have only an investment interest in the partnership. It is possible for an individual to be both a general and a limited partner.
Asset planning often involves creating a family limited partnership (FLP). A reason for doing this is to change ownership of personal assets in order to maximize protection from creditor attacks. One spouse acts as the general partner, while the other spouse and children become the limited partners. Couples are able to reduce the worth of their estate by gifting assets to the children. Each state has different gifting regulations, so be sure to investigate yours before using this method. This also creates tax benefits like lowering the taxable value of the estate and creating tax neutral scenarios so you can move assets without tax consequences.
Corporate General Partners
Setting up a limited partnership can be complicated because there are a lot of options. An experienced asset protection attorney will be able to evaluate your personal goals and needs in order to determine what will work best for you. For some people, it is best to use a corporate partner as your general partner. This corporate general partner is sometimes classified as a limited liability company, further shielding him from liability.
The protection a limited partnership offers makes it advantageous for many business owners. When creditors attack a limited partnership, they request something called a charging order from the court. According to Ed Port of the firm, this order gives the creditor the right to seize profit distributions due to the partner, but not the partnerships’ interests. If the general partner decides to not make any distributions to limited partners, then the creditor cannot collect. Further, a creditor has no rights to inspect the books and records of the partnership.
Multiple Partnerships
For some people or companies, setting up more than one limited partnership is the right option. This enables attorneys to help you create partnerships with low-risk assets and separate them from your high risk assets. An example of this would be taking stocks, cash, bonds, and mutual funds and putting them into a single partnership. These assets present no risk. High-risk assets like boats and cars would be separated from the low-risk assets. Should one of these limited partnerships face problems, the assets that are part of the other partnerships will not be affected.
The downside of creating more than one partnership is the cost. You may be paying an attorney per partnership, so establishing several partnerships can add up. However, you must weigh the initial cost factor with the ongoing risk factor and determine what strategy will work best for you. Speaking with an asset protection specialist at The Port Law Firm is a great place to begin your planning.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
