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When the IRS Calls . . .

What DO you do when the IRS calls?

The Taxpayer’s Lifeserver is a step-by-step guide to what you can do yourself, and when you need a professional.

Limited Partnerships

Very Important Operating Instructions

A limited partnership has at least one general partner, usually a corporation or limited liability company, that is liable for all partnership debts. There must also be at least one limited partner, whose liability is limited to the amount the partner invested in the partnership.

In order to retain their limited liability status, limited partners must be passive investors. They cannot take part in managing the partnership. This requirement is the one most often misunderstood or overlooked by partners of limited partnerships with limited partners who do want to take part in running the business.

Example: Abricada Properties LP is a limited partnership whose general partner is Briash Management LLC, owned by Ashley and Briana. The limited partners are Ashley, Briana, Carlos, and David.

Ashley, Briana, and Carlos want to participate in running the business. David wants to be a passive investor who invests his money in the partnership, but not any of his time. What Ashley, Briana, and Carlos must do is manage Abricada’s business through Briash Management LLC. Ashley and Briana can each be managing members. Carlos, who does not have an ownership interest in the LLC, can be an employee of the LLC.

Business owners whose businesses are corporations or limited liability companies must always remember to sign business contracts as an officer of the corporation or member of the LLC. The limited partner who works for the partnership is one step farther removed. When Ashley signs partnership contracts, she does it like this:

Abricada Properties LP
by Briash Management LLC, General Partner

by: ______________________________

Ashley A. Leader, Managing Member
Carlos, not a member of the LLC, would sign in a way to make it clear that he is signing in his capacity as an employee, not as a limited partner:

Abricada Properties LP
By Briash Management LLC, General Partner

by: ________________________________

Carlos T. Employee, Assistant Manager