Advantages of Limited Partnerships

Advantages of Limited Partnerships

Under Florida asset protection law, what does using limited partnerships to own assets that are not protected entail?

Florida asset protection law offers a range of strategies to safeguard assets, and one such approach involves using limited partnerships. These legal structures, governed by Chapter 620 of the Florida Statutes, allow individuals and entities to hold assets in a way that protects them from creditors while maintaining control over their management.

Limited partnerships include at least one general partner with unlimited liability and who manages the business and one or more limited partners who enjoy limited liability and passive investment roles. By holding assets within a limited partnership, the limited partners’ assets become more difficult for creditors to reach, as they cannot directly access the partnership’s assets to satisfy their claims.

One example of using a limited partnership for asset protection in Florida is real estate investment. Suppose a person owns several rental properties; they can transfer the ownership of these properties to a limited partnership, with themselves as the limited partner. This way, any liability arising from the properties derives only from the partnership, and the person’s personal assets remain protected.

Another example involves holding a family business in a limited partnership. The family members can become limited partners, while a trusted family member or an entity, such as a corporation or an LLC, acts as the general partner. This structure provides asset protection for the family members, limits their liability, and allows the general partner to manage the business.

Need help with a matter relating to using limited partnerships to own assets that are not protected? Schedule your consultation today with a top asset protection attorney.

Which Florida and federal asset protection laws and regulations relate to using limited partnerships to own assets that are not protected?

Florida and federal laws provide the legal framework for using limited partnerships to own assets not protected in asset protection matters.

Key statutes include Chapter 620 of the Florida Statutes, which governs limited partnerships through the Florida Revised Uniform Limited Partnership Act (FRULPA). Further, under Florida law, a prospective limited partnership must file a Certificate of Limited Partnership with the Florida Department of State to gain legal recognition. Furthermore, Florida’s fraudulent transfer laws, found in Chapter 726 of the Florida Statutes, regulate the transfer of assets into a limited partnership to protect creditors.

Section 702 of the Internal Revenue Code (IRC) also establishes the tax treatment of limited partnership income, deductions, and credits for partners. The IRC also specifies the rules for determining whether a limited partnership is a separate entity for tax purposes.

What are common issues regarding using limited partnerships to own assets that are not protected that lead to asset protection litigation?

The following issues are among the most common in actions regarding using limited partnerships to own unprotected assets in asset protection law matters:

• Fraudulent transfers: A transfer of assets to a limited partnership may be fraudulent if the transferor intends to hinder, delay, or defraud creditors. Creditors can challenge such transfers in court, potentially leading to an asset clawback.
• Piercing the partnership veil: Creditors may seek to pierce the veil by proving that the limited partnership was formed to commit fraud or was inadequately capitalized, allowing them to access the limited partners’ personal assets.
• Disputes among partners: Conflicts between general and limited partners can lead to litigation, jeopardizing the asset protection benefits of the limited partnership. Disagreements may arise from issues such as mismanagement or breach of fiduciary duty by the general partner.
• Tax liabilities: Limited partnerships are typically treated as pass-through entities for tax purposes, meaning that partners must report their share of income, deductions, and credits on their individual tax returns. Misunderstandings or misreporting tax obligations may result in disputes with tax authorities and potential litigation.
• Violations of securities laws: If a limited partnership issues interests to investors, it may be subject to federal and state securities laws. Noncompliance with these regulations can lead to enforcement actions and litigation.

When a set of facts meets the requirements of asset protection litigation, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

What strategies minimize the risk of litigation over using limited partnerships to own assets that are not protected?

To minimize the risk of litigation over using limited partnerships to own assets that are not protected, a prospective limited partnership should consider the following strategies:

• Ensure proper formation and registration: Register the limited partnership with the Florida Department of State and adhere to the requirements outlined in Chapter 620 of the Florida Statutes. Proper formation helps establish the legitimacy of the limited partnership.
• Maintain adequate capitalization: Ensure the limited partnership has sufficient capital and assets to meet its obligations. Adequate capitalization helps prevent creditors from claiming that the partnership was inadequately capitalized, which could lead to piercing the partnership veil.
• Draft clear partnership agreements: Create a comprehensive partnership agreement detailing each partner’s roles, responsibilities, and rights. This agreement helps prevent disputes among partners that could lead to litigation.
• Comply with securities regulations: If the limited partnership issues interests to investors, ensure compliance with federal and state securities laws to avoid enforcement actions and litigation.
• Monitor and avoid fraudulent transfers: Be cautious when transferring assets to the limited partnership to avoid claims of fraudulent transfers under Chapter 726 of the Florida Statutes. Consult with legal counsel to ensure that asset transfers are structured appropriately.
• Maintain accurate financial and tax records: Keep detailed financial records and report the limited partnership’s income, deductions, and credits accurately to the Internal Revenue Service, as required by IRC Section 702. Proper record-keeping helps avoid tax disputes and potential litigation.

Frequently Asked Questions

1. Can a creditor access a limited partner’s personal assets in a Florida limited partnership?
   Generally, a limited partner’s personal assets are not at risk in a Florida limited partnership, as their liability is limited to the extent of their investment. However, if the limited partnership veil is pierced due to fraud, inadequate capitalization, or other reasons, a creditor may gain access to a limited partner’s personal assets.
2. How is a Florida limited partnership taxed?
   Tax authorities treat a Florida limited partnership as a pass-through entity for tax purposes. The income, deductions, and credits of the limited partnership flow through to the individual partners, who then report these items on their personal tax returns, as specified by IRC Section 702.
3. What happens if a Florida limited partnership fails to register with the Florida Department of State?
   If a limited partnership fails to register with the Florida Department of State, it may not receive legal recognition and protection under Florida law. The partnership could be treated as a general partnership, exposing the partners to unlimited personal liability for the partnership’s debts and obligations.

Have more questions about an asset protection-related situation?

Crucially, this overview of using limited partnerships to own assets that are not protected does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.