Nevada Family Limited Partnership
Wood Law Group’s estate planning attorneys provide an overview of Nevada family limited partnerships. Contact us to schedule a free consultation.
What Is a Family Limited Partnership?
While running a company with business partners is a great idea, have you ever considered starting a business venture owned by you and your family? Consider it for a moment.
You would be building wealth and leaving behind your legacy. However, there are risks to any partnership, so you should seek legal counsel to form and maintain a Nevada family-limited partnership.
A family limited partnership (FLP) is formed when members of the same family contribute funds to start a business venture. Therefore, they hold most or all of the business’s ownership interests.
The family members become partners by buying shares in the business. The amount accruing to them as profit is proportionate to the number of shares they own as per the company’s partnership agreement.
Types of Partners
Family limited partnerships usually have two categories of partners:
General partners are the major shareholders in charge of daily business management, such as bringing in new employees or managing business funds. A General partner is entitled to a management fee from the profit generated by the business entity if stated in the partnership agreement.
Limited liability partners, on the other hand, are members who own part of the business but don’t take part in running the business daily. They are investors who bought shares in the family business to receive dividends.
Limited Liability Partnership
A limited liability partnership (LLP) is a partnership where the liability of each partner as part of their involvement in a business venture is limited. In a limited liability partnership, one partner is not held personally liable for the actions of any other partner.
LLPs are usually founded by professionals like doctors, accounting officers, and legal practitioners. However, these professionals rely on the reputation of all members involved collectively.
Professionals who form LLPs are known to have vast experience in their field. As such, the members combine their resources and the cost of running a business according to their limited partnership interests to boost the total revenue accruing to the LLP.
Limited Liability Companies
Family members can also run limited liability companies where all members share equal liability and are responsible for managing the company and retaining control. It also ensures that family members are included in the daily running of the business and builds an estate to pass on to other family members in the future.
The most notable feature of an LLC is that no member is held personally liable for the company’s debts. It creates a clear distinction between personal and business assets.
Family Limited Partnership vs. Trust
An FLP is quite different from a trust. In its simplest form, a trust is a legal arrangement involving the division of business property from personal assets. It creates a fiduciary relationship where ownership of assets passes to a third party, called the trustee, who holds and manages the assets for the benefit of named beneficiaries. The original owner of the asset is known as the grantor.
Thus, creating a trust agreement must involve a grantor with vested ownership, the intent, and the capacity to transfer the assets concerned to the named beneficiaries. A trustee manages the property for the beneficiaries and observes all legal requirements.
In the case of an irrevocable trust, the grantor also loses all authority to alter the terms of the trust without a court order or permission from the beneficiary. If you are worried about how to avoid probate on bank accounts, another feature of an irrevocable trust is that assets within its coverage are not subject to probate.
An FLP differs from a trust in that it does not involve the transfer of assets to any third party or general partner. The assets are, in fact, owned by family members. Additionally, assets are not managed to benefit a beneficiary; instead, members receive distributions in the form of a dividend from the profits accruing to the company.
Family Limited Partnership Asset Protection
Asset protection is vital, whether you are running a small or a large-scale business. While it may seem expensive, it is much better than facing a lawsuit where you lose everything you own.
It is possible to forfeit your business assets in a legal matter where things go sideways. A comprehensive guide to Nevada asset protection trust will inform you about the different asset protection methods.
A family limited partnership is an essential form of asset protection that ensures that your treasured assets are passed down from one generation to another. An FLP serves as a means to hold all your family property in a consolidated legal entity.
Getting out of a Family Limited Partnership
Before terminating a family limited partnership, consider the consequences of such action. Correcting the issues may be a better option than canceling an entity that has existed and is designed to be handed down to the family’s younger generations.
If the partnership has to be terminated, the partnership agreement and the state limited partnership act should be reviewed to determine the requirements and consequences of termination. You should also check if there’s a mortgage or any other debt on the partnership, which may complicate the termination.
Generally, terminating the agreement will have to be in accordance with the stipulated procedure in the limited partnership agreement. For instance, the limited partnership agreement might provide a certain percentage of partners, both general and limited, to grant their approval regarding the termination.
Afterward, a termination agreement will be drafted to address matters such as:
- Filing final tax returns
- Compensation of the general partners
- Payment of professional fees accruing from the termination
- Outline of how FLP assets will be distributed
Why Hire a Nevada Lawyer to Form a Family Limited Partnership?
The requirements to form and maintain a family limited partnership can be overwhelming and is something you may not want to attempt yourself. However, with a Nevada estate planning lawyer, you can place yourself in a stronger position to ensure that all requirements for the formation of an FLP are met.
Call the Wood Law Group to schedule a free consultation today!