A limited family partnership can be an ideal way to pass a family business on to the next generation, and therefore ensure both that it continues and that ownership remains within the family. There are drawbacks and limitations, however, and you must be careful in setting up the FLP to do so correctly. It is in your best interests to work with a Bryan business attorney when setting up this specialized type of partnership to make sure that you abide by state and federal regulations.
What Is a Family Limited Partnership?
The family business used to be a mainstay of American enterprise. While many of these have faded away, there are still many family owned and operated companies in operation. The FLP was designed most specifically for family-owned farms, but is useful for other ventures as well. In essence, the FLP allows for the passing of a family business to succeeding generations and discount the value of assets below fair market value. This both ensures that the business will continue, and that it will provide an income for generations to come.
What Are the Advantages of FLPs?
Besides the ability to discount transferred assets, family limited partnerships enable to provide general partners control and prevent limited partners from selling off their shares in the enterprise. These general partners also have the power to decide whether profits are distributed to limited partners or are reinvested in the firm.
Are There Any Disadvantages?
There are some definite disadvantages, as well as precautions you need to take if you decide to set up an FLP. The first consideration is cost: there are significant initial expenses involved in creating this type of business. There are also restrictions on the type of business that can be an FLP. To wit, the basic purpose of the business must be to produce an income, and not simply be a means of passing along assets. It is also very important that you organize and create the business according to requirements. Otherwise, you will find that courts will not recognize its legitimacy when, say, a family dispute arises. Also, the tax advantages will be negated.