Investment Partnership Structure

  A partnership is a contract between two or more people who agree to pool their funds and talent and share in the profits and losses of the joint business. Operating partnerships are structured for a particular business, such as a law firm. (A unique characteristic of a partnership is its pass-through status. the partship issues a schedule K-1 to each partner, which details individual income and/or gain/loss allocations. the partners report there amounts on their own individual tax returns)

 

  A investment partnership is structured either LP or LLC:

    - Limited Partnership:

      it has a general partner and one or more limited partners.

      GP is responsible for managing partnership, and has unlimited liability for subsequent debts and/or losses. It may also earn an incentive fee, in this case, SLP will be created.

      Special Limited Partner(SLP),it's affiliated with GP, usually created for tax purposes; to keep incentive fees separate from allocations of partnership taxable income.

      Limited partners(LP), it shares in the profits of the partnership, but their losses are limited to the extent of their investment.

 

     -Limited Liability Company:

       It combines elements of a corporation and a partnership. the owner of an LLC benefit from the income tax pass-through, and enjoy the limited personal liability of a corporation. The owners of a LLC are called  members.

 

     LP/LLC have "pass-through" tax status and also exempt from some SEC registration requirements.