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Family Limited Partnerships Part 4 – Legally Mine

 

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Here is an example of how a Family Limited Partnership could work.

Wyoming Oil :

  • Oil was discovered in a little community in Wyoming.  The Cook Family Limited Partnership owns 160 acres of land, including all the mineral rights. The parents own 20 percent of the partnership interests and their children own the other 80 percent. The mother and father are the general partners, which basically gives them full control over the partnership assets. The children have no vote in the business affairs of the family limited partnership. (Some people often repeat the erroneous statement, “You must own 51 percent to control an endeavor.” That statement may be true for many kinds of business activities, but it is not true as to control under a limited partnership.) In effect, themouths of the children are sealed regarding control and management.

In the event that the parents are ever sued, their creditors generally cannot reach the 20 percent owned by the parents, nor 80 percent ownership interests of the children, or the assets inside the partnership. From a creditor’s standpoint, a family limited partnership is an undesirable asset upon which to levy since the result is only a “charging order.”

In addition to the legal benefits from the creation and use of the Cook Family Limited Partnership, the mother and father have the psychological satisfaction of knowing that they remain in full control of the partnership and will not be placed in jeopardy by the activities, votes, or involvements of their children, grandchildren, or in-laws.

The key Points:

  • The limited partners are generally nor held liable beyond their investment for the liabilities and obligations of the partnership.
  • The general partner(s), frequently the husband and/or wife, manage and direct the partnerships, thus making all the business decisions. The interference of the limited partners (the children) in business decisions is legally and effectively prevented.
  • A properly managed Partnership ownership affords excellent lawsuit protection. In other words, if the general partners (the mother and father) own five percent of the partnership, their creditors can reach neither their five percent of ownership interest nor the remaining 95 percent of ownership interest belonging to the children and grandchildren. They also cannot reach the actual assets inside the partnership.

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