Let Our International Business Planning Lawyers Help You Create an LP for Your Business Ventures in the United States
At MEG International Counsel, our international business planning lawyers are often asked how to best structure a business in the United States. Every situation is unique, but one popular option for successful Mexican and Latin American entrepreneurs and investors looking to expand their global business interests is the limited partnership (LP).
Defining a Limited Partnership
A limited partnership is a type of business entity with at least one general partner and one or more limited partners. The general partner(s) are responsible for managing the business and have unlimited liability, while the limited partners are passive investors who contribute capital but do not actively participate in the management of the partnership. The ability of the limited partners to share in the profits and losses of the LP is limited by the amount of their contributions.
A limited partnership does not require any formalities other than the agreement of the partners. However, it is always recommended to have a written partnership agreement.
What Wealthy Mexicans and Latin Americans Should Consider to Determine if an LP Is the Right Choice for Their U.S. Business Interests
To determine if a limited partnership is the right structure for your business, you must consider your goals, future plans, and desired level of risk.
1. Ownership Structure
As mentioned, a limited partnership must have at least one general partner and one or more limited partners. The general partner(s) are responsible for the day-to-day operations and management of the business, while the limited partners are passive investors who contribute capital but do not actively participate in management decisions. If all partners in the business want to be actively involved, a limited liability company (LLC) may be a better option.
2. Liability
The general partner is responsible for the conduct and management of the LP and is liable for all its debts and obligations. This means that their personal assets may be at risk if the partnership incurs significant liabilities. In contrast, the limited partners' liability is limited to the amount of their capital contribution. If they do not participate in the management of the business, they are not personally liable for the partnership's debts and obligations.
3. Taxation
Limited partnerships are considered "pass-through" entities for tax purposes, meaning that the partnership itself does not pay income tax. Instead, the partnership's profits and losses are "passed through" to the individual partners, who then report their share of the partnership's income or losses on their personal tax returns. This can result in potential tax advantages, particularly for limited partners who may be able to use their share of the partnership's losses to offset other income. In comparison, corporations are subject to "double taxation," where the company's profits are taxed at the corporate level, and the dividends paid to shareholders are taxed on their personal tax returns.
4. Management and Decision-Making
The general partner(s) are responsible for the day-to-day management and decision-making of the limited partnership. They have the authority to make operational and strategic decisions. Limited partners, on the other hand, are generally not involved in the management of the business and have a more passive role as investors. Changing your business structure from a sole proprietorship or partnership to an LP could be beneficial if you’re seeking to attract investors to help your company expand.
5. Duration and Transferability
Limited partnerships can have a specified duration or they can be structured to continue in perpetuity. The transfer of ownership interests in a limited partnership can be more complex than in other business entities, however. It often requires the consent of the general partner(s) and may be subject to restrictions outlined in the partnership agreement.
How MEG International Can Help With Forming a Business in the U.S.
Experienced legal assistance is vital whenever you’re beginning a business in the United States. As a foreigner, you’ll need additional documentation to ensure you’re compliant with all federal regulations. An attorney who does not regularly work with clients in Mexico or Latin America will not be able to provide the level of guidance you’ll require to protect your personal and financial interests.
MEG International Counsel’s international business planning attorneys are uniquely equipped to meet the needs of successful entrepreneurs creating limited partnerships in the United States. Antonio Gastélum and María Elia Gastélum are dual-licensed, bilingual, and skilled in helping clients bring business interests to the U.S. market.