Southwest Chinese Journal (Houston, Tex.), Vol. [2], No. [7], Ed. 1 Friday, July 1, 1977 Page: 2 of 16
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Soutlkwcsif C Linrse J
ournal
FRIDAY, JUIY I. 1977
THE LIMITED PARTNERSHIP
The limited partnership is a business entity whereby the investor
has an opportunity to maximize his return while limiting his liability. Some
investors feel that as a vehicle for investment, the limited partnership has
no equal. While it is true that investing in a corporation through the purchase
of shareholders stock limits liability to the amount invested, any return on
the investment, usually in the form of dividends, is taxable to the investor
after previously being taxed as income of the corporation. Although investing
in a general partnership would eliminate this double taxation as disbursements
are generally taxable income to the partners individually, one must always
consider the disadvantage of the personal liability to which general partners
are exposed.
The limited partnership seems to combine advantages of both a cor-
poration and general partnership by allowinq the investor to offset losses
against other income, to receive profits without double taxation while limiting
liability to the extent of his partnership contribution. For example, if an
investor invested $100 in a corporation by buying stock, the extent of his
liability is the $100 invested; however, any profits that the corporation earns
would first be taxed as income to the corporation, then if the corporation paid
a dividend out of its previously taxed income to the investor, the investor
would also have to pay personal income tax on the dividend. The same $100
reinvested in a general partnership by a partner (investor) would not expose
the profits paid to the investor to double taxation as such profits are only
taxed as personal income tax of the partner. Of course, the investment may
expose the investor to the possiblity of a loss much greater than the $100. A
similar investment in a limited partnership generally limits the amount that
can be lost to $100, v^iile orofits distributed to the limited partners are
taxable once as personal income, hence the advantages of both a corporation
and general partnership.
To form a limited partnership, one must comply with the provisions
of the Texas Uniform Limited Partnership Act which reauires the filing of a
limited partnership certificate with the Secretary of State. The Act further
provides that a limited partnership may be formed to conduct any tyoe of
business except banking and insurance. Under the Act, two or more persons
may form a limited partnership; however, the limited partnership must have at
least one general partner who does not have the advantage of limited liability.
A corporation may be used as a general partner, however one should note that
such a practice comes under the close scrutiny of the Internal Revenue Service
with regard to taxation. A general partnership in a limited partnership
is for the most part obligated for the firm debts and is in a position to
transact the firm's business; however, the general partner has no authority
to act in a manner that would make it impossible to carry on the partnership
business. One important point to remember is that a limited partner may
destroy his limited liability by participating in the control of the firm.
In this article we have attempted to acauaint you with various
aspects of the limited partnership form of doing business. This form has
been used extensively in real estate and oil investments where it is highly
desirable to combine limited liability with partnership type of income tax
treatment. However, one should always keep in mind that every situation has
characteristics vdiich set it apart from others; therefore, it is always
advisable to seek competent counsel before you start.
TED WU
Attorney at Law
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PHONE: 729-5366 or 723-7817
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Southwest Chinese Journal (Houston, Tex.), Vol. [2], No. [7], Ed. 1 Friday, July 1, 1977, newspaper, July 1, 1977; Houston, Texas. (https://texashistory.unt.edu/ark:/67531/metapth273737/m1/2/: accessed July 6, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting Rice University Woodson Research Center.