Family Limited Partnership - Explained
What is a Family Limited Partnership?
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What is a Family Limited Partnership?
Affluent families tend to move wealth from one generation to the other, they do this through diverse means. A Family Limited Partnership (FLP) is a type of business that allows the transfer of business, wealth and financial assets between members of a family or from one generation to another. An FLP is a business partnership in which allows members of the same family to pool money for business purposes. Since the business capital comes from all members of the family, each member owns shares of the business and is entitled to certain profits. An FLP can otherwise be called a joint venture between members of a family.
How is a Family Limited Partnership Used?
The partnership of a family limited partnership (FLP) is in two categories which are general partners and limited partners. This classification is done according to the amount of units or shares that each family member owns. General partners are in charge of managing the assets and operations of the FLP, these are members with the largest share in the business. General managers oversee the management of the business and other administrative functions such as the investments and transactions of the business. Limited partners have shares in the business but do not take any administrative or management roles. Rather, the shares they hold in the business are exchanged for profits and dividends that the business generates. Typically, an FLP is created to simulate wealth between members of a family and pass down wealth from one generation to another. An FLP is created through money pooled from members of the family. There are different FLPs, while some run on a large scale, some run on medium and others on a small scale. In every FLP, the general partner is a member of the family with the highest shares and highest capital in the business. Other members of the family who own a stake in the business are called limited partners. It is also possible for an FLP to have more than one general partner.
Estate and Gift Tax Advantages of Family Limited Partnerships
There are many benefits that individuals derive from FLPs, the most important ones being tax protections and gift tax advantages. Partners in an FLP can receive gifts that are tax-free, in a year, the gift tax advantages that members of FLPs can enjoy is $15,000 for individuals and $30,000 for married couples. Aside from tax advantages on FLP, there are also estate benefits for FLPs.
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