When it comes to selecting a structure for your business, a family limited partnership (FLP) can sometimes be a great option depending on your particular circumstances.
But what exactly is an FLP? And how do you know if an FLP is the right structure for your Texas business?
There are many advantages of setting up your business as a family limited partnership in Texas. However, there are some disadvantages as well.
Thus, make sure you understand and take into account these various pros and cons before deciding how to proceed.
When you have questions about how to set up a family limited partnership in Texas or whether an FLP is the right structure for you and your business, The Curley Law Firm is here to help.
Business formation attorney Adam Curley has helped countless Texas businesses navigate the formation process. Contact our team today to speak with an experienced business law attorney and see how The Curley Law Firm can help you.
What Is an FLP?
To understand what a family limited partnership is, you must first understand what a limited partnership is.
A limited partnership is a type of business entity in Texas that includes both general partners and limited partners who have different rights and responsibilities when it comes to the business.
Management rights and duties are vested in one or more general partners, whereas the limited partners have ownership rights but don’t participate in day-to-day business operations.
So you might be wondering, What exactly is a family limited partnership?
Importantly, a family limited partnership in Texas is not a completely different type of business entity. Rather, an FLP is a type of limited partnership in which most or all the general and limited partners are related to one another.
Pros and Cons of a Family Limited Partnership in Texas
There are many reasons you might want to consider setting up your family business as a family limited partnership in Texas. However, there are certain drawbacks to doing so as well. Thus, make sure to take everything into consideration before deciding how you want to move forward.
Advantages of a Family Limited Partnership Texas Structure
When you form a limited partnership, the individual partners of the entity share profits according to their proportion of shares in the partnership. Thus, when the partners of the limited partnership are members of the same family, there is an opportunity to use the family limited partnership for estate planning purposes.
Specifically, some advantages of forming an FLP include:
- Family limited partnership asset protection;
- Ability to keep management decisions in the hands of certain family members;
- Limited liability for individual partners of the partnership;
- Ability to avoid probate after the passing of a partner; and
- Tax advantages.
Of course, an FLP is not right for all businesses. However, if an FLP does work best for your family business, know that it will have many advantages.
Disadvantages of Forming a Family Limited Partnership in Texas
As with all decisions you must make for your business, there are certain disadvantages that you should consider. Examples of such disadvantages include:
- Increased tax scrutiny from the Internal Revenue Service (IRS);
- Costs of organization and formation;
- Effort required to comply with various legal operating requirements; and
- Restrictions of types of assets that you may transfer into the business.
It is true that owning and operating an FLP is complex. But with the right advice and counsel in your corner, it can certainly be done.
Speak with a Texas Business Lawyer Today
A family limited partnership can be a great vehicle for your family business. There are many advantages that come along with setting up an FLP, especially when it comes to using your family limited partnership for estate planning and asset protection purposes.
Nevertheless, there are also some disadvantages to forming an FLP. Thus, don’t make this decision lightly. Make sure to carefully weigh all pros and cons before deciding how you want to move forward with forming your business.
If you have questions about family limited partnerships in Texas and whether forming one is a good choice for your family business, speak with an experienced business lawyer today.
At The Curley Law Firm, we help our clients plan, preserve, and protect their Texas businesses each and every day. With 10 years of experience helping clients start and grow their businesses and navigate disputes along the way, we have the tools and resources necessary to help your business succeed.
Contact The Curley Law Firm today to discuss your business and learn more about how we can help you.