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can tailor the structure of management to their needs in a variety of ways using a partnership agreement. Capitalization : An LP can more easily raise additional capital than a general partnership by creating and offering limited partnership stakes. These are attractive to potential investors because limited partners do not assume joint and several liability for the debts or obligations of the partnership. Personal liability: An LP must have at least one general partner (a natural person or an entity) who is jointly and severally liable for the debts and obligations of the partnership. Limited partners – so long as they do not participate in control – are not liable for the partnership’s debts. Moreover, a limited partner who does participate in the control of the business is only liable to persons who transact business with the limited partner and reasonably believe the limited partner to be a general partner. Tax treatment: An LP enjoys partnership pass- through taxation treatment. Please see the discussion of partnership tax treatment above for a description of this treatment. 1.7 The Limited Liability Partnership (“LLP”) Like the LLC, the LLP is a relatively recent hybrid creation that combines the limited liability of a corporation with the tax advantages of a partnership. The LLP is, for all practical purposes, a general partnership, except that the debts and obligations of the LLP are solely those of the partnership. An LLP faces additional administrative and filing requirements as trade-offs for this advantage. Governance : Like a general partnership, the partners manage and control the partnership. They establish the management framework through a partnership agreement that is flexibly drafted to address the partnership’s needs.
Capitalization : An LLP raises capital like a general partnership. The partnership agreement may create different classes of partnership interests, with different rights and powers, to attract different classes of investors. Personal liability: Debts and obligations arising out of an LLP are solely those of the partnership. Tax treatment: The LLP enjoys partnership pass-through taxation treatment. Please see the discussion of partnership tax treatment above for a description of this treatment. 1.8 Banks, Joint Ventures and Special Entities Banks : It is important to understand that none of the entities described above are appropriate for a company that will conduct commercial banking activities, such as receiving deposits or certain trust activities. In the United States, all commercial banks must be chartered by either an individual state or the federal government (a “national association”). Both state and national banks are subject to significant regulation and oversight, and any foreign bank moving a bank or branch to the United States, starting a new bank, or acquiring an existing bank should consult the advice of an attorney experienced with bank regulations. Formation often involves establishing a bank holding company and a formal charter approval process. Although state and national commercial banks are subject to strict oversight, they do enjoy many privileges, such as deposit insurance from the Federal Deposit Insurance Corporation and discounted loans from the Federal Reserve. Joint Ventures : A joint venture entails a formal collaboration between two separate business entities. Entering a joint venture with an established U.S. company may be an ideal arrangement for a foreign business. Joint ventures can take the form of any of the business entities discussed above or may simply be a contractual agreement. Regardless of the form, joint ventures should be custom tailored
ILN Corporate Group – Establishing a Business Entity Series
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