Family businesses are an excellent way to create a legacy for your family. You and your spouse, children, and extended family could all participate in creating and building an enterprise that could support your family for generations to come. As with any small business, there are many decisions to be made at the outset, including the location of your business, the nature of the product or services you intend to provide, and who will be involved. You will also have to decide how to structure your business. A family limited partnership is an option you may want to consider.
A family limited partnership is one that divides income, control, and appreciation between different family members. The agreement often begins with you and your spouse or other adult family members as general partners. The general partners would be the ones who actually run the business. These general partners can create limited partnership roles for each of their children. A limited partnership role does not give the children any right of control over the business according to Minnesota statute 322A.26. However, creating a limited partner status for the children will insulate them from liability for the business’s debt. The general partners can later change the structure of the partnership to give the children more control as the children grow older and get more familiar with the business.
There are important tax considerations when deciding whether a family limited partnership is right for your family and your business. One consideration is that instead of the partnership itself being subject to taxation, each individual member is responsible for paying taxes based on the share of income that he or she receives from the partnership. The amount of income each member receives is governed by the partnership agreement. Accordingly, the members of the partnership can decide to distribute the income in such a way to make sure certain partners remain in certain income tax brackets, thereby saving money on federal taxes. Moreover, if an asset belongs to the partnership, then the asset does not belong to the estate of the partners, thereby reducing the liability for an estate tax once that person passes away.
If you have questions about your family business and how to make sure you are making the best decisions for its structure, you need an experienced attorney on your side. Call us today at (320) 299-4249 to talk about your family business
