I own some rental properties that I’m trying to get out of my name. For some time now I’ve heard that Limited Partnerships may offer better protection than LLC’s due to the case history and age of the entity type (LLC’s are rather new in comparison I understand). My Attorney tells me that while an LLC hasn’t been pierced yet in Utah (where I live) they have in some other states and she feels it is only a matter of time until it happens here too. She said something to me about how a “properly drafted” LP has never been pierced. I don’t know what all “properly drafted” implies exactly.
One MAJOR concern I have is trying to maintain limited liability. I know that as a Limited Partner in the partnership, my liability is limited only if I don’t participate in the day to day management of the business in any way. If I appear to have been involved in decision making for the partnership or management of the properties, then a judge could label me a General Partner no matter what my paper work says. If that happened, of course, then the prosecuting attorney could go after me personally (which is what I’m trying to avoid).
I’ve considered starting a corporation to act as my General Partner while my wife and I act as the Limited Partners, however, having said that, I don’t plan to hire a professional property management company to manage for us just yet and worry that I would have a hard time not crossing the line (without even realizing it) in management of the entity or the entity’s holdings. In light of all that, I have thought seriously lately about simplifying life by just doing an LLC (even if it isn’t quite as strong) for simplicity sake since ALL members would have limited liability whether they manage or not.
What do you think? I would appreciate any thoughts, advice, or feedback that you have on whether an LP in really worth the added tight rope walk to avoid liability … or would the protection offered by an LLC be nearly as solid and stable? ???