I recently had an aquaintence offer me a deal on a precon. We would have to be in a general partnership.( I am supplying the credit and he the contacts for the deal). I understand that if it goes bad, I could be liable for the whole deal. My lawyer told me to stay away from any general partnerships, period. Do I have more liability? could someone come through this partnership for other debts of my partner? My lawyer says that “for the most part no, but there is a reason that people have moved to limited liability entities”. He is not a real estate lawyer at all though and I was just wondering if anyone has some insight.
All partners in a general partnership are personally liable for the debts and liabilities of the partnership. Because of this, general partnerships are not usually used for real estate deals.
If for some reason you must use a general partnership for a real estate deal, first form a legitimate limited liability company (LLC) that you can own and control. Then, use your LLC to enter into the general partnership so that you will have some personal liability protection.
A better structure would be to form a limited liability partnership (LLP), which is a type of general partnership, or a limited partnership (LP) with an LLC as the general / managing partner.
As I understand it, the partnership is to use my credit. If I form an entity (LLC), then the entity would have to provide the credit for the deal. I am mostly wondering if in a general partnership if my liability is limited only to the scope of the partnership, or can a sue happy person come through that partnership for other debts of the partner(or at least try which could be annoying).
If your personal credit / line of credit is to be used for financing real estate investments, you and your partner will be much more protected by forming a LLC or LP to conduct the business of the partnership.
If your partner in a general partnership is sued on an unrelated business matter, and loses, and has a judgment entered against him, the judgment creditor could probably obtain a charging order attaching distributions made by the general partnership to your partner. This could delay and complicate the general partnership making distributions to you.
For some reason, the builder will not work with an LLC. My prospective partner is getting some special deal on financing, and I think that is the reason that they want me and my credit on the hook. If I have any further liability whatsoever, then I am simply not interested. Thanks for the help.