How an FLP can protect assets from business liabilities

On Behalf of | Mar 9, 2023 | Business Law |

Setting up a business is both exciting and draining. The owners would need to discuss which formation is best for the company based on its needs and the owners’ priorities, among other factors. Most of the time, the best business formation is one that caters to the partners’ needs, which involves protecting their assets. For family businesses, it may be handy to consider an FLP.

What is FLP?

A family limited partnership (FLP) is a business setup wherein family members have joint ownership of the company. Two or more family members may own shares of the business and earn a portion of the profit.

In this formation, the family controls the business assets since they are properties of the partnership and outside investors cannot get involved. Moreover, if a limited partner leaves the family, let us say through a divorce, they must return the shares to the business, so the ownership remains within the family.

How does it offer protection?

Some businesses, especially those with higher risks of lawsuits and claims, choose FLP as their business formation since owners can segregate certain assets like real property, securities and interests from the business. And since the members are limited partners with limited personal liability, they are not responsible for giving up their assets to pay for the business debts and liabilities.

It does not come cheap

Due to its complexity, establishing and maintaining an FLP can be expensive. There are a lot of things to worry about, such as taxes, estate assets, possible liabilities and debts. And if members want to set the FLP up successfully, they need to hire suitable professionals to assist them.


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