Characteristics of a Family Limited Partnership

The Family Limited Partnership has many of the same characteristics as regular partnerships. Partnerships are easy to establish; two or more people can simply decide that they want to form a partnership. However, partnerships have unlimited liability. Each general partner is 100% liable for the partnership. This means that any general partner could be fully liable for all partnership debts, regardless of the percentage owned.

The partnership does not pay taxes. The individual partners pay taxes on the income the partnership receives. The amount of income each partner receives depends on the percentage of the partnership each owns. The partnership must file one information return saying how much the partnership made. The partners then include their share of income on their individual returns and pay taxes on the partnership's income. Partners must pay taxes on this income even if they do not receive any distributions.