Two Types of Interest

The following types of interests, or units, make up the partnership:

Typically, the general partner interest comprises 2% of the partnership and the limited partner interest is the remaining 98%. Initially, the parents split the partnership in half. Each parent will have 1% interest as a general partner and 49% interest as a limited partner.

General partnership interest entitles the general partners to all of the management responsibilities and unlimited liability. General partners may make provisions in the FLP to receive an income for managing the partnership.

Limited partnership interest entitles the limited partners to no management responsibilities and limited liability. Limited partners only risk losing their initial investments. Limited partners cannot demand that the general partners make cash distributions from the partnership's income each year. However, the limited partners must pay taxes on the income whether or not they receive distributions.