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How limited partnerships work in real estate

Big commercial rebuilding projects can be complex matters and will likely require large transactions of money to fund the building materials, tools and vehicles needed for the job. But to get to this point, building owners and investors may need to pool a sizable amount of financing to make the project go forward. This is why Pennsylvania entrepreneurs sometimes form limited partnerships to finance a new construction project.

Chron.com explains that limited partnerships are created between a general partner and a limited partner. A general partner has the responsibility of managing the business while the limited partner, commonly referred to as a silent partner, contributes financially to the partnership but does not have any active responsibilities in running the business. The silent partner also enjoys limited liability for decisions made by the business, although silent partners can lose their investments in the business in the event of bankruptcy or civil litigation.

Per Nerdwallet, limited partnerships are not considered a good option for all entrepreneurs, particularly if actively running a business is a goal. However, a limited partnership can be used to good effect for building a real estate property. The reason is because limited partnerships are structured in a way to efficiently raise financial capital. In a limited partnership, a general partner is empowered to raise money from investors who want to benefit from real estate expansion but do not want managerial responsibility.

Forming a limited partnership may not be necessary if you have the financing in hand to begin a large building project. Also, if there are multiple partners involved who want a say in business decisions, a limited partnership may not be a viable option. Any group of investors considering their latest commercial real estate project should take careful stock of how much control each investor wants over the project. Consultation with professional legal counsel to help form a limited partnership may also be necessary.

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