20 years ago, almost all syndications and investment funds used limited partnerships. Instead of limited liability companies that has changed the landscape is different. Now, the vast majority of them use Limited Liability Companies
instead of limited partnerships. So what makes the most sense for you for your syndication for your investment fund, I'm gonna give you some thoughts about what the advantages are, what the differences are, and then you can decide for yourself what you think might be the best pick for your syndication or investment. My name is Tilden Moschetti. I am a syndication attorney with
the Moschetti Syndication Law Group. We specialize in putting investment funds syndications together for syndicators, investment fund managers, help them make sure that they are successful. And it's part of that what we do is spend a lot of time on the structure, not only on how to split, how distributions happen, and how all the rights and things like that, but even from the very top level, what's that entity
structure look like? And one of the key things that's often asked at the very beginning of an engagement is, Well, should we do it as a limited liability company? Or should we be a limited partnership? Now, there are some differences, some major fundamental differences, and they might not be the ones that you would think. So the first main difference between the two comes down to taxation. Now, you might think that the taxation is
the same, right? They're both taxed as partnerships. Well, in liability, limited liability companies have the option of to be taxed as a corporation, but most of the time, you don't do that. Right. So they're the same thing? Well, actually, no, they are still different. So the tax, the IRS treats partnerships, different still based on whether it's an LLC or a limited a limited partnership. And the reason is that nuance, they're a little bit different, there are actually two different kinds of
people there do different kinds of entities. So for example, an LLC has straight pass through taxes, it's very clear cut, you get your K ones, it's all spelled out there. On the partnership return for a limited partnership, it can be different general partners are treated a little differently than limited partners. Now, this has advantages, some limited partnerships are set up to pass specific credits through that can only go to limited partners, but the general partner itself
and that's you the sponsor, right. So may have to claim income and may not get some of the depreciation benefits, because it's the general partner and not the limited partner. So it may not be as efficient as a tax vehicle for, for you as a sponsor, it'll certainly be more beneficial for the for your limited partner, but not necessarily for you. The second
difference is management. So LLCs are incredibly flexible, we can tool them and change them and move them around to really be a construct a whole structure of what makes the most sense for your syndication or the fun. Limited Partnerships have much less, the general partner is in complete control. That's it end of story that may not fit with what some investors need in order to come in. And that's why we've I why I think we've seen the shift from limited partnerships to just to limited
liability companies over the past 20 years. The third change, and this is also very important for you as a sponsor is liability protection, you might think because it's called limited partnership that you have liability protection as a general partner yet don't, there is no liability protection for general partners of a limited partnership, they will have that as part of limited liability company, but you don't as a
limited partnership. So a lot of times, you may go into thinking that you want to be a limit an LP structure, but then you realize that now you've got this huge amount of exposure, and we have to build out some additional walls in order to protect you and your assets. So some of the advantages of an LLC
are this. So you get the flexibility in the structure, like I talked about, we can make it look like however you want it to look like you've got the straight pass through taxation that makes it very clear that all taxes just get passed through to the individual partners themselves whether they're taking on a more LP role or a GP role. It doesn't matter. It all passes through, there's this asset protection of the GP of the person in charge of you, the sponsor is there as part of
a limited liability company. Now, we still take the extra step of building in a sponsorship entity, as you've seen in my other videos, to make sure that that protection is there very, very strongly for you. But it's very clearly delineated. But also, the advantage is, it's a clear distinction between your business assets are the assets of the LLC, are very different than the assets of you personally, as a person, you don't have that same level in a
limited partnership, if you're the GP. And the lastly of the advantages of an LLC is that ease of formation and maintenance, they're just plain simpler. The laws of LLCs are very, very similar across all of the states, the only thing that changes are very subtle nuances between what's there and what what's necessary and things like that. But there, it's it's very straightforward about how those are done. Limited Partnerships doesn't have that advantage there, to me much more complex.
And the structure itself is like is like building a giant tower that may tend to wobble a little bit, especially when we take into account the nuances of local state laws. But there are advantages to a limited partnership. Like I said, there are specific tax savings that are only available to limited partnership organizations, so that those flow through the the taxes that are there, for example, there's some like an asset, some equipment, depreciation, things like that
are only available through limited partnerships. And so if that's a key component of the structure itself of your syndication or fun, you might choose to do a limited partnership. And the second reason that you might do a limited partnership is there definitely is a very clear
delineation of these people are limited partners. This person is the general partner, which gives you the sense of okay, well, that means I really am the only decision maker in this reality is though, we can change that in an LLC operating agreement to give you the sponsor still essentially the same amount of control and rights that you would have in a limited partnership with just a very small amount of weakness, right, the amount of risk that's created by that weakness, in my
opinion, generally, and this may not apply to your specific situation. So talk to your attorney before proceeding is that the nuance isn't worth the difference in going to the limited partnership versus a limited liability company. At the end of the day, almost always I recommend people doing a limited liability company. There's only specific nuances which may or may not apply to you and to your particular situation. My name is Tilden Moschetti. I am a syndication
attorney with the Moschetti Syndication Law Group. If we can help you with your syndication, or investment fund, whether you think it really shouldn't be a limited partnership, or you're going to go with a limited liability company, we can help you either way, make sure that you're set up properly, that you get the right amount of compliance. But also, most importantly, at the end of the day, you have somebody who's experienced and somebody who has actual boots on the ground
experience, because I do my own deals. I've been in your shoes, I've had to make the choice for myself on whether to do a limited liability company or an LP. I am live with the consequences of that decision, which fortunately has been an LLC so there hasn't been negative consequences. But we can help you as well. Give us a call if you'd like to talk about your project, and we can take it from there.