Investing in a Family Limited Partnership

There are some investors who like investing in a family limited partnership. However, investing in a family limited partnership or FLP has some disadvantages. Most people would not invest in a family limited partnership.

A family limited partnership or FLP can be difficult to understand. However, many people have greatly benefited from a family limited partnership or FLP. Family limited partnerships or FLP have been used more and more recently for asset protection against creditors. Below is an example of how investing in a family limited partnership or FLP works.

Example of investing in a family limited partnership or FLP

Suppose a couple transfers a $1,000,000 real estate property into a family limited partnership or FLP in exchange for 10 family limited partnership or FLP units. The couple then wants to sell one family limited partnership unit to Paul.

However, if Paul purchases just one unit of the family limited partnership or FLP, then Paul is be a minority owner meaning Paul has no say in the management of the family limited partnership or FLP. The couple still holds all control over all assets in the family limited partnership or FLP. So, what incentive would Paul has to buy the family limited partnership or FLP unit? Also, a family limited partnership or FLP unit is very illiquid and there is no secondary market for it. So, if Paul wants to sell his family limited partnership or FLP unit, it is likely that he will not be able to. Therefore, Paul is unlikely to want to pay the market value for the family limited partnership or FLP unit. Only deep discounts would attract any buyers or investors of a family limited partnership or FLP.