Ways to Use Your US Limited Partnership (LP)

Anyone forming a US company usually has a clear idea of what they want to do with it. For most clients, the main reason is simple: they want to do business in the USA. Often they have already built a successful company at home and now want to expand into America.

The LP is a versatile, flexible business entity, and the USA is a major, exciting place to do business. Quite a few clients especially like the fact that in the USA they are operating outside the European Union.

Besides expanding into the US, there are many less obvious reasons to set up a US company. In these cases, clients are looking for a specific solution to a challenge they face. We go through some of these scenarios in detail below.

1Doing business in the American market with an LP

The obvious use for an LP is to do business in the American market and take part in the US economy.

It makes no difference what industry you are in or whether you mainly serve B2B or B2C customers. The LP is widely accepted and works for almost anything.

The partners of an LP can be individuals or companies, so the LP can be set up as part of your existing group of companies. Tax aspects need attention, of course, including US withholding tax.

The LP gives you effective liability protection. Partners are not liable with their personal assets, only with their contribution to the LP.

As with any foreign company, it is important to build enough substance in the USA in the early stages of your LP, at least if you are the controlling partner and live in a high-tax country with strict rules on holdings in foreign companies (think CFC rules). Substance means that the company's day-to-day business is not run from your country of residence and that the company has premises and staff in the USA. These points matter less if you are only a minority partner in the LP.

2The LP as a company doing business worldwide

There are plenty of good reasons to build a business in the USA with a global focus, one that also serves customers in the European Union, for example, and deliberately goes beyond the American market.

Among them: a business-friendly environment, moderate taxes and the American "can do" attitude that every entrepreneur I know truly appreciates.

Every industry is different, and this option is not interesting for everyone. Software developers in Silicon Valley, for example, seem to cost far more than in most European countries. So whether it makes economic sense to open a software shop there without access to venture capital is open to question.

That aside, all profits the LP earns worldwide would be taxed at favorable American rates. So if you are planning to do business in the USA through an LP anyway, it can make sense to serve other markets through that company too.

A successful LP can also be a platform for applying for a US visa later on, if you as an entrepreneur want to live in the USA, at least for a while.

3The LP as sponsor for a US visa or green card

If you want a visa to live in the USA as an entrepreneur, in many cases you'll build a business there and earn your place in America. The US company then acts as the sponsor for your visa.

The LP is ideal for setting up and running your US business in a visa-compliant way. It always makes sense to bring in your US immigration attorney, because the ownership structure of the LP definitely matters for the visa.

4The LP as a US real estate company

Investing in US real estate can be attractive and profitable if you know the business well. How to go about it depends on a number of factors.

You can certainly buy as a private individual without any company at all. The question is what happens if the project goes wrong: then your own assets are on the line.

A limited liability entity like the LP is therefore highly recommended. And there is another consideration besides liability risk for your wealth planning: if you ever run into financial trouble yourself, it can be ideal for asset protection if your US properties are held by an LP rather than by you personally.

Who owns and controls the LP can be kept private. If you hold the properties in your own name, that is not possible.

Whether the LP is the best entity for your real estate investment, or another US entity suits you better, depends heavily on your individual circumstances, for example whether you live and pay taxes in the USA or elsewhere.

Either way, a thorough analysis before forming a company makes sense. With real estate in particular, you don't want to leave anything to chance.

5The LP as a temporary company

You can't always set up the company structure you consider ideal right away. Time and cost are factors that often get in the way, especially in the early stages.

This scenario reminds me of a specific client, a very talented software developer who had built a fintech app with a group of friends and without any outside capital.

Normally he would now have had to put the app into a "mature" corporate structure and bring in outside investors. That is exactly what the client wanted to avoid: he calculated that he could raise the company's value considerably by launching the app first. That way he could show investors that the app really worked and real customers were using it.

For this proof of concept, the client chose an LP and started selling the app in the US App Store, with decent success. He knew from the day the company was formed that it would only be temporary.

Sure, you could argue it is money thrown away, since you plan to close the LP again in a few months or years. But who cares if it helps you raise an extra half million in investment?

For the client, by the way, it was a complete success. Around 18 months after formation, investors came on board and were impressed by how far the client and his partners had come with relatively modest means.

As planned, the LP was closed and the app moved into its permanent entity.

6The LP as the company in your website imprint

A legal requirement to publish an imprint (legal notice) on your website exists in only a handful of countries and is a typically German phenomenon. Most European countries have no such requirement, and neither does the US.

So what can you do if you have good reasons not to appear in the imprint yourself? Perhaps you don't live in a country with an imprint requirement at all, but you run a German-language website aimed at German customers and so you'd rather not do without an imprint?

Or you work in an industry known for competitors harassing each other with cease-and-desist letters. What then?

To stay anonymous for these or other purposes (always in consultation with your lawyer, of course), it can make sense to set up an LP and list it in your imprint. Your name then appears nowhere: not in the business register and not in the imprint.

Granted, this may have downsides. Will customers still buy from me if a US company shows up in the imprint? Only you can answer that. It is entirely possible that an LP is not a good solution.

A European company wouldn't work either. As you know, in Europe it's now almost impossible to set up a company that effectively shields its owners. The details of everyone involved, including the shareholders of a corporation or partnership, are published in the company register.

Beneficial ownership registers are also on the rise and already enshrined in law in countries such as the UK. There, even trust arrangements have to be disclosed in the company register, in full public view.

This is where US companies in general, and the LP in particular, offer far more protection. Partners are not published in the public register, and only one member of management has to be listed (usually the US manager of the LP that we provide when we form it).

7The LP when you need a company fast (with or without a business account)

Sometimes things have to move fast. A particular deal only happens if you can sign a contract within three days. Otherwise you can watch it slip away. And the first payment is due a week later.

What now? Where do you get a corporation within three days that can invoice immediately and accept payments within a week?

With European companies, you're used to the fact that formation can be very quick in some countries (4 hours in the UK). But that's when the fun starts. In England, opening a bank account takes at least two weeks. Then you still need a VAT number.

The solution (you guessed it) can be a US LP, which can be formed almost as quickly as a UK Limited. And the account opening is fast and smooth: you do not need to be in the USA. You leave the bank with your account number in hand and can receive your first payments the same day.

And as you know, there is no VAT in the US. You simply issue net invoices and don't need to worry about a VAT number.

8The LP as a fallback company held by a trusted person to keep you operational in insolvency

Just to be clear: we would never advise you to move assets abroad when insolvency looms and thereby harm your creditors. That is a criminal offense. We have been supporting clients through EU insolvency proceedings in England and Ireland since 2007, and we can assure you it's not a good idea.

Instead, we bring in the LP as a fallback company through which you can invoice entirely new revenue, often temporarily, and so stay able to operate.

Because insolvency requires you to disclose all your assets, you cannot be the owner or beneficiary of the LP. You need a trusted person (a brother, friend, son, uncle) who handles forming the LP and is its partner. Under no circumstances may you have a trust or nominee agreement with this person. The LP must not belong to you. Period.

Once the LP is formed, your customers can pay the company and your trusted person can manage its funds.

Why is the LP such an interesting fallback company? Couldn't you just form a local company at home? Yes, absolutely. And in many cases the LP is not the obvious solution.

But if, for example, you don't have a trusted person nearby, or that person can't be the director of a local company, you have to turn to an alternative.

This is where the LP comes in. An LP with a US business account is formed quickly and offers a high level of confidentiality (no information exchange under the OECD CRS, partners are not published). Under the right circumstances, the LP can be the ideal immediate measure in a very difficult time.

As we said: this is not always possible or advisable. Always discuss the approach with your lawyer. But we have a number of clients who got through a very difficult time by forming a temporary LP LP and came out safely on the other side.

9The LP for asset protection in separation and divorce

We are by no means suggesting that you should hide assets from the court in divorce proceedings to keep your ex-spouse from being paid out.

You know it yourself: you made your bed, now you have to lie in it. You entered into this marriage, so now you have to take responsibility, as you agreed, and share your assets with your ex-spouse. Acceptance is an important step in the healing process; we all understand that.

However, we regularly speak with clients in separation and divorce situations where the ex-spouse is so hateful and aggressive that it's no longer about getting the fair share of assets he or she is entitled to. No, some ex-spouses want to destroy their former partner.

If an angry ex finds out you are starting a new business venture after the divorce, they may want to make your life difficult and use lawyers and the courts to force you to open your books, believing they are still owed something.

In situations like these, it can be extremely helpful to set up a new company operating abroad. And here, of course, we mean the US LP. The LP stands out for its high level of confidentiality (your name does not appear in the public register, for example).

As we said: even in emotionally extreme situations, it is important to act correctly. You cannot move assets into the LP to shield them from your ex-spouse. But you can build new wealth and avoid constant trouble with lawyers and the courts.

10The LP when the tax office blocks or freezes your accounts

Tax authorities in particular are known for flexing their muscles and freezing every domestic account of an otherwise blameless citizen suspected of a possible tax offense on the basis of vague suspicions.

The problem here is not that the tax office accuses you of failing to declare your taxes properly and now hits you with large demands. As a business owner you can somehow deal with that and work out a solution with your lawyer. At least you can still act, prepare and plan.

Once your accounts are frozen, though, you usually lose the ability to act, and it is very easy to panic: suddenly you cannot pay the rent, the salaries, the car lease or even your phone bill.

Here too, the LP is ideal as a temporary emergency measure to help you stay operational. The LP offers a high level of confidentiality (no information exchange under the OECD CRS, partners are not published) and can be formed quickly.

There are certain conditions you need to meet. You need clients who will accept invoices from a US LP. Or you can invoice the company of a business owner who is a friend or family member. In short, you have to be able to redirect your revenue into the LP.

This is not always possible or advisable, and you should always discuss the approach with your attorney. But we have a number of clients who used a temporary LP to get through a very difficult period and came out the other side intact. They set up the LP for exactly that purpose.

11Using an LP to work around a non-compete clause

If you leave a well-paid position or sell your company, you are often bound by a non-compete for a few years, designed to stop you from using your personal contacts and deep expertise to compete with your former employer or the buyer of your business.

Such non-competes do not always fit the reality of the "early retiree." Not everyone who leaves a stressful job or sells a company wants to spend the rest of their life cycling through Tuscany with their spouse or playing the world's golf courses.

You often get plenty of partnership offers that you cannot pursue because the non-compete is far too strict. Our early retiree may be convinced that the new venture does not compete with the former employer or company at all, but the legal department sees everything in black and white and has no time for nuance. Request denied. End of story.

So what can you do?

You guessed it: a US LP can help. Your name appears nowhere in the public company register. Nobody connects you with the business.

US companies in general, and the LP in particular, offer a high degree of confidentiality, far more than European companies. Partners are not published in the public register, and only one member of management has to be listed there (usually the US manager of the LP we provide when we form it for you).

Through the LP you can sign contracts, issue invoices and calmly wait until you are free of the non-compete.

12Forming an LP to stay invisible to competitors

Sometimes, as a business owner, you do not want competitors looking over your shoulder. Perhaps you want to experiment with a new product line or break into a new market. Or perhaps you want to leave your core business behind and build something new.

In Europe it is now almost impossible to form a company whose owners stay effectively private. The details of everyone involved and of all shareholders in a corporation or partnership are published in the company register.

Beneficial ownership registers are also on the rise and already enshrined in law in countries such as the UK. There, even trust arrangements have to be disclosed in the company register, in full public view.

This is where US companies in general, and the LP in particular, offer far more protection. Partners are not published in the public register, and only one member of management has to be listed (usually the US manager of the LP that we provide when we form it).

So as a business owner you can set up a new company calmly and discreetly, without worrying that competitors will dig through the register to find out who is behind it.

13Forming an LP to stay invisible to customers

We once had a client from the UK who ran a successful wholesale business for plumbing supplies and installation materials, including in the USA. The company's customers were around 10,000 plumbers.

The client now planned to go directly after consumers and DIYers in the USA and sell through Amazon and eBay as well, in some cases at lower prices than the plumbers offered their own customers.

To protect the existing business with the plumbers, it was vital not to alienate them or give the impression of competing with their own customers. So the direct business could not possibly run under the same flag as the main business.

So the client decided to form a US LP with a completely different company name and a completely different business address, and to run the end-customer business through that company.

Thanks to the high confidentiality of an LP, the people running it and the owners of the LP can be effectively shielded from view. So even if someone is especially curious and checks the online company register, with an LP they cannot see who is behind the business.

How an LP's profits are taxed is covered on our page on taxation of the US LP; the legal framework is summarized in our overview of the LP as a legal form. All the routes to your own US company are brought together in our US company formation section.

In short

• The LP is a versatile legal form for doing business in the American market, with individuals or legal entities as partners.
• If you are a controlling partner living in a high-tax country, the LP needs substance in the US: premises, staff and local management.
• The LP can act as a visa sponsor and hold US real estate.
• Its owners do not appear in the public register, which also makes it a good fit for staying invisible to competitors or customers.

How we help you

• Form a Limited PartnershipThe US LP for structures with a general partner and limited partners.
• LLC and LP Tax ReturnForm 1065 and K-1 for your LLC or LP.
• Visa Roadmap for Company FormationFormation and visa in one plan, so the company carries the visa.
• US Bank Account OpeningYour own access to the American financial system, even without an SSN.
• Company formation consultationEntity type, state and tax consequences, before you commit.