Under a partnership agreement, there could be various types of partners. They could either all be active partners, or some active and some silent, while someone may be a dormant partner. Similarly, there is another type of partner usually heard of in a Real Estate Limited Partnership that could also be a part of such agreement and is known as a ‘General Partner'.
A general partner is the one who assumes full liability for the functioning of the firm and contributes their expertise in the matters. A general partner could be a company that develops property, a corporation, or a seasoned property manager.
General partners, often known as sponsors or GPs, participate actively in real estate transactions. They manage all aspects of the transaction and operations, and they own the property. Before understanding a general partner it is crucial to understand Real Estate Partnership first. A Real Estate Limited Partnership is formed to bring together a group of investors who are willing to pool their finances to deal in real estate matters. They come together to collectively invest in purchasing of properties, their leasing or development to gain profits.
Some of the important features of a general partner are:
● A general partner is not liable to seek permission for every action or decision that he takes on behalf of the firm. They hold the active decision-making authority in the firm.
● A general partner’s liability to the firm is personal and unlimited whereas that of the other partners is limited. Therefore if the partnership is ever required to meet a financial obligation, the personal assets of the general partner can be liquidated.
● Limited partners are only liable to the extent of their contribution to the firm.
● A general partner manages the day-to-day activities of the firm and provides a certain portion of the capital too. Whereas on the other hand, limited partners are responsible to ingest the finances of the firm.
● A real Estate Limited Partnership is often a good medium for a general partner to operate as it provides them with more finances, better resources and an independent working environment where they get to contribute their expertise.
● A real estate partnership doesn’t require them to pay corporate taxes on the profits. Each partner receives their share of profits as income and files their separate taxes.
● If ever a court passes a judgment in favour of a client in a dispute, all the general partners in the firm shall be held liable irrespective of who made the default.
