Guidance and Knowledge for Value Investors
A general partner is an individual or corporate entity designated to operate as the sole manager or work with another general partner in a partnership agreement for a designated business purpose. A general partner assumes greater risk than other forms of partners and is customarily liable for civil and criminal acts of the partnership.
Have you ever wondered how apartment or office complexes are financed? A typical complex will have 80 to 100 units and the cost of construction will approximate $7,000,000. Where does this money come from? Your average person will think it is financed by a mortgage of some sort.
Every partnership consists of at least two or more partners. In many partnerships, there are dozens of partners. Each partner is classed into a particular group. There are Limited Partners, General (sometimes referred to as Operating) Partners and of course somebody who is in charge – the Managing Partner. Each of these classes of partners has some form of financial, fiduciary and appointed powers.
Each of us has our own built in dictionary for terms we hear in our business lives. I find it fascinating that the standard business term ‘Equity’ is interpreted differently within the business world. I often interpret the term using the Internal Revenue Service definition because my background is in taxation. Lawyers use this term to mean ownership and not necessarily financial driven. Bankers convert this term to capital and the associated relationships to debt.
There is a tremendous amount of information to convey to fully understand partnership agreements. This is the first in a series of articles related to partnership agreements. Throughout this series I will explain the various sections and issues a small business owner faces in creating a sound and fair agreement with a single or multiple partners.