Venture Capital Limited Partnership | StartupLoans.org

Venture capital limited partnership offers some advantages to investors in a sense that it limits the investors? liability. Each investor is only accountable for a particular amount, which is only up to the total of his investment. There is limited risk with regards to plunging into deep debt in case the business does not become profitable. In a venture capital limited partnership, the amount of the loss is no more that the invested amount, which can actually be used, if necessary, as a tax write-off.

Venture capital limited partnership, in a nutshell, is a type of partnership which has been created to provide the financial resources needed for the launching of a new business project. It is a limited partnership which aims to invest in small businesses that have high growth potential. This limited partnership includes two or more partners who typically make specific commitments to the business venture. Each investor, within the partnership?s terms, is only accountable for the amount of his investment in the new business project.

One of the most common approaches to financing new business startups is raising venture capital. Interested investor groups form the limited partnership with the objective of creating a bank of resources which will cover the costs associated with the launching of a new business endeavor, as well as to sustain its operations until the business will be able to turn a profit. The investors, as part of a venture capital limited partnership, typically do not expect to receive a return on their investment until after the business becomes profitable. At that point, the business can then begin to pay off the initial investment within the terms provided for in the partnership?s founding documents.

The precise makeup of a venture capital limited partnership includes all the basic elements which are required by law. However, beyond the requirements as stated by the law, the structure may also be configured based on the preferences of the investors. For instance, the investors can establish how much investment offers how much control in the business, as well as the number of votes that each investor will have.

What are the Benefits offered by a Venture Capital Limited Partnership?

A venture capital limited partnership offers a lot of benefits to investors. Some of these are:

• It limits the investors? liability.
• There are no worries about sinking into debt in case the business venture does not become profitable.
• The amount of loss in a venture capital limited partnership cannot be more than the amount of the investment.
• In case of a loss, it can be used as a tax write-off.

How to form Venture Capital Limited Partnership

Aside from the partnership agreement that limited partners must conform to and sign, those that wish to form a venture capital limited partnership are required to file partnership documents with the state registration office. Such documents must contain the name of the partnership, its physical address and the composition of the partnership. As provided for under the law, there is no requirement to provide the documents with details on the names of the limited partners or their contributions to the partnership.

In the same vein, the nature of its activities, as well as the purpose of the limited partnership need not be disclosed in the documents. There is also no requirement to submit copies of the partnership agreement. Investors in a venture capital limited partnership have limited liability. This means that their liability is confined on the debts that have been incurred by the company to the extent of their investment.

Things to Remember in a Venture Capital Limited Partnership

It is the obligation of limited partners in a venture capital limited partnership to disclose their status when dealing with other entities. This way, other business entities or parties will be better informed that the one dealing with them carries only limited liability.

A venture capital limited partnership typically become percentage owner of the company they are putting their money into. Sometimes, the money that have been entrusted to the venture capital limited partnership by a number of third party investors will be used to finance new business projects.

Source: http://www.startuploans.org/investing/venture-capital/venture-capital-limited-partnership/

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