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DIRECT PARTICIPATION

Direct participation programs and limited partnerships are entities that allow income, expenses, gains, losses, and tax benefits to be passed through to the investors. There is generally no active secondary market for these investments, so, it’s important that investors understand the risks and can afford the risks associated with direct participation programs and limited partnerships.

Limited Partnerships

A limited partnership is an entity that allows all of the economic events of the partnership to flow through to the partners. These economic events are:

  • Income
  • Gains
  • Losses
  • Tax credits
  • Deductions

There are two types of partners in a limited partnership. They are the limited partners and the general partner. The limited partners:

  • Put up the investment capital
  • Losses are limited to their investment
  • Receive the benefits from the operation
  • May not exercise management over the operation
  • May vote to change the objective of the partnership
  • May vote to switch or remove the general partner
  • May sue the general partner, if the general partner does not act in the best interest of the partnership

A limited partner may never exercise any management or control over the limited partnership. Doing so would jeopardize their limited liability status and they may be considered a general partner.


Source: Investopedia