Partial Transfer of Ownership Through Family Limited Partnership (FLP)

Discussion Post
Student Name
Department, Institution
Course Number: Course Title
Professor’s Name
Due Date
Discussion Post
John currently runs the machine shop as a sole proprietorship business, implying that he has unlimited liability. The sole proprietor is fully liable for all the shop’s debts and financial obligations in case of business failure or bankruptcy. In order to structure a partial transfer of business ownership to Luke and Cindy, I would recommend creating a Family Limited Partnership (FLP). This is because an FLP has proved a feasible business strategy to facilitate ownership transfer while retaining control over the business as a general partner. The children would be limited partners in the FLP, implying that John would have to give up managerial control over the entity’s management. Although the children would have less valuable partnership interests, it proves immensely harder to achieve a fair market value for an FLP. In this way, John would have leveraged his lifetime gift tax exemption by partially transferring ownership of limited partnership capacity (Morgan Stanley, 2021). Although the gifting of the shop machinery would not...