USA – IOWA Law and Practice Contributed by: David M. Erickson, Christopher S. Talcott, Amy S. Montgomery and Shannon M.H. Hasse, Dentons Davis Brown PC
ers, a business for profit. The details of the partners’ rights to manage the partnership and share in its prof - its and losses are governed by a written or unwritten partnership agreement and Iowa Code Chapter 486A. The main drawbacks of a general partnership struc - ture are less flexibility in structuring the relations among partners and no limitation of liability – that is, all partners are jointly and severally liable for obliga - tions of the partnership. Limited Partnership A limited partnership is formed by filing a certificate of limited partnership with the Iowa Secretary of State. The details of the partners’ rights to manage the part - nership and share in its profits and losses are gov - erned by a written or unwritten partnership agreement and Iowa Code Chapter 488. The difference between a general and a limited partnership is that the latter includes two classes of partners – one or more general partners who have the sole authority to manage the operations of the partnership, except for major actions that require the approval of the limited partners, and limited partners who have rights to share in profits and losses but limited voting rights. In a limited partnership, general partners are jointly and severally liable for obligations of the partnership, while limited partners have no liability solely by virtue of their status as limited partners. A common practice in a limited partnership is to have a corporation or limited liability company act as the general partner to achieve limited liability for its owners. Limited Liability Partnerships and Limited Liability Limited Partnerships A limited liability partnership operates for all intents and purposes as a general partnership, except that, by filing a statement of qualification with the Iowa Sec - retary of State electing to become a limited liability partnership, the general partners are relieved of joint and several liability for obligations of the partnership solely by virtue of their status as partners. Similarly, when a limited partnership adopts a certificate of lim - ited partnership stating that the limited partnership is a limited liability limited partnership, its general part - ners are relieved of joint and several liability for obliga - tions of the partnership solely by virtue of their status
as partners, and the partnership for all intents and purposes operates in the same manner as a limited partnership. Limited Liability Companies A limited liability company is formed by filing a certifi - cate of organisation with the Iowa Secretary of State. The details of management of the company and dis - tribution of its profits and losses are governed by a written or unwritten operating agreement and Iowa Code Chapter 489. The equity owners of a limited liability company are called members. The persons with general authority to operate the day-to-day affairs of the limited liability company may be the members or may be managers appointed in accordance with the company’s operating agreement. Chapter 489 affords broad flexibility in structuring the internal operations of a limited liability company. Nei - ther members nor managers are personally liable for obligations of a limited liability company solely by vir - tue of their status as members or managers. Business Corporations A business corporation is formed by filing articles of incorporation with the Iowa Secretary of State. The details of management of the company and distribu - tion of its profits are governed by duly adopted by- laws and Iowa Code Chapter 490. The equity owners of a business corporation are called shareholders. The business and affairs of the corporation are gov - erned by a board of directors elected in accordance with the company’s articles of incorporation and by- laws and Chapter 490, and the board of directors may elect officers to carry out the directions of the board of directors. Neither shareholders, directors nor offic - ers of the corporation are personally liable for obliga - tions of a corporation solely by virtue of their status as shareholders, directors or officers. Broadly speaking, partnerships and limited liability companies are the preferred vehicles for investment in Iowa real estate from a tax perspective. This is due to the fact that these are considered “pass-through” entities, meaning there is no separate income tax on profits earned at the entity level – instead there is only income tax to the individual equity owners based on
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