A family limited partnership is a type of limited partnership. And like a limited partnership, it has two types of partners: general partners and limited partners.

A general partner is one that controls the company and makes the management and investment decisions. The general partner is also personally liable for all company debts, as though it were a sole proprietorship.

A limited partner is an investor with no decision-making authority and with certain limited exceptions, no personal liability beyond his or her invested amount.

A family limited partnership, or FLP, is a limited partnership made up by members of the same family.

One of the principal advantages of an FLP is the tax benefits. If a member of a family purchases both general partnership interests and limited partnership interests, and transfers the limited partnership interests to other family members, the transferring party reduces the taxable value of their estate, retainer control over the management and investment decisions of the company, and the transferees, who have no decision making authority, may be able to take advantage of valuation discounts when the transfer is made.

Additionally, the transfer of limited partnership interest qualify for the annual gift tax exclusion, and the transfer value can be discounted when transferred to family members.

An FLP can also protect against divorce. Ex-spouses are no longer members of the family and can therefore be required to sell back their interest, keeping the business in the family.

An FLP also has reduced investment fees, fewer brokerage accounts (it can all be done in one account), and can protect assets from claims of future creditors.