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A financial advisor mentioned tax-advantaged investments to me such as limited partnerships. Are these investments suitable for me?

A limited partnership is the structure used by venture capital companies to raise money for start-up costs. The limited partnership is made up of two parts: a general partner(s) who manages the company, and (2) the investors who are referred to as limited partners.

When you invest in a limited partnership, you are contributing part of the capital for a new project. Limited partnerships are usually in real estate, oil and gas ventures, farming, equipment leasing and mutual funds. They can also include movies, research and development and other projects. Generally speaking, a limited partner's liability -- or risk -- is confined to the amount they invest in the limited partnership. For example, if you invested $5,000 in a limited partnership, you could lose no more than your $5,000 investment. One of the attractive aspects is the allowable tax write-offs associated with limited partnerships. In many instances, losses incurred in the first few years of launching the company or business associated with the limited partnership can be used to reduce an investor's personal income tax. (Please see cautions at the end of this article!) Because of the speculative nature of limited partnerships and lack of a long-term track record, these investments are suited to sophisticated investors who are not averse to taking risks in the hope of future profits.

Characteristics of Limited Partnerships

CAUTIONS

WHY INVEST IN LIMITED PARTNERSHIPS?

Potential for long-term profits Potential tax advantages

ARE YOU SUITED TO LIMITED PARTNERSHIPS?

Limited partnerships are considered high-risk investments more suited to sophisticated investors who are not averse to risk taking.

RESEARCH, RESEARCH, RESEARCH

It is unwise to invest in projects about which you have very little information. As a speculative, high-risk investment, it is important to understand the implications of a limited partnership. Seek competent investment and tax advice. Research information on the general partners(s) involved in the management of the company and their history and credentials. Recent news or articles on the company. Contact your local securities commission for information on the principals