Established Exit Strategies for Limited Partners

Having an exit strategy is critical to achieving financial success if you are a limited partner. Limited partners, who invest in a partnership but have no control over its management, need to have a clear idea of how to get a return on investment. This blog will explore some of the best ways to get out of a limited partnership.

One common exit strategy is selling the partnership interest to a third party. This may be done through a private sale or a public offering. Limited partners can either sell their entire interest in the partnership or sell a portion of their interest to a new investor. The market and the valuation of the partnership’s assets will determine the sale price.

Another option is to request the partnership to redeem its interest in the partnership. The partnership can agree to purchase the limited partner’s interest in the partnership. This approach requires the partnership to have sufficient liquidity to buy back the interest of the limited partner.

In some cases, the partnership may decide to go public through an initial public offering (IPO). In this case, the limited partner can sell their shares on the stock market and exit the partnership. However, it is important to note that not all limited partnerships are structured for an IPO, so this may not be an option for all limited partnerships.

A partnership may be acquired by another company or merged with another partnership. If this happens, limited partners may receive cash, stock, or a combination of both for their partnership interest. In most cases, mergers or acquisitions can offer limited partners a premium on their investment.

A partnership can also be liquidated, with its assets sold off and the proceeds distributed to the partners. In this scenario, the limited partner may receive a share of the proceeds based on their percentage of ownership in the partnership.

Having an established exit strategy in place is critical. Limited partnerships are considered to be illiquid, or assets that are not easily liquidated. This is why you should consider the various options available to you and work closely with the partnership management to ensure that you are getting the best possible return on your investment. 

Whether selling LP interests, requesting a redemption, going through an IPO, or waiting for a merger or acquisition, a clear exit strategy can help ensure that you will be able to realize the full potential of your investment.

A Limited Partnership (LP) is a type of business partnership where there is limited liability. The role of a Limited Partner is to provide capital for business investment, but they are not part of the day-to-day operations. Limited Partners always have a General Manager on board who is responsible for managing the business, and representing the interests of the Limited Partners.

Depending on the amount of capital, a limited partner will receive a share of the partnership’s profits. However, as they are not a crucial part of operations, they have limited control over the company.

Selling your LP interests is a great option if you are looking to exit the partnership without incurring too many costs. It will also allow you to negotiate for the best possible price. Additionally, it can help eliminate any tax implications of liquidation and offer more flexibility in terms of timing and structure.

In the past 14 years, LP Equity has successfully created a secondary market for illiquid limited partner interests. We have invested over $50M in direct partnership buyouts, acquiring minority interests in over 400 different partnerships while helping thousands of limited partners simplify their finances and escape continuing tax liabilities. 

Our principals have over 25 years of industry experience and are experts in tax, government regulatory, and partnership issues. We can help you govern these types of transactions and eliminate recapture issues. With our extensive industry knowledge and long-term investment horizon, we are your best option to successfully sell your Limited Partnership.

If you need help understanding your K-1 or selling your limited partnership, give us a call at 910-509-7202.