Direct Participation Programs - General Characteristics

What this video covers

• What a direct participation program (DPP) is, and why "flow-through of tax consequences" is the defining feature that distinguishes it from C corporation double taxation
• The three DPP structures (limited partnership (LP), limited liability company (LLC), S corporation), and the specific 100-shareholder limit that applies only to S corps
• The division of roles between general partner (GP) and limited partner (LP): who manages, who is passive, and who owes fiduciary duty to whom
• Why a limited partner who participates in day-to-day management risks losing limited liability protection and may be treated as a general partner
• How recourse debt increases a limited partner's maximum loss exposure beyond cash contributed, and the exact math the exam expects you to calculate
• The tax filing sequence: Form 1065 as an informational return only, Schedule K-1 issuance to each partner, and the critical fact that the partnership itself pays zero income tax
• What limited partners CAN do (vote on fundamental matters, inspect books, sue for breach of fiduciary duty, invest in competitors) versus what they CANNOT do (bind the partnership, act as agent, manage daily operations)