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question.jpgIn Business Law

What is a limited partnership?

A general partnership is where all of the partners are actively involved, to one degree or another, in the control and management of the partnership. These general partnerships, which are the most common type of partnerships, are distinguished from limited partnerships, where some of the partners are silent investors with no management or control of the partnership. Thus, there are two types of partners involved with a limited partnership - the general partners and the limited partners. These general partners control and manage the partnership, which means that they are personally liable for the losses and debts of the business. The limited partners, however, are simply investors and are therefore afforded limited liability - thus, they are only personally liable to the extent they have invested in the partnership (so if I am a limited partner and have invested $10,000, no matter how much financial trouble the partnership gets into, I cannot generally end up losing more than my original $10,000 investment). Limited partners must be careful, however, because if they become involved at all in the management of the business, they may be deemed general partners, which means they lose this liability protection

Limited partnerships are somewhat more complex than general partnerships because of this split tier of partners, and they generally have to file additional documents with the relevant state governmental authority. These days, most new businesses choose to form an LLC rather than a limited partnership, because this offers most of the same advantages of a partnership, but it adds limited liability protection to all owners, not just the non-managing investors.