Limited Partnerships (LP) at a Glance
A Partnership + Protection
- An incorporated business, that offers a more asset protection than a general partnership.
- Owned by at least one general partner and at least one limited partner.
- General Partner - A general partner is actively involved in managing the business, but is also personally liable for it.
- Limited Partner - A limited partner acts as an investor, providing capital and sharing in any profits (and losses), but is not involved in the management of the business. Limited partners have limited liability, their personal assets are not at risk if the business is sued.
- Combining resources – The partners share in the financial responsibilities of the business, meaning that there is a larger pool of money to work with.
- Protection = More Attractive = More Investors
Limited liability for limited partners is likely to attract more investors, as they know they will not be held personally liable for the business.
- Unlimited Liability for General Partners – General partners all share the risk of personal liability. You are responsible for your own actions, and the actions of other general partners.
- Limited Power for Limited Partners - Since a limited partner is essentially an investor, the money they put into the business is at the mercy of the general partners.
FOOD FOR THOUGHT ...
- A Warning to Limited Partners - If a limited partner wants to maintain their limited liability, they must not take part in managing the business. The more "active" they become, the more likely they will be held personally liable in the event of a lawsuit
- Limited Liability Limited Partnerships (LLLPs) - Recent law changes have created variations of a Limited Partnership, called Limited Liability Limited Partnerships (or LLLP) which follow the structure of LPs, but offer enhanced protections for general partners. Since this business structure is still relatively "new", LLLPs are not recognized by all 50 states yet.