A limited partnership (LP) carries some similarities and differences with a general partnership. A limited partnership shares management control with a “general partner” and any number of “limited partners”. These partners have limited liability that is proportionate to the amount of capital or resources they invested into the company.

Limited partners are almost “silent partners”, they can make investments but have minimal management authority over the company’s daily operations. They are attractive as a source of capital.

A limited partnership is most attractive for law, accounting, and finance firms. Businesses that specialize on time-restricted projects are also likely to choose to be represented as an LP.

Advantages of a limited partnership:

An LP enjoys personal asset protection proportionate to the amount of investment received from its limited partners.

An LP’s income tax, business profits and losses, are “passed through” to the partners on their personal tax returns.

A general partner enjoys full management control and responsibility of the company.

Additional limited partners can be added to increase capital investments.

Forming an LP involves maneuver through a number of issues. This can affect the limited liability advantages provided by the LP. These include roles of the limited partners and the effects of death, bankruptcy, or insolvency of a general or limited partner.

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