Limited Partnership

One difference between a limited partnership (LPs) and a general partnership (GPs) is that along with one or more GPs there are also one or more LPs. The main difference is that LPs are responsible for limited liability in the company and they have no management responsibilities. Their liability is restricted to any debts acquired by the organization only to the degree of their portion of investment. LPs get paid according to their partnership agreement and usually consists of a dividend on their investment. LPs also differ from limited liability partnerships (LLP) in that LLP partners all have limited liability in the business.

Are you interested in investing in a limited partnership? Contact a certified and experienced accountant to evaluate your options in a limited partnership today.

LPs are required to file the appropriate documentation with the local state agency when the partnership is being created or incase of any changes to the partnership agreement. This is to distinguish them as a limited partner with limited liability in the company before the state. They must clearly divulge their partnership status when negotiating with others on behalf of the company to make it clear to the other party that they have a limited liability stake in the company. The company must also clearly identify who is a GP and a LP in any documentation, be it hard copy or electronic.

Rules of limited partnership:

• The general partner(s) has full management responsibility and runs the daily operations of the business.
• The limited partner(s) cannot incur responsibilities for the partnership.
• The limited partner(s) does not participate in the firm's daily operations.
• The limited partner(s) is only held liable for an equal share to his/her investment in the partnership.

Limited partnerships are very attractive to investors because of the limited liability they represent. The LP basically only serves to invest capital in the business and share in the profits to the extent of their investment. GPs have most of the power but they also hold the brunt of the liability should something go wrong. By the same token the GP has the freedom to run the business without interference. Should a limited partner decide to get more involved in the running and decision making of the company he/she runs the risk of being legally liable on equal footing with the general partner(s). In other words if a LP takes a more direct role in the daily operations of the business they will be held to the same liability obligations as a GP regardless of the contract he/she holds with the company.

Are you interested in investing in a limited partnership? Contact a certified and experienced accountant to evaluate your options in a limited partnership today.