What is a Limited Partnership
What is a Limited Partnership?


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What is a Limited Partnership?

A Limited Partnership (LP) is a special type of Partnership created by state statute. A Limited Partnership consists of two classes of Partners: one or more Limited Partners and one or more General Partners.

A Limited Partnership is a common business structure for types of businesses that focus on a single or limited-term project. Limited Partnerships are also useful in situations where one or more financial backers prefer to contribute money or resources while the other Partners perform the actual work.

In a Limited Partnership only one Partner is required to be a General Partner. A General Partner shares characteristics similar to those of a Partner in a General Partnership, including individual liability for the acts of the Partnership or of any member of the Partnership engaged in carrying out Partnership business.

General Partners pay the Limited Partners a return on their investment - similar to a corporate dividend. The nature of the payment is usually defined in the Partnership Agreement. A General Partner is exposed to unlimited personal liability. It is for this reason that Limited Partnerships are sometimes set up so that the General Partner is a Corporation or an LLC.

A Limited Partner is similar to a shareholder in a Corporation or a member in a LLC, except that the Limited Partners have no inherent right to elect a board of directors. Limited Partners have no day-to-day involvement in the management or operation of the Partnership and are not generally liable for either the acts of the Partnership or of the General Partners. A Limited Partner does have certain rights to participate in certain limited decisions, such as the decision to liquidate and dissolve the Partnership. A Limited Partner's liability is normally limited to the amount of his or her investment in the Partnership.

Under state law, and in the absence of any special provision to the contrary in the Partnership Agreement, a Limited Partnership cannot be dissolved without the unanimous consent of all of the Partners.

Income from a Limited Partnership can be allocated each year among the Partners in a way that minimizes taxes. If the Limited Partnership meets certain criteria it can enjoy the benefits of pass-through taxation; otherwise it will be taxed as a Corporation.

Limited Partnerships are required to file the names and addresses of all General Partners with a state agency, usually the Secretary of State. A Limited Partnership may not have a name which is too similar to another Limited Partnership or Corporation operating in the same state.
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