Limited Partnership Definition: Everything you Need to Know

limited partnership definition

If you are trying to be as informed as possible about the different types of organizations in which your business can be administered, you might as well be well informed about LPs. That is in fact what made us, the Corporation Center, write this article: we want to give you the exact limited partnership definition, in order to let you decide if it will be up to the standards of your association. Without further ado, read on and find out!

What is a Limited Partnership?

If you want to know the exact limited partnership definition one of the best explanations is that of Forbes. A limited partnership (LP) is a business entity with at least one general partner (who has unlimited personal liability) and one limited partner (whose liability is limited to their investment in the company). The general partners are responsible for managing the business and making business decisions to achieve the stated business goals. The limited partners, also sometimes called silent partners, are responsible only for investing in the business, not running it.

The main difference with a general partnership is that in that case, every partner remains personally liable for the debts of the partnership. In our case, one of the general partners is separated from the others. Limited partnerships have existed for many years: the purpose is to allow some of the members of this type of association to invest in the partnership without having to worry about the actions of other partners. LPs keep the same tax treatment and contractual flexibility as general partnerships.

Benefits and Disadvantages Of Limited Partnerships

Among the advantages that having a limited partnership would give to your organization, you have the following:

  • Access to skills and expertise of general partners and financial resources of limited partners.
  • The financial liability of limited partners is limited to their investment amount.
  • The managers can not interfere with the decisions the investors make.
  • Limited Partners can choose to retire at any time without affecting the management of the business.
  • The taxation is made simpler, given that you are only taxed once.

However, and pretty much like any other type of association and per definition, limited partnerships have their drawbacks as well. General partners, for instance, have unlimited liability for business debts, while limited partners can not take part in any business decisions. Furthermore, this way of organizing your business requires more compliance and paperwork than general partnerships. Finally, limited partners can be found responsible for expenses the lp incurred due to their actions.

limited partnership definition

The Corporation Center can Help You Start Your Limited Partnership

After learning about what the limited liability definition is and the many advantages this type of organization has, you can make a decision about the association you want to launch. If you still feel you could use some advice, contact the Corporation Center. You can contact us by email if you write to us at Explore our site.  We can find out together what the best way to continue your business is!