Being the “Limited Partner” in Limited Partnerships - LP

The term "partnership " takes a broader meaning in lay terms versus the true meaning in a court of law, particularly pertaining to liability. Many people assume the term partnership it is referring to a General Partnership . In a general partnership, all partners participate in the daily management of the business. How Limited Partnerships differ from General Partnerships is that Limited Partnerships are set up by companies desiring to invest money in other businesses.

Usually, Limited Partnerships have at least one General Partner who controls the company's day-to-day operations and is also personally liable for business debts. Limited partnerships also have passive partners , who are also known as Limited Partners . The Limited Partners invest money into the business, but have little control over the daily business decisions or operations. Passive partners have not fiduciary or active responsibilities.

In return for giving up their management power in the limited partnerships, a Limited Partner's personal liability will be capped at the amount of his investment. This means that the Limited Partner's investment can be used in paying off any partnership debts, but the investor's personal assets cannot be touched. This is what is better known as " Limited Liability ." However, a Limited Partner who tinkers with management of the business or conducts business on behalf of the business could lose his limited liability status.

The downside about the business of a limited partnership is that a limited partnership can be both as costly and complicated as doing business as a corporation. Anyone having an interest in the creation of Limited Partnerships must consult an attorney and experts in Asset Protection who have extensive experience setting up Limited Partnerships .