About Me

Limited partnership definition

A limited partnership must have at least one general partner and at least one limited partner. So, a limited partnership is a business owned by 2 or more people.

In this relationship, one partner is silent while the other makes all of the business decisions.

I’m not as cheap as a general partnership, because you’ll need paperwork to make it official.

Oh, and by the way, one partner will get stuck with all of the debt and lawsuits [if sued]. The other partner can live a carefree lifestyle knowing they won’t be legally responsible for any company debts and obligations.

A general partner manages the business of the partnership and has unlimited personal liability for the debts and obligations of the partnership. A limited partner, on the other hand, has limited liability, but cannot participate in the management of the business.

Personal History

Uniform Limited Partnership Act

Your state’s laws cover how limited partnerships work.

However, many states follow the Uniform Limited Partnership Act (ULPA).  The Uniform Law Commission (ULC) created the ULPA so that the law could be the same throughout the United States.

But the law isn’t perfect. For example, the ULPA is not the same in every state that uses it. Also, states don’t have to adopt the most recent version of the ULPA.

Powers, Duties, and Liabilities of Limited Partners

A limited partnership must have at least one general partner and at least one limited partner.

In a limited partnership, limited partners and general partners don’t have the same legal status.

In a general partnership or limited liability partnership, partners usually have the ability to manage and control the partnership. However, in a limited partnership, the limited partners don’t participate in the management or control of the business.

So, only the general partners are allowed to manage the company. Also, limited partners don’t have any fiduciary duties.

Keep in mind that some states allow limited partners to vote when it comes to business decisions. This loophole will not cause the limited partner to be in control of the business.

Generally, limited partners don’t have any legal liability. On the other hand, general partners have the right to manage the business, but also are on the hook for any company debt and/or obligations.

Likes & Dislikes

Advantages

• Limited partners have the legal protection that protects their personal assets, which can be conditional or unconditional depending on the state’s [ULPA] laws
• A limited partnership has flexibility, because it can be structured many ways. For example, the partners can be individuals, other partnerships, corporations, limited liability companies, etc.
• Unless the limited partnership agreement says otherwise, a partner may transfer their ownership in the partnership business.

Disadvantages

• General partners have unlimited or nearly unlimited liability depending on the state’s [ULPA] laws. Keep in mind, general partners may be organized as a limited liability entity, which can eliminate this disadvantage.
• Limited partners usually have fewer rights than general partners, because they can’t participate in the limited partnership’s management, unless the partnership agreement says otherwise.
• Limited partnerships must be registered with the applicable state.

The Competition

Limited partnership vs LLC

Both of these business entities allow the owners to have liability protection. However, in some states, the partners in a limited partnership will have less liability protection than in an LLC. So, the liability protection for partners in a limited partnership will depend on the state’s laws.

LP vs LLLP

A limited liability limited partnership (LLLP) is similar to a limited partnership, because both business entities have similar advantages and disadvantages. However, in most circumstances, the general partners are not responsible for the partnership’s debts [unlike in a limited partnership].

Limited partner v. general partner

In a general partnership, none of the partners have any liability protection. On the other hand, limited partners have liability protection, which depends on the state’s laws.

Limited partnership vs. limited liability partnership

In an LLP (limited liability partnership), all of the partners have liability protection. However, in a limited partnership, the general partner doesn’t have any liability protection. But the limited partner does have [some] liability protection.

Hobbies

To get started, limited partnerships must file a certificate of limited partnership. The limited partnership’s name must be included in the certificate of limited partnership.

Limited Partnership Agreement

Partnership agreements explain how the business will be managed.

Keep in mind that if the partners don’t create a limited partnership agreement, then the state’s default rules for limited partnerships will apply.

Some conditions that should be included in the agreement are:

• The limited partnership name. Your business name should include any of the following: “limited partnership,” “limited,” the abbreviation “L.P.” or “Ltd.” or the designation “LP.”
• The DBA for the limited partnership
• The names of the partners, and describe which partners are limited and general partners
• The agreement should describe the business as a limited partnership and which state it was created in
• The start date of the partnership agreement
• The location of the business
• If desired, a clause for adding new members
• If desired, a clause that allows new assignees of the limited partnership’s interests
• If desired, a clause that allows or doesn’t allow the assignment of the limited partnership’s interests
• How much money each partner invested
• How much property each partner invested
• The property contributed by each partner
• A clause that allows for the return of partnership contributions (if the partners agree)
• How to split the profits and losses amongst the partners
• A provision for management of partnership affairs, including a description of the authority of the general managing partner
• The accounting method for the business
• How the business will be terminated
• How the business’s assets will be distributed [if it goes out of business]

Wrapping It Up

Suing a limited partnership will have the most impact on general partners because they may have unlimited liability depending on the state’s laws. So, a general partner’s personal assets can be up for grabs if the business is sued or owes any debt.

But limited partners can just ride the coat tails of general partners. Since limited partners don’t have the risk of being sued personally. However, they don’t get much say-so in how the business operates or is managed, depending on the state’s laws.