Benefits and disadvantages of a Limited Partnership (LP)

When attempting to form a Partnership, one option to explore is forming a Limited Partnership (LP). The Limited Partnership is basically a Partnership with at least one general partner. Everyone else may be limited liability partners. This is known as a silent Partnership in several areas.

Limited Liability Partners

One of the most significant benefits for a limited partner in the Limited Partnership is that he or she bears only limited responsibility. If the company goes bankrupt or is sued, the limited partner is solely accountable for his investment in the company and its assets. He or she is not personally accountable, and the limited partner cannot be sued as an individual unless he or she has done anything as an individual that makes him or her culpable. The drawback is that the limited partner has little input in daily business concerns or major decisions. If he or she becomes too involved in day-to-day operations, the limited partner may lose his or her limited partner position and become a general partner.

Partners in Charge

One of the most significant benefits for a general partner in a Limited Partnership is that he or she retains the majority of the Partnership’s authority. As comparison to the general partner, restricted partners may only engage insignificantly. This implies that, for the most part, the general partner has the authority to make decisions and steer the Partnership in the desired direction. If there is more than one general partner, this power is divided equally unless otherwise specified in the Partnership Agreement. The general partner’s disadvantage is that he or she bears all personal risk. If a judgment is obtained against the Partnership, this individual may be held personally accountable and his or her personal assets taken to make up for the missed payments. Even if the general partner has done nothing illegal, he or she may be held personally accountable in specific instances.