A Limited Partnership is a partnership that has at least one general partner and a limited partner. The general partners are involved in the day to day running of the business while a limited partner is usually not. Partnerships can usually handle a large number of limited partners due to the limited scope of their responsibility. The limited partner has made an investment in the partnership. This investment is usually monetary and allows the partner to get a vote in meetings as well as the right to be informed about any business transactions that may take place. A limited partner stays with the partnership even as general partners might change, enjoying perpetual existence.
• A limited partner is not held liable for any of the business transactions that take place in a partnership. They are not held accountable by law and will not lose personal property if the partnership they are affiliated with should find themselves in need of funds.
• A limited partner is responsible for reporting any of their profits or losses on their tax return. Whether it is another company that is the limited partner or if it is a personal tax return all income will need to be reported. Since a limited partnership is a non taxable entity the income is only taxed once before it reaches the limited partner.
• The Longevity of a limited partnership is ongoing. As long as there is still a partnership and there is at least one general partner then the limited partners will have perpetual existence.
• Control of limited partners is very limited. It can be limited by a contract or the general rules of a limited partnership. Most limited partners enjoy a vote at different business meetings and the right to vote out a general partner with a vast majority vote.
• The profits are split equally among partners, unless there is anything stipulating that they should be split differently.
• For the vast majority of limited partners, convenience is a key to success. They provide capital to a business and do not need to worry about the day to day operations of running that business. This can be a burden when and if the partnership is managed ineffectively, placing the limited partners funds in jeopardy.
Limited partnerships are usually formed when one partner does not want to have anything to do with the running of the business. They can also be formed when someone is in need of financial backing for a business idea.
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