Limited Partnerships

A limited partnership is a partnership in which the duties and obligations of the partners are divided between "general partners" and "limited partners".  Usually, the formation and operation of limited partnerships are regulated under state statutes, defining the obligations and duties of these classes of partners and imposing other obligations. For example, limited partnership statutes usually require that a certificate of limited partnership containing specified information be filed in designated government offices and be kept current.

• A "general partner" is a partner who is responsible for managing the partnership and its operations. Like the partners in a general partnership, general partners in a limited partnership are personally liable for all of the partnership’s debts and other obligations.
• A "limited partner" is one who is prohibited from taking part in the partnership’s management and day-to-day operations. Unlike the "general partner", the limited partner is usually not personally liable for the partnership’s debts and other obligations. Thus, the only risks taken by limited partners are the money or other assets that they have invested in the partnership and any loans made to the partnership.

 A limited partner participating in management of the limited partnership may become personally liable, however, for partnership debts and obligations. Limited partners are, nonetheless, typically given certain voting rights with respect to major partnership decisions such as:

• The sale of all (or substantially all) of the partnership’s assets
• The admission, removal, or retention of a partner

 A person can be both a general and limited partner of a limited partnership.

The death or resignation of a limited partner does not cause the dissolution of a limited partnership. However, limited partnership statutes typically provide that if a general partner dies or resigns, the limited partnership will be dissolved unless certain conditions are met. For example, usually there must be at least one remaining general partner, and the certificate of limited partnership that has been filed with government authorities must authorize the remaining general partner(s) to continue the business. The limited partnership may also be continued if all the remaining general partners and a specified percentage of the limited partners agree in writing to continue the business within a certain time period.

The advantage of limited partnerships is that limited partners are not personally responsible for the partnership’s debts and other obligations. As a result, it is far easier to market limited liability partnership interests as an investment, particularly with respect to discrete projects such as real estate development.

Tax Treatment of Limited Partnerships

Partners of a limited partnership are generally taxed in the same way as the partners of a general partnership. They are also given the same flexibility to allocate profits, losses, and gains regardless of the percentage of equity interest in the partnership.