A Limited Partnership (LP) is a form of business organization that consists of at least one general partner and one limited partner.
The general partner manages the business operations and is personally liable for the debts and obligations of the partnership. This means they take on full responsibility for any financial liabilities incurred by the business. The limited partner, on the other hand, has limited liability, which means their financial risk is restricted to the amount they invested in the partnership. Limited partners typically do not participate in day-to-day management and decision-making of the business.
One key feature of a Limited Partnership is the distinction in roles: while the general partner takes on managerial responsibilities, the limited partner’s involvement is generally passive. This structure is advantageous for investors who wish to limit their exposure to risk while providing capital to a business or project.
For example, in a real estate investment, a real estate developer may act as the general partner and manage the project, while investors contribute funds as limited partners. The limited partners benefit from any profits generated by the project without being responsible for operational decisions or liabilities beyond their investment.