A limited partnership has at least one general partner and one limited partner. The general partner has the same role as in a general partnership: controlling the company’s day-to-day operations and being personally liable for business debts.
Limited partners need to understand that they can become personally liable if they do not stick to their passive role. Also, if a limited partner starts taking an active role in the business, that partner’s liability can become unlimited. If a creditor proves that a limited partner took acts that led the creditor to believe that he or she was a general partner, that partner can be held fully and personally responsible for the creditor’s claims.
Advantages of a limited partnership include:
Protection of personal asset : The limited partnership structure offers liability protection up to the amount of the investment for the company’s limited partners.
Pass-through taxation: A limited partnership’s income is not taxed at the business level; instead, business profit and loss are “passed through” to the partners for reporting on their personal tax returns.
Full oversight: The general partner has complete management control of the limited partnership.
Investment potential: Limited partnerships can make capital investments by adding more limited partners.