What is a limited partnership (LP)?
A limited partnership (LP) – not to be confused with a limited liability company (LLP) – is a general partnership made up of two or more partners. The general partner supervises and manages the business while the limited partners do not participate in the management of the business. However, the general partner has unlimited liability for the debt, and any limited partner has limited liability up to the amount of his investment.
Key points to remember
- A limited partnership exists when two or more partners start together, but one or more of the partners are responsible only up to their investment.
- LP’s general partner has unlimited liability.
- There are three types of partnerships: limited partnership, general partnership and joint venture.
- An LP is different from an LLP in that the LLP
- Most US states govern the formation of limited partnerships, requiring registration with the Secretary of State.
Understanding limited partnerships
Typically, a partnership is a business owned by two or more people. There are three forms of partnerships: general partnership, joint venture and limited partnership. The three forms differ in various aspects, but also share similar characteristics.
In all forms of partnerships, each partner must bring resources such as goods, money, skills or work to share the profits and losses of the business. At least one partner participates in the decision-making concerning the current business of the company.
All partnerships must have an agreement that specifies how to make business decisions. These decisions include how to allocate profits or losses, resolve conflicts and change the ownership structure, and how to close the business, if necessary.
LPs are often trained to manage passively managed businesses and to raise funds for investment purposes.
Types of partnerships
An investment partnership is a type of business creation. It is a partnership generally structured like a holding company created by partners or companies for investment purposes. These investments may include, but are not limited to, other businesses, securities and real estate.
A limited partnership is generally a type of investment partnership, often used as an investment vehicle to invest in assets such as real estate. LPs differ from other partnerships in that the partners may have limited liability, which means that they are not responsible for commercial debts that exceed their initial investment. In a limited liability company (LLC), the general partners are responsible for the daily management of the limited partnership and are responsible for the financial obligations of the company, including debts and disputes. Other contributors, known as limited or silent partners, provide capital but cannot make management decisions and are not responsible for any debt beyond their initial investment.
A general partnership is a partnership when all the partners share the profits, the responsibilities of management and the responsibility for the debts in an equal way. If the partners plan to share the profits or losses unevenly, they must document it in a legal partnership agreement in order to avoid future disputes.
A joint venture is a general partnership which remains valid until the completion of a project or until a certain period. All partners have an equal right to control the business and to share in profits or losses. They also have a fiduciary responsibility to act in the best interests of other members as well as the company.
Limited Liability Partnership
A Limited Liability Partnership (LLP) is a type of partnership where all partners have limited responsibility. All partners can also participate in management activities. It does not look like a limited partnership, where at least one general partner must have unlimited liability and the limited partners cannot be part of management.
LLPs are often used to structure professional service companies, such as law and accounting firms. However, LLP partners are not responsible for the misconduct or negligence of other partners.
Special considerations for a limited partnership
Almost all states in the United States govern the formation of limited partnerships under the Uniform Limited Partnership Act, which was originally introduced in 1916 and has since been amended several times. The most recent revision dates back to 2001.TheThe majority of the United States – 49 states and the District of Columbia – have adopted these provisions, with Louisiana being the only exception.TheThe
To form a limited partnership, partners must register the business in the state concerned, usually through the office of the local secretary of state. It is important to obtain all relevant commercial permits and licenses, which vary by locality, state or industry. The United States Small Business Administration lists all the local, state, and federal permits and licenses required to start a business.TheThe
In music, LP means long-play, which is another word for an album. An LP is longer than a single or extended reading (EP) album. It was originally used to describe longer vinyl albums. However, it is now also used to describe CDs and digital music albums.