What do you mean by Limited Partnerships

Question

What do you mean by Limited Partnerships?

Answer 1

In a limited partnership, one or more of the partners limits their liability to the amount of their capital contributions. There must be at least one or more general partners whose liability is unlimited. A limited partner may not take an active part in the management of the partnership, but she is permitted to be an employee of the limited partnership and may provide management advice. It can be a difficult balancing act if the limited partner chooses to exercise some control, she will incur unlimited liability; but if she does not, there may be instances where the business is at risk to fail.

While a general partnership exists as soon as the partners start carrying on business together, a limited partnership does not exist until a declaration has been filed with the appropriate government authority. Limited partnerships are not often used, except for tax-planning purposes. Incorporation is a more effective way to obtain limited liability.