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What is a Limited Partnership?

The limited partner in such a partnership usually has little managerial authority in the daily operation of the business.
Limited partnership investments are often the ideal way to marry resources.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 November 2014
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Limited partnerships are partnerships in which one or more of the partners contribute to the establishment and the ongoing operation of the business but do so without the full authority granted to a general partner. The limited partner generally has limited or no managerial authority when it comes to the daily operation of the business, and is only liable for the debts of the business up to the amount of their investment in the company. The limited partnership model is used extensively in many countries around the world, and is considered one of the most common types of business models.

It is not unusual for people to confuse a limited partnership with a limited liability partnership. The main difference is that with a limited liability partnership, all partners have some type of limit on the extent of their liability. With a limited partnership, at least one partner is classified a general partner and thus assumes more liability than any of the limited partners.

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One of the advantages of a limited partnership company is that the structure allows the limited partner to invest in the company without having to undertake the same level of risks as a general partner. In most countries, the degree of risk is limited by the amount of resources the partner actually invests in the business, effectively creating a cap on how much of a loss the limited partner can incur. At the same time, the partner is likely to enjoy greater financial rewards from his or her participation than would be possible as a shareholder.

Limited partnership companies also make it possible to have a stake in the success of a business without the necessity of being actively involved in the management of the company. For this reason, a limited partnership is an ideal arrangement for investors who have a great deal of confidence in both the company and the leadership of the general partner or partners. The limited partner buys into the business and then focuses on other matters while the general partner takes care of the day to day details. As long as the company is operating with a net profit, the limited partner is likely to earn a respectable sum in exchange for his or her involvement but without the need to put in any effort.

For the general partner, taking on one or more limited partners in a limited partnership is often a great way to obtain financial support without giving up much in the way of day to day control of the business. In the best case scenario, the general partner retains control of all aspects of the company’s operations, sets its goals, develops and refines the corporate identity and mission, and in general runs the business as if no other partners were involved. This makes the limited partnership ideal for proficient business people who want to move quickly and not have to obtain permission from other partners before initiating any type of action.

Limited partnership investments are often the ideal way to marry resources needed to establish a company with the expertise and vision required to make the company profitable. This type of business structure is often used in the entertainment industry, making it possible to create distribution and production companies for the purpose of developing and executing motion picture projects. This type of partnership also works very well in many retail situations as well as with manufacturing companies.

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