Limited Partnership
What does "Limited Partnership" mean in law?
A limited partnership (LP) is a partnership entity consisting of one or more general partners who manage the business and bear unlimited personal liability, and one or more limited partners who contribute capital and enjoy liability limited to their investment. Limited partnerships must be formed by filing a certificate of limited partnership with the state, unlike general partnerships which can arise informally. Historically, a limited partner who participated in the control of the business could lose limited liability protection, though modern statutes such as the Revised Uniform Limited Partnership Act have substantially relaxed this control rule. Limited partnerships are commonly used in real estate, private equity, and venture capital structures where investors seek limited liability and pass-through taxation while delegating management to a general partner.
Definition
A limited partnership (LP) is a partnership entity consisting of one or more general partners who manage the business and bear unlimited personal liability, and one or more limited partners who contribute capital and enjoy liability limited to their investment. Limited partnerships must be formed by filing a certificate of limited partnership with the state, unlike general partnerships which can arise informally. Historically, a limited partner who participated in the control of the business could lose limited liability protection, though modern statutes such as the Revised Uniform Limited Partnership Act have substantially relaxed this control rule. Limited partnerships are commonly used in real estate, private equity, and venture capital structures where investors seek limited liability and pass-through taxation while delegating management to a general partner.
Example
In a real estate limited partnership, the development company served as the general partner managing the construction project, while 20 individual investors served as limited partners whose maximum exposure was their $100,000 capital contributions.