A limited partnership is a form of business structure that is similar to a general partnership or traditional partnership but has it’s own unique features.
The best way to understand a limited partnership is that there are two classes of partners involved in this business structure which consists of general partners and limited partners.
General partners are the ones who control and manage the day to day running of the business. Limited partners are the investors who pour in their money into the business partnership but they are usually not involved in the decision making of the business.
NOTE: As for accountability, in terms of financial obligations limited partners have limited liability whilst general partners have unlimited liability which has an economic risk of being personally liable for all debts.
Limited Partnership Agreements
Since we have already established that a limited partnership business has general partners and limited partners. We will now move forward to describe what a generic limited partnership agreement looks like.
For example, a limited partnership company might have a private equity firm acting as general partners whilst on the other hand you have institutions or high net individuals acting as limited partners.
What this means is these institutions such as pension funds, investment companies or individuals will invest into a limited partnership company which is managed by the general partners, who may happen to be either a venture capital firm or private equity firm.
The end result is that the general partners will take that money on behalf of limited partners and spend it on investments such as private companies, startup businesses or even on public listed companies.
Advantages of Limited Partnerships:
Forming a limited partnership company has some good advantages which comes with it and these are as follows:
- Limited partners have limited liability protection after investing into the business
- Because of limited liability this acts as an incentive for general partners to attract more investors.
Disadvantages of Limited Partnerships:
The following is a list of disadvantages which are to be expected when setting up a limited partnership.
- General Partners have unlimited liability in a limited partnership
- If limited partners start to manage the business they will also end up with unlimited liability.