Partnerships are one form of legal entity that conducts a business for profit. Usually, professional firms, especially law and accounting practices, were set up as partnerships. Small commercial businesses having more than one owner also have used the partnership form.

The business owners do not have to be equal owners. In fact, not only may the ownership percentages be different, but there may be different classes of ownership. For example, in a “C” corporation there may be preferred stock and common stock, and each of these broad classes may be subdivided even further. Similarly, it is possible to have different classes of ownership in a partnership: general partners and limited partners. If a partnership has only general partners, it is called a general partnership; if it has one or more limited partners and at least one general partner, it is a limited partnership. There must always be at least one general partner in a limited partnership.
Family Limited Partnership General Partners

A general partner has unlimited personal liability for the partnership’s debts. Unlike a corporate shareholder, if things go badly in the business, the general partner's personal assets are not insulated from the reach of the partnership's creditors. In fact, the general partner is in greater jeopardy; he is held personally liable for partnership-related contractual commitments made by other partners and for their negligent or wrongful business acts, as well as for his own.

Therefore, the general partner is of necessity exposed to considerable risk, much of which is beyond his control. As protection against such risk, the general partner may be a corporation which insulates from unlimited liability is possible for the owners.
Family Limited Partnership Limited Partners

The situation is much different for the limited partner. Like the corporate shareholder, the limited partner's liability extends only to the amount of his investment in the partnership. Consequently the limited partner's personal assets are shielded from partnership creditors, but his capital investment in the business is at risk.

What the limited partner has to sacrifice to achieve this protection from personal liability is having any voice in the operational affairs of the partnership, which is strictly the prerogative of the general partner(s). All the same, the limited partner has the right to participate in the profits of the partnership as a reward for putting capital at risk.

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