Usually, when the term "partnership" is heard, it usually is referring to a general partnership. A general partnership is where all partners participate in the daily management of the business. Limited partnerships are quite different from general partnerships, and are set up by companies who wish to invest money in other businesses or real estate.

While limited partnerships have at least one general partner who is in control of the company's day-to-day operations and is personally liable for business debts. Limited partnerships also have passive partners known as limited partners. Limited partners invest money into the business but have minimal control over daily business decisions or operations.

In return for relinquishing management power, a limited partner's personal liability is capped at the amount of his investment. What this means is that the limited partner's investment can go toward paying off any partnership debts, but the investor's personal assets cannot be touched. This is known as "limited liability." However, a limited partner who starts puttering about with the management of the business may find himself losing his limited liability status.

Doing business as a limited partnership can be as costly and complicated as doing business as a corporation. For example, complex securities laws often apply to the sale of limited partnership interests. So, if you have an interest in creating this kind of business, it’s highly recommended that you first consult a lawyer having experience in setting up limited partnerships.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.