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What is a limited partnership?

A limited partnership (LP) is a form of business structure that consists of both general partners and limited partners. It is a type of partnership that provides a degree of limited liability for certain partners, making it a hybrid structure that combines elements of a general partnership and a limited liability partnership.

Here are key features of a limited partnership:

1. General Partners: In a limited partnership, there must be at least one general partner. General partners have management authority and are actively involved in the day-to-day operations of the business. They also have unlimited personal liability for the debts and obligations of the partnership.

2. Limited Partners: A limited partnership must have one or more limited partners. Limited partners contribute capital to the business but do not participate in the management of the partnership. Unlike general partners, limited partners have limited liability, and their personal assets are generally protected from the business's debts and liabilities.

3. Limited Liability: Limited partners enjoy limited liability, meaning that their potential financial exposure is limited to the amount of their investment in the partnership. This is a significant advantage for investors who want to participate in the business without taking on the same level of risk as general partners.

4. Contribution of Capital: Both general and limited partners contribute capital to the partnership, but their roles and responsibilities differ. General partners typically contribute both capital and expertise, while limited partners contribute capital without actively managing the business.

5. Management Authority: General partners have the authority to manage the business and make decisions on behalf of the partnership. Limited partners, on the other hand, have a more passive role and do not participate in the day-to-day management of the business.

6. Profit and Loss Distribution: Profits and losses in a limited partnership are typically distributed among the partners based on the terms outlined in the partnership agreement. General partners often have a greater share in the decision-making and a larger share of the profits, but this can vary based on the agreement.

7. Formation and Registration: Limited partnerships are usually formed by filing the necessary documents with the state or local business registration authorities. The partnership agreement, which outlines the roles, responsibilities, and profit-sharing arrangements of the partners, is a key document in the formation process.

Limited partnerships are often used in situations where investors (limited partners) want to participate in a business venture but do not want to be actively involved in its management. It's important to comply with the legal requirements and regulations related to limited partnerships in the jurisdiction where the business operates. Consulting with legal and financial professionals is advisable when establishing and operating a limited partnership.

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