A limited partnership (LP) is where two or more people own a business, but there are two classes of partners: general partners (who own and operate the business), and limited partners (who invest their money or property in the business, do not have the right to make decisions regarding the operation of the business, and do not have personal liability for business debts). The limited partnership was designed to allow limited partners to invest in the business, but not have the drawback of personal liability. However, personal liability still remains for the general partners.
Advantages of a Limited Partnership
Compared to a general partnership or sole proprietorship. The main advantage a limited partnership over a general partnership or sole proprietorship is the addition of limited partners. In a limited partnership, the general partners are still personally liable for the debts of the business, but the limited partners are not. Limited partners are also not given any say in how the company is run, which could make decisions easier to make.
Compared to a corporation or LLC. Compared to a corporation or an LLC, a limited partnership may be cheaper and easier to set up. Limited partnerships also have fewer formalities than an LLC or corporation.
Disadvantages of a Limited Partnership
Compared to a corporation or LLC. A corporation or an LLC is usually more advantageous than an LP, since they both provide personal liability protection for all owners, not just some of the owners.
It may also be easier to transfer an interest in a corporation or an LLC than an interest in an LP.