A business structure that includes at least one general partner who manages the business and assumes unlimited liability, and one or more limited partners who contribute capital but have limited liability and no active management role.
What is a Limited Partnership (LP)?
A Limited Partnership (LP) is a legal business entity formed by two or more people, where roles and liabilities are divided between general partners and limited partners. The general partner oversees daily operations and is personally liable for the debts and obligations of the business. The limited partner’s role is primarily financial; they invest in the business and share in the profits but are not involved in management decisions. Their liability is limited to the amount they have invested in the partnership.
LPs are often used for investment projects, real estate ventures, or other situations where some partners want to provide capital without being involved in day-to-day operations. This structure allows passive investors to benefit from the business’s success without risking more than their contribution, while still giving the general partner full authority to run the business.
In the U.S., LPs must be registered with the state, and most states require a formal agreement outlining the rights, responsibilities, and profit distribution among partners. Non-U.S. residents can be either general or limited partners in a U.S. LP, making it an attractive option for cross-border investments. However, they should be aware that the general partner’s unlimited liability can pose significant personal risk, and LP income may still trigger U.S. tax obligations depending on the nature of the business.
Because the management authority and liability are divided, LPs are best suited for ventures where one party actively runs the business and others wish to remain hands-off while still participating financially.
