Advantage & Disadvantages of Limited Partnerships

Limited partnerships, not to be confused with limited liability partnerships or limited liability limited partnerships, are a form of corporate organization. With both general partners and limited partners, limited partnerships offer significant advantages for investment. By allowing limited partners to be responsible only for the capital invested in the partnership (and thus limiting personal liability), limited partnerships offer significant advantages as an investment vehicle. However, limited partners do not have the same amount of control over a partnership as a general partner.

Definition

Limited partnerships are similar to a general partnership, but only need one general partner (though they may have more). In addition to the general partner, they allow limited partners, who have no management control and are not authorized agents of the corporation.

Investment Vehicle

By allowing partnership without management control, a limited partner may use the partnership as an investment vehicle much like owning stocks.

Control

Limited partners are not authorized agents of a partnership and cannot control the partnership's actions. This is both an advantage and a disadvantage, as it allows investment with few responsibilities, but gives less control than a general partner.

Limited Liability

Although general partners will generally have full liability for suits against company assets, limited partners are shielded up to the amount invested. This means that a limited partner cannot be held personally liable for the liabilities of the partnership.

Taxation Benefits

Limited partnerships may allow significant benefits for estate planning. By having children join a business as a limited partner, parent general partners may reduce their estate. Proper estate planning should be done with the assistance of an attorney.