4.2.  Limited Partnerships

A limited partnership (LP) is a business organization that must have a minimum of two members: at least one general partner and at least one limited partner. General partners control the day-to-day operations of the business and are personally liable for its debts. Limited partners are passive investors who enjoy limited liability and cannot actively participate in business decisions. General partners are often LLCs or corporations to protect their owners from personal liability.

The primary defining feature of a limited partnership is “flow-through tax consequences” for the limited partners. A limited partnership is not federally taxable as a separate entity like a C corporation is. In fact, the income from C corporations is subject to double taxation because earnings are taxed first at the corporate level and then again as dividends. Instead, profits or losses from a limited partnership “flow through” to the personal income tax filings of the partners, allowing these earnings to be taxed only once. Limited partnerships usually also have a termination date written into their certificate of partnership. A certificate of partnership is a document that names all the members of a partnership.

The general partner has the authority to sign legally binding contracts and buy and sell property on behalf of the partnership. He may receive a salary and may charge fees for his activities within the business.

The general partner has unlimited liability related to the LP, which means his pers