Limited Partnership

Business partnerships can be either general or limited, and as far as tax codes are concerned, exist as long as profits, losses and costs of a business are shared. While general partnerships are more common, limited partnerships are a popular method of raising capital from passive investors who prefer to not be involved in day-to-day business operations. Limited partnerships (LPs) have two sets of partners, namely one or more general partners who have personal liability and one or more limited partners who are not liable for debts. Business owners who do not want the liability for the debts incurred by the corporation prefer this option. Limited partners usually do not play any role in the day-to-day management of the company.

Credits to www.businessdictionary.com

Pros of Limited Partnerships:

• Generally, pass-through taxation is applicable to limited partnerships, meaning that the tax burden is passed on to the partners instead of the partnership itself. Thus, profit earnings are passed on to the partners in the form of wages, income, and profit payments and each partner pays tax that is proportionate to his individual share of profits.
• A business can obtain much-needed investment capital by giving more passive investors the option of reducing their risks by becoming limited partners
• Since there is no direct involvement of limited partners in the management of the business, general partners enjoy full autonomy and have the right to make important business decisions.
• In the case of a general partnership, all partners are responsible for the debts and other liabilities. The liability of a limited partner does not exceed his capital investment in the company.