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What Are the Advantages and Disadvantages of a Limited Partnership (LP)?

What Are the Benefits for Limited Partners?

One of the biggest advantages for a limited partner in the Limited Partnership is the fact that he or she only faces limited liability. If the business goes bankrupt or is sued, the limited partner is only liable up to his investment in the business and the business's assets. He or she isn't personally liable, and unless the limited partner has done something as an individual to make him or her liable, he or she can't be sued as an individual. The disadvantage, though, is that the limited partner doesn't have much say in regular business matters or large decisions. If he or she participates too much in the day-to-day activities, the limited partner could lose that limited partner status and become a general partner.


What Are the Benefits for General Partners?

One of the biggest advantages for a general partner in the Limited Partnership is that he or she maintains most of the power in the Partnership. The limited partners can only participate marginally as compared to the general partner. This means that for the most part, the general partner can make the decisions and take the Partnership in the direction he or she wants. If there's more than one general partner, this authority gets split equally unless specifically stated otherwise in the Partnership Agreement. The disadvantage for the general partner is that he or she assumes all personal risk. If a judgment is brought against the Partnership, then this person could personally be held liable, and his or her personal assets seized to make up for the missing payments. Even if the general partner has done nothing wrong, he or she could also be held liable as an individual in some cases.