4.5.5 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 the business debts. Limited partners are passive investors, who enjoy limited liability but 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 owners. A limited partnership is not federally taxable as a separate entity as is the case for a C corporation. Instead, business profits or losses “flow through” to the personal income tax filings of the partners. Limited partnerships usually also have a termination date written into their certificate of partnership.
A limited partnership has one or more general partners and one or more limited partners. The general partner(s) manages the business on a day-to-day basis, for the most part without consulting or seeking approval from the limited partners. The general partner has the authority to sign legally