A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner.
The GPs are, in all major respects, in the same legal position as partners in a conventional firm. They have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have joint and several liability for the debts of the partnership. As in a general partnership, the GPs have actual authority as agents of the firm to bind all other partners in contracts with third parties that are in the ordinary course of the partnership’s business. As with a general partnership, “An act of a general partner which is not apparent for carrying on in the ordinary course the limited partnership’s activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners.”
Like shareholders in a corporation, LPs have limited liability, meaning they are only liable for debts incurred by the firm to the extent of their registered investment and have no management authority. The GPs pay the LPs a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement. GPs thus carry more liability, and in cases of financial loss, the GPs will be liable.
Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.