Limited Partner
Candlefocus EditorA limited partnership is typically formed with at least one general partner and one limited partner, each bringing different types of contributions to the business. The general partner is in charge of running the operations of the business and generally assumes more risk than the limited partner. Limited partners provide financial backing and in some cases may be expected to make certain decisions regarding the financial and organizational direction of the business.
Limited partnerships have several advantages for both general and limited partners. For example, limited partners will benefit from the limited liability status, as their risk is strictly limited to the amount that was originally invested. They will also often not have to participate in the day-to-day operations of the business and can focus on other activities. General partners, on the other hand, will benefit from the infusion of financial resources from the limited partner and from having another person to assist with decision making.
In addition, limited partnerships have several legal steps that must be taken in order to form and secure its status. In the US, a limited partnership must register with the state and typically must specify the name of the partnership, the purpose of the business, the duration of the partnership, the address, the amount contributed by each partner, and the nature of the limited partner's involvement in the business.
Overall, a limited partner is an investor who contributes financial resources to a business but with strictly limited liability in comparison to the general partner. Limited partnerships can provide an attractive format for both general and limited partners to help each reach their individual business goals while minimizing personal risk.