Limited Partnership

The limited partnership is an organization similar to the regular partnership, where two or more individuals have decided to go into business together.  This type of association is appropriate in cases where some of those individuals are not interested in actively participating in the business and would like some protection against suits that may be brought against the business.

In a limited partnership there are two types of partners.  The general partners are generally in charge of the day-to-day operations of the business and are held personally liable for the debts and obligations of the partnership.  There must be at least one general partner participating in the control and management of the business.  Limited partners, on the other hand, are not actively involved in management of the business and are protected from liability.  If a limited partner behaves as a general partner, he or she may be held personally liable.  This means that if the limited partner takes part in the control of the business, in addition to its obligations as a limited partner, he or she may be personally liable for the debts and liabilities of the partnership.  It is also important to recognize that the protection from liability is not absolute.  Limited partners may be liable for their own willful, reckless or unlawful acts even if they are conducted in the name of the partnership.

A partnership agreement outlines the duties and roles of the general and limited partners. In addition, the partnership agreement also provides for the processes by which partners may join or leave the partnership.

In order to form a limited partnership, a certificate must be filed with the State Department of Assessment and Taxation.  As with regular partnerships, taxes pass through to the individual partners and not to the business.

Limited Liability Company

The LLC is a type of organization in which every member may participate in the management and control of the company and be protected from liability at the same time.  Like partnerships, the taxes pass through to the individual members of the business.

The LLC is governed by the operating agreement which governs, among other things, the rights and duties of the members and provides rules for the day-to-day management of the company.  An LLC may have a single member or multiple members.  Members, like partners, may contribute cash, property, services rendered, promissory notes, or any binding obligation to contribute cash, property or services to the company as a capital contribution.

The management of the company is outlined in the operating agreement.  The LLC may be managed by a single member, multiple members, or a person or body hired by the membership to manage the company.  The management of the company is in charge of the day-to-day operations of the company and ensuring the company succeeds.

Conclusion

Limited Partnerships and LLCs provide added protection to some or all of the contributors to the business.  They differ in the ability of some contributors to participate in the management and control of the business.  Limited partners are not allowed to participate in management and control of the business, while members of an LLC can be active members of the management and control of the company.  These entities are also similar in the way in which they are taxed.  Taxes are passed through to the members of the business in both instances.

Disclaimer:
This article is for informational purposes only and is not intended as a basis for decisions in specific situations.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.