LIMITED PARTNERSHIP

Read the WARNING! first.

A limited partnership differs from a general partnership in that limited partners are not subjected to personal liability for all of the partnership debts and liabilities. The extent of liability is limited by the terms of the partnership agreement. While a limited partnership is not subject to the tax code ownership restrictions of an S corporation, a limited partnership must have at least one general partner who is liable for all of the debts of the partnership.

Sometimes a corporation is used as a general partner of the limited partnership to avoid personal liability. When a limited partnership has a corporate general partner controlled by the limited partners, it is possible that a court could find the general partner to be a sham if it is too thinly capitalized, or could permit the general partner’s corporate veil to be pierced if its owners ignore corporate formalities. Either of these could result in a limited partnership with no general partner, thus triggering possible liquidation.

A limited partner’s interest is subject to a "charging order" in favor of a creditor and against the debtor's interest in the partnership.  The general partner owes to limited partners the duties of loyalty and care.  The participation of limited partners in the management of a limited partnership can result in a loss of limited liability protection for that limited partner.