In order to have a better understanding of what a limited partnership is, it is good to know what a partnership is in general.
A partnership is an association of two or more persons to carry on as co-owners a business for profit. A partnership is formed when the parties to a business have the ability to share in the profits and if they have a right to control the business. Those parties will then be said to be partners.
There are three different types of partnerships: general partnerships, limited liability partnerships (i.e., LLPs), and limited partnerships. The type of partnership that was formed will determine the amount of liability that an individual partner may face as part of the partnership.
What is a Limited Partnership?
A limited partnership is a specific type of business partnership that enables its limited partners to receive certain legal rights. These rights act as protection against individual liability claims for reasons, such as debt, losses, or violations that are directly related to the overall limited partnership.
In contrast, in a general partnership, each partner is individually and jointly responsible for the losses incurred by the partnership. This can sometimes put partners at a disadvantage, especially if they only play a minor role in the partnership, or if they have contributed less funds to the business than the other general partners.
Although it is called a limited partnership, each limited partnership requires at least one general partner to be considered properly formed. The general partner will be responsible for making management decisions for the limited partnership and its day to day operations.
A limited partner only has limited powers over the partnership and can only be held responsible to the extent of their investment in the limited partnership. Thus, they are mainly responsible for investment duties relating to the limited partnership.
Is it Possible to Withdraw From a Limited Partnership?
Unlike a general partnership, a partner to a limited partnership may withdraw from the business without subjecting it to an automatic dissolution. This is just one of the important features that distinguishes a limited partnership from a general partnership.
When a limited partner decides to withdraw from a limited partnership, the partner will be required to notify the partnership and to file the necessary paperwork (i.e., documents associated with the withdrawal) with the State. Also, the rest of the partners to the limited partnership will have to buy out the partner who is withdrawing.
In contrast, when a partner withdraws from a general partnership, it will usually result in the dissolution (termination) of that partnership. A general partnership can also dissolve when any of its partners become either deceased or incapacitated.
What If I Have a Dispute That Involves a Limited Partnership?
As discussed above, one of the primary factors that separates all three partnerships is the amount of liability that can be attributed to each partner. This will help determine which of the partners should be held responsible for the financial losses of the partnership.
Normally, limited partners are only liable to the extent of the investment they made to the limited partnership. However, if a partner was acting outside the scope of their duties as a limited partner, it is likely that they will be held personally liable for any injuries or losses that they caused.
For example, if a limited partner attempts to hold themself out as if they are a general partner and starts making management decisions or represents as much to a third party, then they could be held personally liable for their actions.
On the other hand, if the limited partner was acting within the scope of their duties, which are usually set forth by the terms of an entity’s partnership agreement, it is more likely that the overall limited partnership will be responsible for any injuries or losses that result.
In some cases, multiple partners to the partnership may be jointly liable either to the partnership or held responsible for paying damages awarded to a plaintiff. This will depend on the individual facts surrounding the case, as well as the liability agreement created between and entered into by a partner and their partnership organization.
Will I Need to Hire a Lawyer for Help with Limited Partnership Laws?
Limited partnership laws vary widely from state to state. As such, it may be in your best interest to hire a business attorney if you need help with the limited partnership laws that are specific to your jurisdiction.
An experienced business attorney will be able to assist you with legal tasks, such as creating the proper documents, negotiating partnership agreements, and assessing what rights and duties you have as a limited partner.
Additionally, if you need to either file or defend against a limited partnership legal claim in court, an attorney can provide representation on the matter and can help guide you through the process more efficiently.