What is the Difference Between Limited Partnership and General Partnership?

The main difference between a limited partnership and a general partnership lies in the level of involvement in the business operations and the extent of liability for each partner. Here are the key differences:

General Partnership (GP):

• Consists of two or more general partners who share the management of and personal responsibilities for the business.
• Partners have equal personal responsibility for the business, meaning equal shares of profits and equal liability for debts or legal action.
• Personal assets of partners can be used to satisfy the business's debts and obligations.
• Partnership agreement is not mandatory, but it is recommended to specify each partner's management duties and responsibilities.

Limited Partnership (LP):

• Comprises at least one general partner and one or more limited partners.
• General partners have unlimited liability, while limited partners have limited liability, usually only up to the amount of money they invested in the business.
• Limited partners do not take part in day-to-day business operations.
• Partnership agreement is not mandatory, but it is recommended to specify each partner's management duties and responsibilities.

In both types of partnerships, partners share in the profits and losses of the business and are considered pass-through entities for tax purposes. It is essential to form a partnership agreement to help ensure partners are not personally liable.

Comparative Table: Limited Partnership vs General Partnership

Here is a table comparing the differences between Limited Partnership and General Partnership:

In summary, a Limited Partnership has partners who contribute only financially to the business and have limited liability, while a General Partnership involves partners who participate in day-to-day management and have unlimited personal liability for the company's actions.