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What is the difference between limited partnership & general partnership?
I’m going to start a business and am not sure which direction to go in
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1 Answer
It varies between states, but the general idea is a General Partnership (GP) the owners are all General Partners. General Partners are those who are directly involved in the management of the business. In a Limited Partnership (LP) there are General Partners and Limited Partners. Limited Partners are owners of the business, though are not directly involved in the management of the business. Limited Partners often serve on an oversight board, but their primary purpose is to provide capital or other such resources and do not participate in the day-to-day operations of the business.
There is also a difference in liability between the two different types of partner. All General Partners are personally liable for the total capital invested by all partners (Limited and General). If the business goes under, the Limited Partners can sue any or all of the General Partners for the capital they invested in the firm. Limited Partners are only liable for the amount of capital they have invested, so lawsuits against the business can only take a Limited Partner's investment, and nothing more.
Note, in most circumstances, a Limited Partner must be a SEC 'Certified Investor' and are consequently high net worth individuals. Most people can not legally be a Limited Partner in a business.
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