A limited partnership adds one more layer to a general partnership by including one or more limited partners in the partnership. The procedure for creating a limited partnership is set forth in the statutes. General partners in a limited partnership maintain the same legal standing as partners in a general partnership. However, limited partners have limited liability, and can only be held personally liable for business debts up to the amount of their personal investment in the business. For tax purposes, a limited partnership is relatively simple because owners report profits and losses on their personal income tax return.
Limited partnerships are somewhat more complex than general partnerships to form and operate. Also, there must be at least one general partner in a limited partnership who cannot escape unlimited personal liability. If any of the limited partners participate in managerial duties, they will also be treated as a general partner, and lose the protection of limited liability.
