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The differences between a partnership and a limited partnership 

On Behalf of | Dec 19, 2022 | Business Formation |

When you’re in the process of setting up a new small business, it can be difficult to know what type of entity to choose. Where there are two or more of you running the business, the often obvious choice is to set up a partnership. 

If you’ve been considering setting up a partnership, you might also have been looking into the benefits of being a limited partnership. There are, however, some important differences between the two that you should be aware of before making a decision. 

The liability for debts is different

The most important consideration for people when they set up a business is usually how they can make sure their personal liability is protected should things go wrong. 

With a general partnership, each partner in the business is jointly and severally liable for the debts of the company. With a limited partnership, however, limited partners do not have personal liability for the debts and obligations of the company. 

Management of the limited partnership falls on a general partner

A partnership and a limited partnership do share a lot of similarities. 

In a limited partnership, however, there are two different roles: the general partner and the limited partner. A general partner is the one who is going to handle most of the day-to-day running of the business and has the ultimate responsibility, such as a CEO or manager. 

A limited partner is, in comparison, what may often be termed a “silent partner” and is an investor in the company. A limited partner is therefore liable for only as much as they have invested into the business. 

Is a limited partnership the best entity type for your business? Seeking the help of a knowledgeable legal professional as you go through the business formation process can help you make sure you’re getting things right from day one.