An limited partnership is a partnership which is formed by two or more partners. Such kind of partnerships are formed under a state limited partnership statue in which they have one or more general partners and limited partners. The main difference between an limited partnership and a general partnership is the status and presence of limited partners. In terms of status of a partner, the liability of a partner in an LP is limited to the capital contribution. Also, a limited partner does not participate in the management or control of the business without affecting his/her limited liability status.
In a limited liability partnership, all partners involved have limited liability unlike in an limited partnership where only limited partners have limited liability while general partners do not. This is an advantage since individual partners are legally protected from personal liability due to actions of the other partners. In addition, a partner is not personally responsible for any debts associated with the partnership. Also, under this arrangement, there is flexibility in that, each partner decides how much capital contributions to make and they are not obligated to participate in the business operations (Scott, 2006)
However, not all states recognize limited liability partnerships as legal entities. The other states that recognize them impose large tax limits and other additional fees. Furthermore, many consumers or possible clients and other business do not view limited liability partnerships as credible businesses. In a limited partnership, the limited partners do not or not required to pay self-employment taxes but general partnersmust pay self-employment taxes. However, general partners receive proceeds from the partnership before limited partners receive their share of profits. In an LLP, each partner will receive the profits and losses from the partnership depending on the ownership interest.
Scott, S. (2006, Nov 17th). Limited Liability Partnership Advantages & Disadvantages. Retrieved from Houston Chronicle: www.houstonchronicle.com