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In the section "General Partnership", the common American partnership was presented in detail, its main drawback being the unlimited liability of all of its members (partners). This can lead to a situation whereby the partners, who participated in the formation of a General Partnership, but later took no part in its everyday operations, might still be liable with all their property, if a debt-claim is filed against the partnership, in the same way as the partners who have actively participated in the day-to-day management of the partnership, and might be responsible for creating the situation which gave rise to the debt-claim.
In order to avoid this drawback, the Limited Partnership was created in the USA. Unlike a General Partnership, two types of partners participate in this partnership: the General Partners, who manage the partnership and are liable for its debts with all their property, and the Limited Partners, who simply act as the co-founders of the Limited Partnership, and have limited liability.
The taxation of a Limited Partnership follows the same principle as the taxation of a General Partnership, namely - the partnership itself is not liable to taxation, but tax is payable by the partners, on their share of the partnership income.
The table below lists the main characteristics of a Limited Partnership, in comparison with the most popular type of company in the USA - the LLC:
| Criterion | Limited Partnership | Limited Liability Company | | Owner of the company | Partners | Members | | Liability of the owner | Unlimited - for General Partners,
limited - for Limited Partners. | Limited | | Number of owners | Two or more | One or more | | Taxation | The partnership is not liable for taxation. Tax is paid by the partners at the rates applicable to them individually. | The company is not liable for tax. Tax is paid by the members at the rates applicable to them individually. | | Who manages the company? | General Partners | 1) Members if it is a member-managed LLC,
or
2) An individually appointed manager if it is a manager-managed LLC. | | What happens on the death or incapacity of the owner/s? | Automatic dissolution, unless the partnership agreement provides to the contrary. | No consequences. | | Possibility of conversion into another form of business entity. | Conversion into a Corporation or LLC is possible | Conversion into a General Partnership, a Limited Partnership or a Corporation is possible. |
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