A limited partnership (LP) (also known as a limited liability partnership or silent partnership) is a business partnership in which one or more of the partners is only liable for their investment in the company. This allows an individual to invest in a company without being responsible for its debts, litigation or day-to-day managerial practices. The limited partner will receive a monthly passive income from the company’s profit based on their investment, but does not receive dividends.
A an example, Mary decides to engage in a limited partnership with Sue’s delivery company. Mary, as the limited partner, makes a capital investment in the company, and will receive a monthly share of the delivery company’s profits. But if all of Sue’s trucks break down, and the company goes into debt, Mary is not liable. If one of Sue’s drivers decides to sue the company, Mary will not have to pay out in any potential judgement. As the limited partner, Mary’s only risk is that she will stop receiving her passive income (and potentially not get a full return on her investment) if Sue’s company fails to turn a profit.
In nearly all US state, limited partnerships are regulated under the standards of the Uniform Limited Partnership Act, which reached its current form in 1985. As with other partnerships, limited partnerships must be registered in an applicable state through the office of the local Secretary of State, and obtain all necessary local licenses and permits.
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