Limited Partner (LP)

A limited partner is an owner in a limited partnership, which is commonly referred to by the acronym “LP”. The other type of owner in an LP is the general partner. There can be multiple limited partners in a limited partnership. Limited partners typically have very little management rights in the LP, and typically act as passive investors in the LP. They enjoy limited liability protection in their role as limited partners. General partners, on the other hand, typically have the vast amount of management rights in an LP, and they typically act as active managers in the LP. Unlike limited partners, they do not have limited liability protection. Instead, their liability can be unlimited. LPs are not very commonly formed, as entity formations go. It’s more common to see LLCs and corporations formed as a corporate entity. However, LPs make sense in certain specific formation contexts. One, in particular, is in the case of investments vehicles, where a general partner runs a fund and agrees to take on unlimited liability in that role, and outside investors are solicited to invest passively in the fund as limited partners. Investors can be more easily courted with the assurance that their ownership in the LP will allow them to enjoy limited liability protection.