Financial Glossary
Limited Partnership (LP)
A limited partnership (LP) is a business entity formed by at least one general partner, who runs the business and bears unlimited personal liability, and one or more limited partners, whose liability is generally limited to the amount they invest. Limited partners are typically passive investors who do not participate in day-to-day management. The LP is created by filing a certificate of limited partnership with the appropriate state agency and is governed by a partnership agreement that sets out capital contributions, profit splits, and management roles.
Problem & Application
Real estate investors, fund sponsors, and STR or campground operators often use an LP to bring in passive capital while keeping control with the general partner. The structure lets outside investors contribute money without exposing their other assets to business liabilities, and it generally passes income and losses through to the partners for tax purposes rather than taxing the entity itself. Getting the formation filings, partnership agreement terms, and capital-account bookkeeping right from the start prevents disputes and avoids a limited partner accidentally taking on general-partner liability.
In Short
An LP balances passive investment with centralized control, but the protection for limited partners depends on respecting the formation rules and management boundaries. Clean books and a well-drafted agreement keep the structure working as intended.