A favorite business entity for many years, the Limited Partnership is being used less and less frequently with the advent of the Limited Liability Company. Under the Business Organizations Code limited partners can usually restrict their responsibility for partnership debts and other obligations to the amount of their investment as long as they do not actively participate in the operation of the business.

The Business Organizations Code requires that all such business entities be registered with the state and have at least one “general” partner who has unlimited liability for the actions of the partnership. 

This type of business is often used when one person has money to contribute to a business venture and another has time, effort and skill. The limited partner can make an investment of money and receive the benefits of the effort of his general partner.

The major drawback to this form of ownership is its limit on the role the limited partner is allowed to play in the business. A well-drafted limited partnership agreement may be necessary to protect the interests of the partners because, in the absence of an agreement with specific provisions, the terms of the Business Organizations Code apply to the business whether the partners intend it to or not. In some instances the lack of planning can have devastating consequences.