When it comes to starting a business, one of the very first issues that entrepreneurs will need to address is their legal identity. Specifically, they will need to determine whether their new business will organize as a sole proprietorship, limited partnership, corporation, general partnership or limited liability company.
As you might imagine, the decision is not always entirely clear to those whose sole focus has heretofore been on the development of their product or service. In recognition of this reality and the desire to clarify any misconceptions, today’s post — the first in a series — will provide some basic background information on limited partnerships.
Limited partnerships are comprised of both limited partners and general partners with the underlying partnership agreement setting forth which individual partners or class of partners will exercise control over the entity, and how profits are to be shared.
General partners are held to the utmost duty of care to their fellow general and limited partners, as well as the limited partnership itself. Furthermore, they have the ability to assume an active leadership role in the management of the limited partnership, including entering into binding agreements with third parties.
The distinguishing feature of a limited partnership, however, is in its apportionment of liability. Specifically, general partners can be held personally liable for all of the obligations of the limited partnership, a reality that leads many to name a corporation as the general partner.
Conversely, limited partners are not held personally liable for any of these obligations despite investing capital in the limited partnership. In fact, Georgia differs from other states in that limited partners here still enjoy this same absence of liability even if they assume an active role in the management or control of the business.
If you would like to learn more about limited partnerships or other potential legal entities for your business, or have general questions related to business formation, consider speaking with an experienced legal professional.