Definition

A limited partnership a type of business entity that is similar to a partnership except that the entity is comprised of a general partner and limited partners. The general partner makes all of the business decisions and runs the partnership The limited partners provide equity to the partnership and only risk the amount of their equity.The owners can be natural persons or corporations or a combination of both.

Advantanges

  • Limited liability of the limited partners.
  • Losses incurred can be applied against the owner’s other income which will reduce the owners income taxes.
  • Separate tax returns are required depending on the number and makeup of the partners.

Disadvantages

  • Expensive to set up. They are subject to securities legislation.
  • The tax rate of the business is the same as that of the owners. Any income earned by the business is taxed at the marginal rate of the owners based on their share of the income.
  • The limited partners are not allowed to participate in the operation of the business, if they do so they will lose the protection of limited liability.