Understand how Limited Partnerships work — with general partners managing operations and limited partners investing capital with restricted liability.
Understand how Limited Partnerships work — with general partners managing operations and limited partners investing capital with restricted liability.
A Limited Partnership (LP) consists of at least one general partner who manages the business and is personally liable for debts, and one or more limited partners who contribute capital but have limited liability and cannot participate in management. LPs are commonly used for real estate investments, venture capital funds, film productions, and family investment vehicles.
LPs are pass-through entities — all income and losses flow through to partners' personal tax returns. General partners pay self-employment taxes on their share. Limited partners' share of income is generally not subject to self-employment tax. Partners receive Schedule K-1 forms annually.
Pass-through taxation. General partners pay self-employment tax. Limited partners' income is generally not subject to self-employment tax.
| Structure | Liability Protection | Tax Framework | Complexity | Ownership Type | Primary Use Case |
|---|---|---|---|---|---|
| C Corporation | Full | Double (Corporate + Personal) | Complex | Shareholders (unlimited) | Venture capital-funded startups & large enterprises |
| Corporation | Limited | Pass-through | Moderate | Members | Various |
| DBA | None (depends on entity) | Same as underlying entity | Minimal | Same as underlying entity | Businesses wanting multiple brand identities |
| LP | Limited (for limited partners only) | Pass-through | Moderate | General + Limited Partners | Real estate & investment funds |
| LLC | Limited | Pass-through | Simple | Members (unlimited) | Small business owners seeking liability protection |
| LLP | Partial (partner-to-partner) | Pass-through | Moderate | Partners | Professional service firms |
| Nonprofit | Limited (for directors) | Tax-exempt (501c3) | Complex | No owners — board governed | Charitable & mission-driven organizations |
| PLLC | Limited (varies by state) | Pass-through | Moderate | Licensed professionals only | Doctors, lawyers, accountants & architects |
| S Corporation | Full | Pass-through (S Corp election) | Moderate | Shareholders (max 100, US only) | Established businesses wanting tax savings |
| Sole Proprietorship | None | Personal (Schedule C) | Minimal | Single owner | Freelancers, consultants & sole traders |
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