What Is a Limited Partnership?

By Matthew DiLallo – Updated Aug 8, 2025 at 10:31 PM

Key Points

LPs invest capital and receive income, carrying no personal liability beyond their investment.
GPs manage daily LP operations but face unlimited personal liability if the LP fails.
LPs are taxed as pass-through entities, avoiding corporate taxes and potentially halving taxation.

A limited partnership (LP) is a business investing partnership. Like any good partnership, it brings together people or entities that each contribute something important. The general partner (GP) runs the business's day-to-day operations, while the limited partners (LPs) bring capital to help fund the business partnership.

Here's a closer look at LPs, how they work, their benefits and drawbacks, and some examples.

Loading paragraph...

A businessperson working on paperwork behind a desk with business cards that say IRS. — Image source: Getty Images.

Loading paragraph...

Some pros of an LP

LPs bear no personal liability.
They are taxed as a pass-through entity. This approach potentially avoids double taxation from a C-Corp, where income gets taxed at the corporate level, and then the investor pays dividend taxes at the personal level.
LPs are easy to create.
Their structure is less formal.
They have no self-employment taxes.

Some of the cons of an LP

The GP has unlimited personal liability.
LPs have a limited role in managing the partnership.
Transferring ownership is harder than with other entities, such as LLCs.
Personal taxes have the potential to be complicated, including delays in receiving Schedule K-1s.
If self-employed, there could be issues obtaining loans due to K-1 losses.

Related investing topics

Loading paragraph...

How to Build an Investment Portfolio

A portfolio can be made up of various investment vehicles. Here are tips on building yours.

Best Bank Stocks for 2025

Banks may seem complicated, but the way they make money is pretty straightforward.

Top 3 S&P 500 Index Funds to Buy in 2025

Multiple index funds track the S&P 500. Which ones are the best investments for you?

Loading paragraph...

About the Author

Matt DiLallo has been a contributing Motley Fool stock market analyst specializing in covering dividend-paying companies, particularly in the energy and REIT sectors, since 2012. He also covers pre-IPO companies, ETFs, and other investing topics. He holds an MBA from Liberty University.

TMFmd19

@MatthewDiLallo

Matt DiLallo has positions in Energy Transfer and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.