When a limited partnership fails to substantially comply with all the requirements of the state statute regarding limited partnerships, they lose its protection with regard to the limits of liability. Hence, they are exposed to unlimited liability.
A limited partnership is made up of two or more entities, including at least one limited partner and one general partner. Limited partners are only liable for the partnership's debts up to the amount of their investment.
A limited partner often has minimal awareness of or participation in the partnership's activities; the general partner typically administers the limited partnership.
Unlike ordinary partnerships, an LP must be registered with the relevant state agency before it can be formed, and the LP is normally regulated by a partnership agreement that partners can construct.
The primary distinction between both partnerships is that general partners have complete operational authority over a firm and limitless liability. Limited partners bear less risk and are not involved in day-to-day business operations.
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