A private limited partnership is a type of business entity that limits the number of partners in the organization. Generally, a maximum of 35 “limited partners” are allowed. This allows the partnership to avoid registering its business to the Securities and Exchange Commission (SEC).
The word “limited” in the term “limited partners” entails more than the maximum number of partners in the business. It can also refer to the partners’ authority, privilege, and liability, all of which are somehow restricted. Probably the most advantageous is a partner’s limited liability, which generally means that the partner is only liable for the registered amount he has invested in the business. This is similar to the role of a company’s shareholders. This limited liability gives a partner less accountability for the business should the latter have financial problems.
In terms of limited privileges, a private limited partnership pays its partners a fixed investment return, which can depend on the amount of investment the partner has provided. Limited partners also have limited authority in that they are not primarily involved in decision-making, though they may have voting powers. Limited authority can be seen as either a disadvantage or an advantage, depending on the situation.
Aside from having limited partners, a private limited partnership also has general partners. This element distinguishes this type of partnership from a “limited liability partnership,” a type that only includes limited partners. General partners possess more authority in the partnership, though this also involves a larger responsibility and liability. In some contracts, general partners are labeled as “managers” as opposed to limited partners as “investors.”
General partners have the privilege of using the partnership’s property, whether or not financial, as well as receiving a predetermined share in the partnership’s profits. They are, however, responsible for rounding up and binding the limited partners in a formal agreement. In cases of financial setbacks, the general partners would usually have to shell out more money than the limited partners to recover the partnership.
Many entrepreneurs and investors choose to engage in a private limited partnership because it provides fewer hassles in running a firm and managing subordinates. It also requires less process and paperwork in registering with the SEC. They also have the advantage of a steady return of investment. In cases of retirement, partners can even opt to turn over their positions to someone else. A private limited partnership is usually involved in business ventures such as real estate, research projects, and fuel industries.