Can a Limited Partner Make Decisions Binding to the Partnership?

By John Cromwell

A limited partner can have an ownership stake in a limited partnership or a limited liability partnership. Whether a limited partner can make a binding decision for a business depends on the organization he is affiliated with and what the decision is. Both limited partnerships and limited liability partnerships are bound by state law. As a result you may want to review the relevant statutes of your state to determine what rights a limited partner has.

Partnership Agreement

A partnership agreement is an accord made between the owners at the start of the business. Both LLPs and LPs use these documents. These agreements are used to define the scope of the business, the partners’ responsibilities, how decisions will be made, and the rights of the partners. It can also be used to identify who the limited partners will be. During the negotiation and execution of the agreement, the limited partners can make decisions about the agreement that will ultimately bind the partnership.

Limited Liability Partnership

In an LLP, every owner is a limited partner and they are not prohibited from making decisions. Each limited partner is not legally liable for any other partners’ actions. However, each partner is personally liable for any actions he takes in relationship to the business and for the partnership’s financial debts. So if Mark and Jessica enter into an LLP and Mark commits professional malpractice, Jessica is not personally liable for that malpractice as Mark’s partner. However, if the LLP buys office supplies on credit, Mark and Jessica are equally liable.

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Limited Partnership

An LP is composed of two classes of partners. The general partners are the individuals who manage the partnership and are responsible for the day-to-day activities. The general partners are personally liable for all of the partnership’s debts and legal obligations. The limited partners are not personally liable for any of the partnership’s financial or legal responsibilities, but they cannot participate in the management of the business. The limited partners are also unable to withdraw any financial investment they made in the business without the general partners’ approval. Both the general and limited partners do get shares of the business’s profits. Limited partners are generally entities that want to act as “silent partners” in the business.

Loss of Liability Protection

If a person declares himself a limited partner in an LP but a court determines that he managed the business in any way, he becomes liable for the business’s debts and obligations just like a general partner. A limited partner should not participate in the day-to-day activities of the business to avoid the appearance of managing the business.

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Comparison: LP and LLP
 

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Key Sections of a Partnership Agreement

A general partnership is an agreement between two or more people to go into business together. This type of organization is subject to state law and agreements between the owners of the business. In most situations, the partners can decide how they want to operate the business by drafting a partnership agreement, a set of rules governing business operations. If an agreement does not address a particular issue, the laws of the state where the partnership is headquartered will govern how the business is to act in those circumstances. As a result, a partnership agreement can be quite detailed. However, there are some key sections that can be especially important.

How to Dissolve a Limited Partnership in New York State

A limited partnership must have at least one limited partner and one general partner. Limited partners do not usually participate in the management of the partnership and are only liable for the partnership's debts equal to their investments in the partnership. General partners typically run the limited partnership and have unlimited liability. There are several steps the partners must take to dissolve a limited partnership.

LLC Partner Responsibilities

In a Limited Liability Company, or LLC, the owners of the business -- the business partners, which in an LLC are called members -- have only a limited responsibility for the debts and other liabilities of the company. However, LLCs are also very flexible as to how the business is managed. This means that some partners can have more responsibilities than others.

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