Difference Between a General Partnership and a Limited Partnership in England

A limited partnership is a special kind of partnership, not to be confused with a limited liability partnership. The distinguishing feature is that there are two classes of partners in a limited partnership: a general partner (GP) and a limited partner (LP). In effect, it combines certain features of a general partnership and a limited liability partnership, depending on which class of partner you are. This article will explain the difference between a general and limited partnership and evaluate their commercial uses. 

Limited Partnerships and Partnership Law 

Limited partnerships are a third type of partnership, separate from ordinary partnerships (also called general partnerships) and limited liability partnerships (LLP). Each is governed by a different set of laws, though limited partnerships share more in common with general partnerships than with LLPs. 

Like general partnerships (and unlike LLPs), limited partnerships do not exist as entities separate from their partners. However, somewhat confusingly, certain partners in the limited partnership benefit from limited liability. Essentially, these partners will only be liable to third parties up to the amount of their investment in the partnership. 

It follows that limited partnerships operate by creating two classes of partners within the partnership:

• the general partners, who are responsible for managing the partnership and bear unlimited liability for the partnership’s debts; and 
• limited partners, who will have a financial investment in the partnership but, provided they do not directly manage the partnership’s affairs, their liability will be limited to the amount of their investment.

Restrictions on Limited Partners 

You stand to greatly benefit as the limited partner in a limited partnership as you are only liable up to the amount you invest. If things go well, your upside could be uncapped. This feature is why limited partnerships are still wildly popular vehicles for investment ventures. 

However, the law places certain restrictions on limited partners. Most importantly, by definition, a limited partner cannot bind the partnership by entering into a transaction on behalf of the partnership. If they do so, they automatically cease existing as a limited partner and become general partners, thereby losing the benefit of limited liability. 

Limited partners do have certain rights in the partnership, which often come at the expense of the general partners’ powers. Notably, general partners cannot alter the fundamental terms of the partnership contained in a limited partnership agreement. 

Registration of Limited Partnerships

Another element of a limited partnership is that partners must register with Companies House. The information the partners must file includes:

• the partnership’s name; 
• the nature of its business; 
• its principal place of business; and 
• the names of all the partners and the amount each has invested in the firm. 

The above information is available to the public for their inspection, making limited partnerships more exposed to the public eye. However, unlike LLPs and companies, limited partnerships do not need to file annual accounts with Companies House. 

Commercial Uses for Limited Partnerships 

Limited partnerships are commonly used in investment ventures, particularly:

• private equity; 
• venture capital; and 
• certain real estate opportunities. 

Typically, the investment firm will act as the general partner and contribute a portion of its own money to the firm. The other investors will then join as limited partners. The limited partnership will then manage the pool of investment capital. 

Additionally, key stakeholders in investment ventures prefer limited partnership structures for the following key reasons. 

Therefore, if you are considering a business venture that only requires one party’s expertise but needs others’ financial backing, a limited partnership may be the best structure. This is especially true where you desire the flexibility of a partnership structure but want to limit certain partners’ liability.

Key Takeaways  

The key difference between a limited partnership and a general partnership is that there are two kinds of partners in a limited partnership. Confusingly, the law refers to one class as the general partners and the other as limited partners. In a general partnership, there is only a single class of general partners. The effect of having two classes of partners is that one — the limited partner — obtains the benefit of limited liability in exchange for handing over all of the management to the general partner. While a limited partnership is not a corporate body like companies or LLPs, the limited partner is only liable for the partnership’s debts up to the value of its investment. 

If you need help understanding how to set up a limited partnership, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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