Corporations are separate legal entities from their owners. Corporate profits are taxed at the entity level, and dividends distributed to shareholders are taxed again at the personal level, resulting in double taxation.

In a limited partnership, at least one partner (the general partner) has unlimited liability and manages the business, while limited partners contribute capital and have liability limited to their investment.

General partnerships do not pay income taxes at the entity level. Instead, profits and losses are passed through to the partners and taxed as part of their personal income. Partners also share unlimited personal liability.

General partners are personally liable for all obligations of the business, regardless of how much they contributed.

Limited partners have protection from personal liability, but only if they remain passive investors.

This distinction defines the legal structure of a limited partnership: general partners run the business and bear full risk, while limited partners are shielded beyond their contribution.

General partnerships are pass-through entities, meaning the business itself does not pay income tax. Instead, each partner reports and pays taxes on their share of the income on their personal tax return. Sole proprietorships are also pass-through entities; there is no business-level tax. In a C corporation, corporate income is taxed at the business level, and dividends are taxed again at the shareholder level, resulting in double taxation.

A limited partnership (LP) consists of at least one general partner (who manages and has unlimited liability) and one or more limited partners (who contribute capital and have liability limited to their investment, as long as they don’t participate in management). A general partnership only includes general partners, all of whom have unlimited liability. An LLC offers all members limited liability and flexibility in management, but it does not differentiate between general and limited partners the way an LP does.

Limited partners provide capital to the partnership and enjoy limited liability, meaning they can only lose up to the amount of their investment. They must remain passive—not involved in daily operations or decision-making—otherwise they risk losing limited liability protection. Limited partners can lose their investment. Liability and control are not shared equally—general partners manage and bear unlimited liability.

A limited partnership (LP) must have at least one general partner, who manages the business and holds unlimited liability, and at least one limited partner, who contributes capital and has liability limited to their investment. Only one general partner is legally required. There must be at least one general partner to form a limited partnership.