Partnerships can seem like really difficult to understand. However, there are typically two common types of partnerships, namely General Partnerships and Limited Partnerships. General Partnerships consist of only General Partners and no Limited Partners.
On the other hand, Limited Partnerships consist of both General Partners and Limited Partners. The significant difference between a General and a Limited Partner is that the former takes part in business operations daily while the latter does not.
Comparison Between General Partner And Limited Partner
| Parameter | General Partner | Limited Partner |
|---|---|---|
| Involvement | There is a high degree of involvement from the side of a General Partner. | There is no involvement from the side of a Limited Partner. |
| Control | General Partners can exercise their control over the business firm. | Limited Partners can not exercise any control over the business firm. |
| Liability | General Partners have an unlimited liability. | Limited liability is enjoyed by Limited Partners. |
| Profit & Loss | Profit and loss are shared equally generally. | Profit and loss are shared according to the stated agreement. |
| Ownership | Due to unlimited liability, General Partners, are seen as owners of the firm. | Limited Partners have the share in the ownership up to their share in the investment. |
| Paperwork | It involves lesser paperwork to be a General Partner. | It involves more paperwork to be a Limited Partner. |
| Decision-Making | General Partners take actively part in the decision-making process. | Limited Partners do not take part in the decision – making process. |
Major Differences Between General Partner And Limited Partner
To understand the differences between a General and a Limited Partner, it is crucial to understand what General and Limited Partnerships are exactly.
What exactly is a General Partnership?
A General Partnership refers to a Partnership that only has General Partners. There are no Limited Partners in a case of a General Partnership.
In a General Partnership, all the partners actively participate in daily operations and important decisions and share profits equally (unless otherwise stated).
Because there are only General Partners in a General Partnership, all the partners have unlimited liability. And all of them are considered the owners of the business firm.
This type of Partnership involves less paperwork than a Limited Partnership as all the partners are the same, and there is no need for additional paperwork like in the case of a Limited Partnership.
What exactly is a Limited Partnership?
A Limited Partnership refers to a Partnership with General and Limited Partners. In such a Partnership, a General Partner is appointed to take care of the business and business activities daily, and Limited Partners are not responsible for daily activities or the decision-making process.
General Partners in a Limited Partnership have unlimited liability, but Limited Partners have limited liability to the extent of their investment in the business. Generally, a Limited Partnership involves more paperwork than a General Partnership.
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General Partnership vs. Limited Partnership –
General Partnership –
- General Partnership involves only General Partners.
- All the partners have unlimited liability.
- All the partners take an active part in the day-to-day operations, and decision-making process.
- This type of Partnership requires less paperwork than a Limited Partnership.
Limited Partnership –
- Limited Partnership involves General as well as Limited Partners.
- General Partners have unlimited liability and Limited Partners have limited liability.
- Except for General Partners, other partners do not take part in day-to-day operations and decision-making processes.
- A limited Partnership requires more paperwork than a General Partnership.
Who exactly are General Partners?
A General Partner is someone who is also seen as the owner of the business firm because of his involvement in the business operations.
He is responsible for taking care of day–to–day operations of the business along with making managerial and operational decisions of the business firm.
General Partners share the profit and losses in equal ratios unless stated otherwise. They also have unlimited liability.
Who exactly are Limited Partners?
A Limited Partner is someone who has little to no involvement in the business firm. Unlike General Partner, a Limited Partner is not bound to take care of a business’s day-to-day activities. He does not need to have his say in decision-making either.
Limited Partners have limited liability and have their share in the ownership only till the extent of their investment in the business.
Profit and Loss of the business are shared between limited partners as stated in their partnership deed. Because of all these reasons, he is also known as the “Silent Partner.”
Contrast Between General Partner And Limited Partner
Meaning
- General Partner – A Partner who has a major involvement in a business firm is known as General Partner.
- Limited Partner – A partner with little to no involvement in a business firm is known as Limited Partner.
Responsibilities
- General Partner – The responsibilities of a General Partner include doing the things that benefit the business and Partnership, making sure everything is going smoothly, making sure every partner gets their share of profit and Loss, etc.
- Limited Partner – The responsibilities of a Limited Partner include bringing in capital, attending mandatory meetings, helping other partners whenever required, etc.
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The Responsibilities of a General Partner and a Limited Partner –
General Partner –
- Taking care of the business’s day-to-day operations.
- Making Decisions that are not only best for the business but also for the Partnership.
- Ensuring everything that is going on within the business is legal.
- Make sure all the partners are getting their share of profit and Loss.
Limited Partner –
- Bringing in capital and necessary funds.
- Staying loyal and honest towards the partnership and partnership firm.
- Attending mandatory meetings.
- Giving out needed help and consultations to other partners.
Profit And Loss Sharing
- General Partner – Profit and Loss is usually shared equally among general partners unless stated otherwise.
- Limited Partner – Profit and Loss is shared as per the agreement with Limited Partners.
Liability
- General Partner – General Partners, typically have unlimited liability meaning the personal assets can be taken in to pay off the business debt.
- Limited Partner – Limited Partners enjoy limited liability, which is also up to their investment in a business firm.
Ownership
- General Partner – Since General Partners have unlimited liability, they are also considered the owners of a business firm.
- Limited Partner – Limited Partners have their share in the ownership only up to their share of investment.
Paperwork
- General Partner – There is less paperwork in the case of General Partners.
- Limited Partner – There is usually more paperwork in the case of Limited Partners.
Decision Making
- General Partner – General Partners, devote their hundred percent to the decision-making processes.
- Limited Partner – Limited Partners have no say in decision–making processes.
Control
- General Partner – General Partners, have all the control over a business firm.
- Limited Partner – Limited Partners have negligible control over a business firm.
Participation In Daily Operations
- General Partner – General Partners fully participate in the day–to–day activities of a business firm.
- Limited Partner – Limited Partners do not participate at all in the day–to–day activities of a business firm.
Rights
- General Partner – The rights of a General Partner generally include the right to an equal share in the profit, the right to disclosure from other partners, etc.
- Limited Partner – The rights of a Limited Partner generally include the right to vote, the right to go through the firm’s accounting records, the right to quit the Partnership, etc.
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The Rights of a General Partner and a Limited Partner –
General Partner –
- Right to have an equal share in the profit & Loss, unless stated otherwise.
- Right to have the information about other Partner’s acts in his absence.
- Right to not to give consent if he/she does not want to.
Limited Partner –
- Right to present his vote.
- Right to have access to the firm’s account records.
- Right to quit the Partnership if he/she desires to.
Conclusion
The presence of both General and Limited Partners is usually seen in Limited Partnerships. The major difference between General Partners and Limited Partners is that the former is completely involved in business activities while the latter is not.
Because of no involvement in a business firm, a Limited Partner is also seen as a mere shareholder.
Frequently Asked Questions (FAQs)
Q1. What are the differences between General Partnership and Limited Partnership?
The differences between General Partnership and Limited Partnership are –
1. A General Partnership only involves General Partners, while a Limited Partnership involves both the General Partners and the Limited Partners.
2. In a General Partnership, every partner is fully involved in the business activities. In contrast, in a Limited Partnership, every partner has no involvement in the business activities except the general partner.
3. A General Partnership requires lesser paperwork than a Limited Partnership.
Q2. What are the responsibilities of a Limited Partner?
The major responsibilities of a limited partner include bringing in capital funds, which could mean bringing in cash or assets.
A Limited Partner is also bound to give advice and consultations to general partners whenever required.
He is also responsible for attending meetings that demand his presence.
Q3. What are the differences between a General Partner and a Limited Partner?
The differences between a General Partner and a Limited Partner are –
1. A General Partner is fully involved in the day–to–day business activities, whereas a Limited Partner has almost negligible involvement in the day–to–day business activities.
2. A General Partner has unlimited liability while a Limited Partner enjoys limited liability.
3. A General Partner can exercise his control over the firm as and when he desires to, but a Limited Partner has no control over the business firm.
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