Which statement best describes a limited partnership?

Which statement best describes a limited partnership?

• A. A partnership where all partners run the business
• B. A partnership that has unlimited liability for all partners
• C. A partnership that is registered as a limited company
• D. A partnership where some partners contribute capital and enjoy a share of the profit but do not take part in the running of the business

Answer: (D)

In a limited partnership there are two kinds of partners: those who run the business and have unlimited liability, and those who contribute capital, share in the profits, but do not take part in management. The statement describing partners who contribute capital and enjoy a share of the profit but do not take part in running the business matches exactly what limited partners do. They invest and receive a portion of profits, yet they don’t participate in day-to-day management, and their liability is limited to their investment. This is different from a general partnership, where everyone typically manages and has unlimited liability, and from a company, which is a separate legal entity rather than a partnership.

In a limited partnership there are two kinds of partners: those who run the business and have unlimited liability, and those who contribute capital, share in the profits, but do not take part in management. The statement describing partners who contribute capital and enjoy a share of the profit but do not take part in running the business matches exactly what limited partners do. They invest and receive a portion of profits, yet they don’t participate in day-to-day management, and their liability is limited to their investment. This is different from a general partnership, where everyone typically manages and has unlimited liability, and from a company, which is a separate legal entity rather than a partnership.