How does a limited partnership differ from a general partnership?

A limited partnership is characterized by the presence of both general partners and limited partners, which is the key distinction from a general partnership. In this structure, general partners manage the business and are fully liable for its debts, whereas limited partners typically invest capital and share in profits but do not partake in day-to-day operations. Their liability is limited to their investment in the partnership. This combination allows for a distribution of responsibilities and risk management within the business, making it possible to attract investors who may want to contribute capital without taking on full liability or management responsibilities.

In contrast, a general partnership consists solely of partners who all participate in the management and are jointly liable for the debts of the business. Therefore, the existence of both general and limited partners in a limited partnership is what fundamentally sets it apart from a general partnership.