Limited partnerships are very different from general partnerships. In certain areas, limited partnerships are seen to combine the best parts of a partnership and a corporation. A major difference between a general partnership and a limited partnership is that a limited partnership has different rules regarding a limited partner's management powers and personal liability.
A limited partnership is similar to a general partnership in that there must be one or more general partners who share the same responsibilities and basic rights. In addition, a limited partnership must also include one or more limited partners who are usually just passive investors. Limited partners are not personally responsible for liability for debts of the partnership like the general partners are. The most a limited partner can lose is the amount that the partner agreed to pay into the partnership as a capital agreement or the amount received from the partner after it became insolvent. In exchange for this limited liability, a limited partner may not participate in the management of the business. If a limited partner does choose to become actively involved in the management of the business, he risks losing the immunity from personal liability and in essence becomes as legally responsible as a general partner.
An advantage of choosing a limited partnership as a business structure is that it provides a way for a business to raise money, by taking on limited partners, while allowing the partners to retain the power of management within the business. However, a setback of a limited partnership is that it can be as least as costly and complicated as doing business a corporation. State laws also require that a limited partnership file registration information about the general and limited partners.