The GPs are, in all major respects, in the same legal position as partners in a conventional firm, i.e. they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have joint and several liabilities for the debts of the partnership.
As in a general partnership, the GPs have actual authority as agents of the firm to bind all the other partners in contracts with third parties that are in the ordinary course of the partnership’s business. As with a general partnership, “An act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership’s activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners.”
Like shareholders in a corporation, LPs have limited liability, meaning they are only liable on debts incurred by the firm to the extent of their registered investment and have no management authority. The GPs pay the LPs a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement. General Partners thus carry more liability, and in cases of financial misfortune, the GP becomes “the generous partner”.
Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.
PLEASE NOTE: As a client of any self directed custodian, it is completely your responsibility to investigate each and every investment that you make. A custodian cannot, and does not, provide any protection from a poor or improper investment. Make sure you know what you are investing in, with whom you are investing, and what investments may constitute a violation of IRS code with regard to Individual Retirement Accounts.