what is a limited partner 
a limited partner invests money in exchange for shares in a partnership but has restricted voting power on company business and no day to day involvement in the business a limited partner s liability for the firm s debts cannot exceed the amount that they have invested in the company limited partners are often called silent partners understanding limited partnersa limited partnership lp by definition has at least one general partner and at least one limited partner the general partner or partners manage the business from day to day 1although state laws vary a limited partner doesn t generally have the full voting power on the company business of a general partner the internal revenue service irs considers the limited partner s income from the business to be passive income a limited partner who participates in a partnership for more than 500 hours in a year may be viewed as a general partner 2some states allow limited partners to vote on issues affecting the basic structure or the continued existence of the partnership those issues include removing general partners terminating the partnership amending the partnership agreement or selling most or all of the company s assets 1a limited partner may become personally liable only if they are proved to have assumed an active role in the business general partner vs limited partnera general partner typically is compensated for controlling the company s daily operations and making day to day decisions as the business decision maker the general partner can be held personally liable for any business debts 3a limited partner has purchased shares in the partnership as an investment but is not involved in its day to day business limited partners cannot incur obligations on behalf of the partnership participate in daily operations or manage the operation because limited partners do not manage the business they are not personally liable for the partnership s debts a creditor may sue for repayment of the partnership s debt from the general partner s personal assets 4a limited partner may become personally liable only if they are proved to have assumed an active role in the business taking on the duties of a general partner a limited partner s loss from the company s operations may not exceed the amount of the individual s investment 4investors in private equity funds are called limited partners tax treatment for limited partnerslimited partnerships like general partnerships are pass through or flow through entities this means that all partners are responsible for taxes on their share of the partnership income rather than the partnership itself limited partners do not pay self employment taxes because they are not active in the business the irs does not consider limited partners income as earned income the income received is passive income the tax reform act of 1986 allows limited partners to offset reported losses from passive income 2