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Limited partners are not responsible for the partnership’s debts beyond the amount of their capital contribution or contribution obligation. So, as discussed, unless they become actively involved, the limited partners are protected.

As a general rule, general partners are personally liable for all partnership debts. But as was mentioned above, there is a way to protect the general partner of a limited partnership. To reduce liability exposure, corporations or LLCs are formed to serve as general partners of the limited partnership. In this way, the liability of the general partner is encapsulated in a limited liability entity. Assume a creditor sues a limited partnership over a business debt and seeks to hold the general partner liable. If the general partner is a corporation or LLC, that is where the liability ends. No one’s personal assets are at risk.

A chart helps to explain this concept:

In the scenario on the left, with Joe Dokes as an individual general partner, he is personally responsible for all activities of Dokes, LP. All his personal assets are at risk. In the scenario on the right, Dokes, Inc. carries all of the liability. Joe’s personal assets are not exposed.

As such, many, if not most, limited partnerships are organized using corporations or LLCs as general partners. In this way, both the limited and general partners achieve limited liability protection.