A Limited Partnership is a business format used to structure certain types of operating business investments. Generally, a business is set up as a proprietorship, a partnership or a corporation.
The benefit of the Partnership form of business is that revenue flows directly to the partners and is taxed only as personal income.
A Corporation, on the other hand, is taxed twice, once at the business level and once at the personal level.
For the investor, Limited Partnerships eliminate management responsiblities and limit liability to the amount invested. Profits flow through from partnership operations to the investors, who are Limited Partners. Limited Partnerships also permit investors with relatively small amounts of investment capital to participate in ventures which would otherwise require much greater equity.
Limited Partnerships are also the format in which tax shelters are structured. These ventures are often "unseasoned" and may involve leverage. The result is a high risk profile that may be unsuitable for some investors. Although Partnership interests are generally transferable, Limited Partnerships are not considered to be liquid investments and must be held for long periods of time.