What is an LP

An LP, or Limited Partnership, is a business structure used in the UK and in many other countries. It involves two or more people running a business together, but unlike a traditional partnership, the roles and responsibilities of each partner are divided into two distinct categories: general partners and limited partners.

This structure is commonly used for investment vehicles, property development projects, and certain joint ventures. While it is not as well-known as the limited company or LLP, the LP offers specific advantages, especially for passive investors who want to contribute financially without taking on day-to-day management or liability.

How a Limited Partnership works

In a limited partnership, there must be at least one general partner and one limited partner.

The general partner is responsible for managing the business and is personally liable for any debts the partnership incurs. This means their personal assets are at risk if the business cannot meet its financial obligations. The general partner also makes decisions on behalf of the partnership and takes responsibility for its operations.

The limited partner, on the other hand, contributes capital to the business but does not take part in its management. Their liability is limited to the amount they have invested. As long as they remain passive and do not involve themselves in the running of the business, their personal risk is restricted.

This structure makes LPs suitable for arrangements where one party wants to invest money and benefit from profits but does not want any management responsibility or exposure to greater financial risk.

Legal requirements

A limited partnership must be registered with Companies House in order to be recognised in the UK. The name of the partnership must include the words “Limited Partnership” or the abbreviation “LP” at the end.

An LP is not a separate legal entity like a limited company or an LLP. This means the business itself cannot enter into contracts or own property in its own name. Instead, the general partners usually hold assets and sign contracts on behalf of the partnership.

Limited partnerships do not have to file accounts or annual confirmation statements with Companies House, which makes them more private than limited companies. However, general partners may need to register for Self Assessment and meet any tax obligations depending on how the partnership is structured and where it trades.

Common uses of LPs

Limited partnerships are often used in specialised areas where clear separation between investors and managers is needed. For example:

• Private equity and venture capital funds: Investors contribute capital as limited partners, while fund managers act as general partners.

• Property development projects: A developer may act as the general partner, while financial backers provide funds as limited partners.

• Film or media financing: Investors can support production costs without being involved in daily operations.

In these cases, the LP structure allows for flexibility in profit sharing and liability, while maintaining a clear legal distinction between those who manage and those who invest.

How LPs differ from LLPs and general partnerships

An LP is different from a general partnership, where all partners share responsibility for management and liabilities equally. It is also different from a Limited Liability Partnership (LLP), which is a separate legal entity and offers all members limited liability.

The key difference is that in an LP, general partners still carry full personal liability, whereas in an LLP, all partners enjoy limited liability. LLPs are also subject to more formal reporting requirements, including annual accounts and confirmation statements.

Choosing between these structures depends on the level of risk, control and visibility you are comfortable with, as well as the intended purpose of the business.

Final thoughts

A Limited Partnership is a flexible business structure that allows investors to contribute financially while limiting their risk, provided they do not take part in management. It is particularly useful for projects where control needs to remain with a few individuals, and others are involved only in a financial capacity.

While it offers privacy and simplicity, it also exposes general partners to personal liability. As such, it is important to get legal and financial advice before setting up or entering into an LP agreement. Understanding the responsibilities and limitations of each partner will help ensure the arrangement runs smoothly and achieves its intended purpose.