What is an LP? Where and how can a Limited Partnership be incorporated?

The Limited Partnership (LP) is one of the most common business structures today in the world. What benefits make it so special? Why is it popular in many countries? Is it difficult to open LPs? What jurisdictions are recommended for LP incorporation? 

This article provides a brief outline of the most essential features of LPs and invites you to discuss with our expert your interest in opening a Limited Partnership abroad. Should you need more details, you are welcome to share with us your questions and requests, and you will soon receive our experts’ feedback and/or customized offer. 

Limited Partnership picture - definition

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What is an LP?

LP — is a business structure founded by at least one general partner and at least one limited partner. 

General partners may be individual persons or legal entities (for example, a corporation). A general partner is personally and fully responsible for the company’s obligations, and lawsuits. If there are several general partners, they can be jointly and severally liable to pay off the company’s debts. Such partners are directly involved in running the company’s daily operations, planning, and control, including financial matters. 

The liability of a limited partner is limited by the amount of personal contribution/investment in the company. Such partners are often called ‘silent’, as they do not participate in any way in the company’s operation and management. 


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LP uses

Limited Partnerships are chosen as a type of legal entity for at least two common reasons:  


A Limited Partnership is an efficient vehicle for commercial real estate development projects. In such ventures, the general partner is the organizer and manager of the construction and maintenance of the project, while the limited partner is a passive investor who invests money in the project and then receives income from the revenues of the completed project. Shopping centers and residential complexes are just some of the typical examples of projects that can be built and managed by an LP.


An LP is often used as an optimal tool for real estate ownership and management planning: the general partner is the parent company that owns the real estate, while the limited partner is the heir. This type is sometimes called a ‘family partnership.’

In both cases, if the limited partners comply with all the laws and regulations relevant to LPs, their possible maximum loss can be the amount invested at the time of the company’s incorporation. If they somehow get involved in the decision-making and management process of the company, they are running a legal risk of becoming personally liable on par with the general partner(s).

The primary aim of a Limited Partnership

The main aim of the individual persons (including investors and/or heirs) or corporate entities setting up a Limited Partnership is usually to maintain a 100% control over a real estate development project or some assets.

Limited partnerships have no shares or shareholders. Each member has a specifically defined percentage of income from the legal entity. They do not receive dividends, but they are entitled to their share of the profits. 

Advantages of Limited Partnerships

Most LPs feature the following advantages:

  •   limited liability of limited partners
  •   protection of personal assets
  •   pass-through taxation (also called ‘check the box taxation’ in the USA)
  •   full control of the general partner(s) over the company and its assets
  •   investment potential for passive investors includes long-term leases
  •   heirs can receive income without owning assets (and thus be exempt from inheritance tax) 
  •   fundraising opportunities.

The most favorable destinations for setting up LPs

The fastest and easiest (and cost-effective) registration of LPs today is probably in the Marshall Islands, one of the most modern offshore incorporation bases.

However, LPs are quite popular around the world: across Europe (the KG in Germany for example), Canada, New Zealand, the USA, Japan, Hong Kong, New Zealand. The UK has traditionally been used by non-residents for setting up LPs due to its excellent reputation and business friendly legal system.

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What does the term ‘LP’ stand for?

An LP is a business unit in the form of a Limited Partnership consisting of one or more general partners who are fully liable for the partnership’s debts and whose responsibilities include the day-to-day management of the company, and one or more limited partners who are not involved in management. The General Partner may be an individual or an entity, such as a corporation, and they have full rights to manage the business, including all of its operations. The limited partners do not participate in any way in the management of the business entity or its property.

What are the most common goals of an LP formation?

Limited Partnerships are usually formed by individual persons or corporations who want to retain 100% control over an asset or development project. Such individuals can be investors or heirs who are going to receive their part of the company’s revenues.
For example, an LP can  be set up for such goals as:
– to perform commercial real estate development projects where the general partner is the organizer and manager of construction and maintenance of the project, and the limited partner is a passive investor;
– to optimize a real estate ownership planning featuring the general partner owning the real estate and the limited partner being the heir.

What are the advantages of a Limited Partnership as a legal entity type?

–  protection of personal assets thanks to the limited liability of limited partners
–  pass-through taxation (also called ‘check the box taxation’ in the USA)
–  full control over the company and its assets by the general partner(s) 
–  attractive investment potential for passive investors
–  heirs’ income without their ownership of the assets (and therefore – the exemption from inheritance tax) 
–  the company’s fundraising opportunities.

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