Limited Partnership Explained
“Limited partnership provides businessmen with an opening for investment. In it acountability of some partners is limited while some persons avail unlimited liability. ”
Limited partnership was developed to take care of the demerits of general partnership. Actually, the need to contribute towards the growth of business and industry necessitated this step.In general partnership the liability of partners is unlimited. This discourages those persons who want to invest money in business but do not want to risk their private property. These persons want to risk their investments in the firm but not beyond that.
Limited partnership provides them with an opening for investment. In limited partnership the accountability of some partners is limited while some persons avail unlimited liability.
The partners with limited liability are called special partners while others are called active partners. Limited partnership is not much in vogue in developing countries but it finds a place of prominence in the financial set up of developed countries. Europe and USA especially encourage this kind of partnership.
There are two types of shares in a limited partnership. Special shares refer to special partners where as the common shares refer to the general partners. There must be at least one general partner whose liability is unlimited and at least one partner ought to be a special partner.
A special partner only invests money but cannot take active part in business. General partners take care of the regular work as regards various needs and demands of business. The special partner, however, can inspect the books of accounts. But he cannot bind the firm or other partners by his acts.
The limited partnership is registered under different kinds of acts in different countries. This is done to provide information to people at large about the capital contributed by special partners and the degree of their liability.
A special partner cannot take out any part of his capital from the firm; otherwise it would amount to the fact that his liability has become unlimited to the extent of his amount withdrawn. The insolvency, death or insanity of a special partner does not lead to the closure of the firm. A special partner has to bring his capital in cash.
So, we see that a fundamental change in the setup of an organization can contribute a lot towards its growth and increased participation in the market.
Author - DeeKay
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