The partnership agreement of a limited partnership has almost no formal requirements, which grants the partners a considerable amount of leeway with the design of their company. However, this is not the case when it comes to liability: the limited partner is limited in principle, exclusively up to the limit of their personal partner capital contribution, i.e. the money or assets contributed to the enterprise. Their private assets remain untouched.
General partner liability, on the other hand, is unlimited, and their personal assets can be at risk, if the business goes bankrupt and significant debts need to be repaid.
If several general partners are involved in the enterprise, they must bear the total debt in equal parts together, unless otherwise agreed in the articles of association. However, if an individual general partner does not pay enough, the disadvantaged partners have the right to claim compensation, which is usually made by indemnities and less often by reimbursed payments. Individual contractual provisions with creditors may permit a limitation of liability under certain circumstances. It is also not unusual for a limited liability company to act as the general partner in a limited partnership. Liability is then limited to the LLC’s assets.
Liability is therefore the most important difference between the limited partner and the general partner in a limited partnership. However, at the beginning it is not easy to completely separate them. As long as the limited partner contribution has not been made and properly documented, the limited partner is treated as a general partner from a legal perspective, with all the associated liabilities. This is particularly dangerous if the founding partner turns out to be untrustworthy. In order to avoid risks, the limited partner should only join a limited partnership once their capital contribution and position as a limited partner are accurately registered – not a moment earlier.