A limited partner is someone who makes a contribution to the partnership with the expectation of earning a profit on the contribution, but at the same time, the limited partner has no say in the ongoing operations of the entity. In return for giving up control of the limited partnership, they are granted limited liability for the operations of the limited partnership.

General partners are the partners who exercise the control over the limited partnership. A general partner need only own 1% of the partnership but it can control 100% of the partnership. Limited Partnerships are often utilized in estate planning with family business interests. Since the general partner controls and makes the decisions for the partnership, they have unlimited liability for the actions of the limited partnership. Another negative for the General Partner is the subjection to self-employment tax on his or her income. The General Partner is generally an LLC or Corporation rather than an individual, as the LLC/Corp can limit it liability by the assets it holds.

From a tax viewpoint, a limited partnership is taxed in the same manner as a General Partnership, in most instances the entity itself does not pay taxes on the earnings of the limited partnership, instead it is the owner of the entity that pays the taxes. The Limited Partnership provides to the partners an IRS form K-1, which the partner will file with his tax return.

Limited Partnerships, due to their nature, can also be more expensive to form. The contracts distinguishing limited partners from general partners, requires more legal documentation during the set up process. And similar to regular partnerships, Limited Partnerships do not have as much freedom as corporations in regards to medical reimbursement plans and other fringe benefits which a corporation offers.