|Limited Partnership and LLC|
A limited liability company (LLC) and a limited partnership (LP) are two types of corporations in the United States. LLCs offer limited personal liability to their owners while its other characteristics make it more like a partnership.
The LLC provides greater management flexibility and allows pass through taxation (i.e., no double taxation) for investors. Another important advantage of LLCs compared to other corporations is that there are fewer administrative requirements; for example, it is not necessary to hold an annual shareholders’ meeting.
With small LLCs the owners participate equally in the management of their business, which is called member management. An alternative management structure, one that is widespread in the hedge fund industry, is manager management.
In this case the management is delegated to one or more owners (sometimes even to outsiders), which act as agents of the LLC and make the management decisions. The nonmanaging owners do not participate in the day-to-day operations but they do share the LLC’s profits.
A limited partnership is distinct from a limited liability company, with regard to liability and taxation. LPs consist of general partners and limited partners. The general partner is responsible for the management activities and has full liability for the debts of the partnership.
The limited partners are not involved in the operations of the company; they just supply the capital. Furthermore, they are only liable to the extent of their investment. The general partners pay the limited partners a dividend on their investment as compensation. The residual remains for the general partners.
There are comparable corporate entities in other countries. Counterparts of the LLC are the British Limited liability partnership, the German Gesellschaft mit beschränkter Hatung, or the Japanese godo kaisha. However, the characteristics of LLCs and LPs described here are specific to the United States.