The meaning, definition and features of Limited Partnership.
Limited partnership is a type of partnership where at least one partner is a general partner whose liability is unlimited and others have limited liability. The partners whose liability is limited are called special partners and the partners whose liability is unlimited are called general partners. The limited partnership business houses are to be registered. The special partners have no right to take part in the management of the business. This type of partnership is not dissolved on the retirement, death or lunacy of a special partner.
The provisions of the Indian Partnership Act does not recognize limited partnership forms of business and as such this type of business houses are not found in India. These types of business are found the the European countries and USA. The introduction of limited partnership comes into existence because the unlimited liability in ordinary partnership discourages investments of large amount of capital in the firm. Limited partnership has every resemblance with Joint Hindu Family business in India where the Katra has unlimited liability who manages over the family and the coparceners have limited liability. Non-registration of limited partnership tends the partnership forms of business to be a general partnership.
The following are the main features of limited partnership:
i. There are two classes of shares in limited partnership, i.e., special and general partners. There must be at least one general partner whose liability will be unlimited and at least one partner should be a special partner with limited liability.
ii. A special partner only invests money but cannot take active part in the business. The day-to-day work is done by general partners only. The special partner, however, can inspect the books of accounts.
iii. The special partners cannot bind the firm or other partners by their acts.
iv. The limited partnership is registered under acts in different countries. This is done to provide information to the public about the capital contributed by special partners and the extent of their liability. Non. registration of the firm makes it liable to be treated as general partnership.
v. A special partner cannot withdraw any part of his capital from the firm, otherwise he will make his liability unlimited to the extent of amount withdrawn.
vi. A special partner has to bring his capital in cash.