Limited Partnership (LP)

Jurisdiction and status

The limited partnership is a statutory form, so the law of the place of formation decides the partners' liability, whether the partnership has legal personality and how far the agreement can override default rules. Delaware's Revised Uniform Limited Partnership Act (title 6, chapter 17 of the Delaware Code) states a policy of giving maximum effect to freedom of contract and to the enforceability of partnership agreements (section 17-1101(c)). Luxembourg's special limited partnership (SCSp) has no legal personality separate from its partners (Article 320-1 of the Law of 10 August 1915 on commercial companies). Cayman Islands and UK limited partnerships rest on their own statutes. The Delaware and US federal provisions cited are stated as in force on 2 October 2026; the Luxembourg articles are cited from the official consolidated text of 2 March 2025.

Fund, GP, manager and LPs: who is who

A typical US private equity fund involves four distinct parties. The fund is a limited partnership that owns the investments. The general partner is a special-purpose entity, usually formed for that fund, that controls the partnership, bears unlimited liability for its obligations and receives the carried interest. The management company is the sponsor's operating firm, usually the registered investment adviser, which employs the team, advises the fund under an investment management agreement and receives the management fee. The limited partners are the investors. Market shorthand calls the whole sponsor "the GP", which is accurate commercially but not legally.

Why funds use the limited partnership

Four features explain its dominance for closed-end funds. Limited liability for investors, subject to the narrow control rule described below. Tax transparency: in the US a partnership files Form 1065 and reports each partner's share of its income on Schedule K-1; the partnership itself is generally not subject to income tax, and tax-exempt and foreign investors can be structured for separately. Contractual flexibility: the limited partnership agreement (LPA) can set waterfalls, fees, governance and transfer rules almost freely. Familiarity: lenders, LPs and counsel know the form.

Common fund jurisdictions and forms

Common forms include the Delaware limited partnership (US funds), the Cayman Islands exempted limited partnership (offshore funds and feeders), the Luxembourg SCSp and SCS (EU funds, often combined with a RAIF or SIF regime), the English and Scottish limited partnership, and Channel Islands partnerships. Whether the partnership has separate legal personality varies: a Luxembourg SCSp has none, an SCS has it (Articles 320-1 and 100-2 of the Luxembourg companies law). Funds with an open-ended or listed design more often use companies or trusts instead (see fund structure).

The limited partner's position

A limited partner's liability is capped at its contribution and commitment. Historically, limited partners who took part in controlling the business risked losing that protection (the "control rule"). Delaware keeps only a narrow version: a limited partner is liable for the partnership's obligations only if it is also a general partner or, beyond exercising its rights as a limited partner, participates in control of the business, and even then only to persons who transact business with the partnership reasonably believing, based on its conduct, that it is a general partner (section 17-303(a)). Section 17-303(b) lists conduct that is not participation in control, including consulting with and advising a general partner, attending partners' meetings, serving on a committee and voting on, or consenting to, the matters the section lists. Partnership agreements and limited partner advisory committee (LPAC) charters still keep LPs out of investment decisions for this reason. Statute can also claw back distributions: in Delaware, a partnership may not make a distribution that leaves its liabilities (other than liabilities to partners on account of their interests and liabilities whose recourse is limited to specified property) above the fair value of its assets; a limited partner that receives such a distribution knowing that it was prohibited is liable to the partnership for the amount, and unless otherwise agreed a limited partner has no liability for a distribution after three years from its date (section 17-607).

The general partner's position

The general partner has authority to bind the partnership and unlimited liability for its debts: Luxembourg law describes the general partners of an SCSp as liable without limit and jointly for its obligations (Article 320-1), and Delaware gives a limited partnership's general partner the liabilities of a partner in a general partnership (section 17-403(b)). Sponsors therefore use a special-purpose limited liability entity as GP, usually a new one for each fund, so that the unlimited liability is contained. The management company, by contrast, is usually a single firm-level entity serving all of the sponsor's funds.

Term and extensions

A fund partnership's life is set in the LPA (see fund term). Extension mechanics vary: a first extension is often at the GP's discretion and further extensions require LPAC or LP consent, but many LPAs require consent for each.

Not the same as

• Limited Partner (LP): A limited partner is a member of a limited partnership; the limited partnership is the entity or arrangement itself.
• Limited Partnership Agreement (LPA): The LPA is the contract governing a limited partnership; the partnership is formed by registration under statute plus that agreement.
• Master Limited Partnership: A master limited partnership is a publicly traded US partnership, typically in energy infrastructure, not a private fund vehicle.

How it is classified

• It is a limited partnership if it is formed under a limited partnership statute and has at least one general and one limited partner.
• A fund called an "LP" in a firm's literature may be a limited partnership, a limited liability company (LLC) or a company; check the formation documents.
• Classify the vehicle by legal form here; classify liquidity separately (closed-end, open-end, semi-liquid).

Common mistakes

• Saying limited partners lose limited liability if they participate in anything at all. Delaware's statute, for example, lists many activities that are not participation in control (6 Del. C. 17-303(b)).
• Assuming the management company is formed per fund. The GP entity usually is; the management company usually is not.
• Assuming every fund partnership has separate legal personality; several common forms do not.

Edge cases

• A US (domestic) limited liability company with two or more members can be used instead of a partnership and is classified as a partnership for US federal tax by default unless it elects otherwise (26 CFR 301.7701-3(b)(1)); foreign entities follow different default rules.
• A partnership is a "company" under the US Investment Company Act (section 2(a)(8)), so a partnership fund investing in securities typically relies on an exclusion from the definition of investment company, such as section 3(c)(1) or 3(c)(7).

Sources

1. Loi modifiée du 10 août 1915 concernant les sociétés commerciales - Art. 320-1 (société en commandite spéciale, SCSp). Grand Duchy of Luxembourg, Legilux (consolidated version applicable 2 March 2025), SCSp introduced by Law of 12 July 2013; now Art. 320-1 (last amended by Law of 7 August 2023). Status: In force (checked 2026-10-01). Art. 100-2; Art. 320-1(1)-(2) (consolidated text of 2 March 2025) — supports: SCSp: general partners with unlimited joint liability and limited partners who commit only a set contribution, for a limited or unlimited duration; no legal personality separate from its partners; the SCS is among the companies given legal personality
2. About Form 1065, U.S. Return of Partnership Income. Internal Revenue Service, Page last reviewed or updated 2026-07-20 (links 2025 Schedule K-1 and instructions). Status: current (checked 2026-10-01). About Form 1065 — supports: US partnerships file Form 1065 and report each partner's share on Schedule K-1
3. Partner's Instructions for Schedule K-1 (Form 1065) (2025). Internal Revenue Service, Tax year 2025 instructions (accessed 2026-10-01). Status: current (checked 2026-10-01). Tax year 2025 instructions, 'Purpose of Schedule K-1' — supports: The partnership generally isn't subject to income tax; a partner may be liable for tax on its share of the partnership income, whether or not distributed
4. 15 U.S.C. 80a-3 - Definition of investment company (Investment Company Act sec. 3, incl. 3(c)(1) and 3(c)(7)). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Sec. 3(c)(1), 3(c)(7)(A) — supports: Exclusions from the definition of investment company on which US partnership funds rely
5. 6 Del. C. s.17-303 - Liability to third parties (Delaware Revised Uniform Limited Partnership Act). State of Delaware (Delaware Code Online), Delaware Code Online, Title 6 ch. 17 (accessed 2026-10-01). Status: in force (checked 2026-10-01). 6 Del. C. Sec. 17-303(a) (both sentences), (b)(2), (b)(4), (b)(7), (b)(8) — supports: Limited partner liable only if also a general partner or participating in control, and then only to persons reasonably believing it is a general partner; consulting with or advising a general partner, attending meetings, serving on a committee and voting on listed matters are not participation in control
6. 6 Del. C. s.17-1101 - Construction and application of chapter and partnership agreement (DRULPA). State of Delaware (Delaware Code Online), Delaware Code Online, Title 6 ch. 17 (accessed 2026-10-01). Status: in force (checked 2026-10-01). 6 Del. C. Sec. 17-1101(c); Sec. 17-1102 — supports: Delaware policy of maximum effect to freedom of contract and enforceability of partnership agreements; short title Delaware Revised Uniform Limited Partnership Act
7. 6 Del. C. s.17-607 - Limitations on distribution (DRULPA). State of Delaware (Delaware Code Online), Delaware Code Online, Title 6 ch. 17 (accessed 2026-10-01). Status: in force (checked 2026-10-01). 6 Del. C. Sec. 17-607(a)-(c) — supports: No distribution where liabilities would exceed the fair value of assets; a limited partner who knowingly receives a prohibited distribution is liable for it; no liability after three years unless otherwise agreed
8. 26 CFR 301.7701-3 - Classification of certain business entities (entity classification elections). Internal Revenue Service / Treasury (CFR text via LII), Current CFR text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). 26 CFR 301.7701-3(b)(1) — supports: A domestic eligible entity with two or more members is a partnership by default
9. 15 U.S.C. 80a-2 - Definitions (Investment Company Act sec. 2, incl. 2(a)(48) BDC and 2(a)(51) qualified purchaser). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Sec. 2(a)(8) — supports: "Company" includes a partnership
10. 6 Del. C. Sec. 17-403 - General powers and liabilities of a general partner (Delaware Revised Uniform Limited Partnership Act). State of Delaware (Delaware Code Online), Delaware Code Online, current text as fetched 2026-10-02. Status: in force (checked 2026-10-02). 6 Del. C. Sec. 17-403(b) — supports: A general partner has the liabilities of a partner in a general partnership to persons other than the partnership and the other partners

• Management Company
• Fund Structure
• 3(c)(1) Fund
• Limited Partner Advisory Committee (LPAC)
• General Partner (GP)
• Limited Partner (LP)
• Limited Partnership Agreement (LPA)

• Closed-End Fund
• Private Capital (Private Markets)
• Separately Managed Account (SMA)