As a business, a sole proprietorship is easy to create and maintain. However, in a sole proprietorship, the business owner is solely responsible for all decisions and business liabilities. Two forms of partner exist in a limited partnership. A general partner is similar to a partner in an ordinary partnership. A limited partner is one that is not financially liable for the debts of the business beyond the risk of losing initial investment. A limited partnership must have at least one general partner who remains personally liable.
Using the limited partnership format allows a business owner to gain additional funding from the new partners without the credit risk or interest expense of taking out a loan. The limited partnership may make it considerably easier to attract new partners as they can put money into the business without having unlimited risk if the business falls into financial difficulties.
As well as gaining financing from a new partner, a business owner can benefit from the partner's professional knowledge and contacts. This is particularly useful when the new partner would not be willing to share this information unless she was able to share in the benefits that it brought to the company. For example, if the person was highly regarded in the industry, it is unlikely she would be willing to work for a sole proprietor business as an employee for a salary that the sole proprietor could afford.
Until 2001, limited partners could not play an active role in the running of the company, meaning they were effectively silent partners. The 2001 Uniform Limited Partnership Act removed this restriction. This means the limited partner can help manage the company in addition to providing information and skills. This can be particularly useful if a sole proprietor is an expert in his product or service but lacks experience in running and increasing a business.
The limited partnership arrangement is often suitable for cases where the new partner only wishes to be involved with the sole proprietor on a single project. This could include construction projects or movies. The format allows those with money to invest in a project without exposing themselves to excessive risk.
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