Limited partners (LPs) are investors in a partnership who contribute capital but have limited involvement in day-to-day business operations. This structure is common in private equity, real estate, and venture capital funds, where LPs provide the financial backing while general partners (GPs) handle management. The appeal of being a limited partner lies in the capped liability—LPs are only liable up to the amount of their investment, protecting their personal assets from business debts or legal actions against the partnership.
LPs typically do not participate in decision-making or business strategy, which differentiates them from general partners. Instead, they rely on contractual agreements that outline their rights to profits, distributions, and reports on business performance. This passive role allows LPs to invest in ventures without the burden of oversight, although it also means they have limited influence over how the business is run.
In exchange for their capital, LPs may receive returns through preferred distributions or profit-sharing arrangements. Their involvement is especially attractive to high-net-worth individuals and institutional investors seeking diversification without operational responsibility. As businesses increasingly rely on flexible funding sources, the role of limited partners continues to be a crucial element in scaling ventures while managing financial risk.