What is a Limited Partnership (LP)?

An LP (limited partnership) is a popular type of investment vehicle used mainly by institutional and wealthy investors. Unlike a limited liability company (SARL), where each partner is responsible for the company's debts and liabilities, the LP is a limited partnership, i.e. the general partners have unlimited liability and the special partners have limited liability.

An LP consists of a general partner (usually a private equity fund) responsible for investing and operating assets, and one or more special partners responsible for providing capital. The funds raised from the contribution of the special partners are pooled into a single legal entity.

Special partners are typically financial institutions and pension funds that invest capital with LPs and are remunerated by an annual distribution rate and capital gains participation. In general, the returns special partners receive are predetermined by the LP contract, which defines the amount and timing of distributions they are to receive.

LPs have become a very popular way for institutional investors and wealthy investors to invest in the private sector. LPs enable companies and private equity funds to raise capital more efficiently, as special investors agree to repay them out of their profits.