What best describes limited partnerships (LPs)?

What best describes limited partnerships (LPs)?

• A. Businesses operated by a single individual
• B. Businesses owned by multiple individuals with limited liability for business debt
• C. Publicly traded investment funds
• D. Investment trusts managed by financial institutions

Answer: (B)

Limited partnerships (LPs) are a unique business structure where there are two types of partners: general partners and limited partners. The general partners run the business and have unlimited liability for its debts, while the limited partners contribute capital and have their liability limited to the amount they invested. This arrangement allows limited partners to invest in the business without taking on the full risks associated with running it. This structure is particularly attractive to investors who wish to participate in a business venture without the burden of management responsibilities or the potential for more extensive personal financial exposure. The answer best captures this essential aspect of limited partnerships, which is their ability to provide limited liability to certain partners while allowing for active management by others. In contrast, the other choices depict different business or investment structures that don't encompass the characteristics of limited partnerships: businesses operated by a single individual describe sole proprietorships; publicly traded investment funds refer to mutual funds or exchange-traded funds, and investment trusts are typically managed by financial institutions but do not reflect the partnership concept inherent in LPs.

Limited partnerships (LPs) are a unique business structure where there are two types of partners: general partners and limited partners. The general partners run the business and have unlimited liability for its debts, while the limited partners contribute capital and have their liability limited to the amount they invested. This arrangement allows limited partners to invest in the business without taking on the full risks associated with running it.

This structure is particularly attractive to investors who wish to participate in a business venture without the burden of management responsibilities or the potential for more extensive personal financial exposure. The answer best captures this essential aspect of limited partnerships, which is their ability to provide limited liability to certain partners while allowing for active management by others.

In contrast, the other choices depict different business or investment structures that don't encompass the characteristics of limited partnerships: businesses operated by a single individual describe sole proprietorships; publicly traded investment funds refer to mutual funds or exchange-traded funds, and investment trusts are typically managed by financial institutions but do not reflect the partnership concept inherent in LPs.