Question

Lane and Louis were limited partners in a real estate venture. After the business was in financial difficulty, these limited partners had two meetings with the general partners to discuss the problems of the venture. In addition, Lane visited the construction site and “obnoxiously” complained about the work that was being conducted. Do these actions constitute taking part in the control of the business so that the limited partners become liable as general partners? Explain.

Answer 1

Limited partners are basically investors in a venture. They are like silent partners with no role to play in the management or day to day working of the organization. Limited partners do not incur debt or liability for the organization. Their liability is limited to the investment that they have made.

On the other hand, General partners are the ones who are not only investors but also bear the risk of unlimited liability and debt of the venture. Their liability is linked to their personal property as well in case of any serious financial crisis in the venture. General partners handle day to day operations of the organization and receive management fees in addition to a greater share of profits earned by the venture.

In the case of Lane and Louis as limited partners, their action in having meetings with the general partners to discuss problems of the venture and complaining about the kind of work being conducted after visiting the construction site does not amount to interfering in the operations of the venture. They do have the right to review and ascertain the progress made and also to bring to the notice of general partners any anomalies observed. These actions do not constitute taking part in the control of business to become liable as general partners.