What is a LP?
A Limited Partnership (LP) consists of at least one general partner who manages the business and is personally liable for debts, and one or more limited partners who contribute capital but have limited liability and cannot participate in management. LPs are commonly used for real estate investments, venture capital funds, film productions, and family investment vehicles.
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Not Ideal For: Active business owners who want management control with liability protection.
Tax Structure Deep Dive
LPs are pass-through entities — all income and losses flow through to partners' personal tax returns. General partners pay self-employment taxes on their share. Limited partners' share of income is generally not subject to self-employment tax. Partners receive Schedule K-1 forms annually.
Summary Framework
Pass-through taxation. General partners pay self-employment tax. Limited partners' income is generally not subject to self-employment tax.
Structural Comparison Matrix
| Structure | Liability Protection | Tax Framework | Complexity | Ownership | Best For |
|---|---|---|---|---|---|
| Business Corporation | Full | Pass-through (S Corp election) | Moderate | Shareholders (max 100, US only) | Established businesses wanting tax savings |
| C Corporation | Robust Corporate Veil Protection | Double Taxation (Corporate Rate + Shareholder Dividend Tax) | High | Shareholders, Board of Directors, and Officers | Venture-Backed Startups |
| C Corporation | Full | Double (Corporate + Personal) | Complex | Shareholders (unlimited) | Venture capital-funded startups & large enterprises |
| Corporation | Full Corporate Shield Protection | Corporate Tax System (Federal + Provincial Rates) | Medium to High | Shareholders and Board of Directors (Min 25% Canadian resident directors required federally) | Canadian Growth Businesses & Startups |
| DBA | None (depends on entity) | Same as underlying entity | Minimal | Same as underlying entity | Businesses wanting multiple brand identities |
| Extra-Provincial Registration | Maintains Active Corporate Shield | Multi-Provincial Apportioned Corporate Tax | Medium | Governed by the parent corporate structure | Interprovincial Canadian Businesses |
| Foreign Qualification | Maintains Domestic Liability Protections | Dual-State / Multi-State Apportioned Taxation | Medium | Inherited from parent domestic business structure | Expanding Multi-State Companies |
| Limited Liability Company | Complete Personal Shield Protection | Flexible (Pass-Through or Corporate Election) | Low to Medium | Members (owners), flexible management structure | Small Businesses & Startups |
| LLC | Limited | Pass-through | Simple | Members (unlimited) | Small business owners seeking liability protection |
| LLP | Partial (partner-to-partner) | Pass-through | Moderate | Partners | Professional service firms |
| LP | Limited (for limited partners only) | Pass-through | Moderate | General + Limited Partners | Real estate & investment funds |
| Nonprofit | Limited (for directors) | Tax-exempt (501c3) | Complex | No owners — board governed | Charitable & mission-driven organizations |
| Partnership | Joint and Several Personal Liability | Pass-Through Joint Taxation | Low to Medium | Two or more general partners (or combination with limited partners) | Collaborative Canadian Co-Founders |
| Partnership | Limited to No Protection for General Partners | Pass-Through (Shared Business Tax) | Low to Medium | Two or more general or limited partners | Professional Service Co-Founders |
| Persona Física con Actividad Empresarial | Zero Asset Protection | Individual Progressive Income Tax | Low | Sole individual owner (RFC holder) | Mexican Solopreneurs |
| PLLC | Limited (varies by state) | Pass-through | Moderate | Licensed professionals only | Doctors, lawyers, accountants & architects |
| Professional LLC | Targeted Professional Liability Protection | Flexible (Pass-Through or Corporate Election) | Medium to High | Licensed professionals within the same industry | State-Licensed Professionals |
| S Corporation | Standard Corporate Shield Safeguards | Pass-Through (With Payroll Optimization Options) | Medium to High | Shareholders (Max 100, US citizens/residents only) | Profitable Small Businesses |
| Sociedad Anónima de Capital Variable | Full Corporate Veil Protection | Mexican Federal Corporate Tax (ISR) | High | Minimum of 2 shareholders; Managed by a Sole Administrator or Board of Directors | Standard Mexican Commercial Corporations |
| Sociedad Anónima Promotora de Inversión | Premier Corporate Shield | Corporate Tax with Investment Structuring Support | Very High | Highly flexible board management; customized voting and dividend classes | Investment-Ready Mexican Startups |
| Sociedad Civil | Partial Liability Protection for Partners | Cash-Basis Corporate Taxation | Medium | Two or more licensed partners (SOCIOS) | Mexican Professional Practices |
| Sociedad de Responsabilidad Limitada | Limited Partner Liability Shield | Mexican Corporate Tax (ISR) | Medium to High | Minimum of 2, maximum of 50 partners | Closely-Held Mexican Businesses |
| Sole Proprietorship | Unshielded Liability | Personal Income Tax Integration | Very Low | One individual | Canadian Solopreneurs & Freelancers |
| Sole Proprietorship | No Protection (Unlimited Liability) | Direct Personal Pass-Through | Very Low | Single individual owner | Freelancers & Solo Contractors |
| Sole Proprietorship | None | Personal (Schedule C) | Minimal | Single owner | Freelancers, consultants & sole traders |
| Unlimited Liability Corporation | No Liability Shield (Unlimited Shareholder Exposure) | Hybrid (Corporate locally, Pass-Through internationally) | High | Shareholders (Domestic or International) | US-Canada Cross-Border Enterprises |
Quick Facts
- Liability Protection Limited (for limited partners only)
- Taxation Pass-through
- Ownership General + Limited Partners
- Best For Real estate & investment funds
- Formation Cost $50 - $500
- Compliance Level Low
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