General and limited partner

What it means

The general partner and the limited partner are the two types of partner in a limited partnership, which combines features of a general partnership and capital companies. It must have at least one of each, and their positions differ in liability, management and taxation.

The general partner is liable for the partnership’s debts with all its assets, without limit and jointly with other general partners. It is also the statutory body and manages the partnership. A general partner can be an individual, but also an s. r. o., which is used in practice to limit personal liability.

The limited partner makes a contribution of at least 250 euros and is liable for the partnership’s debts only up to any unpaid contribution entered in the commercial register. It does not take part in management but has the right to inspect documents and check the finances.

How it works in practice

A limited partnership’s profit is split into a part for the general partners and a part for the partnership attributable to the limited partners. The general partners’ share is taxed directly in their hands as business income, while the part for the limited partners is taxed in the partnership at the corporate rate and paid out to them as a profit share, much like a dividend.

This mixed regime makes a limited partnership more complex for both bookkeeping and tax returns. We recommend it mainly where there is a reason to separate active partners who run the business from passive investors, and where one of its advantages over an s. r. o. will be used.

On formation it is important to set out in the partnership agreement how profit is divided among the general partners, the size and payment of the limited partners’ contributions and the decision-making rules. The law contains only basic rules that most businesses need to adapt.

What to watch out for

The biggest risk for a general partner is unlimited liability. If the partnership gets into trouble, creditors can reach its personal assets, including a home. That is why an s. r. o. is often chosen as general partner, which limits an individual’s liability but adds administration.

A limited partner who starts actually running the business, for example signing contracts on its behalf, risks being treated as liable like a general partner. The line between oversight and management should be kept in everyday practice, not just on paper.