Explanation

A limited partner is a partner whose liability does not extend beyond the amount of capital they contributed. This means if the partnership fails, the limited partner can only lose their investment, not their personal assets.

Limited partners are also called sleeping partners or silent partners because they are not involved in the day-to-day management of the business. Their role is purely as investors who contribute capital.

An active partner participates in running the business. A general partner has unlimited liability – they can lose personal assets if partnership debts exceed partnership assets. “Legal partner” is not a standard accounting term.

In a limited partnership, there must be at least one general partner with unlimited liability. Limited partners enjoy protection from personal liability but cannot participate in management. If they do, they may lose their limited liability status.