Michigan Residential Builders License Practice Test

What type of partnership allows an individual to invest without input on operation?

1. Sole proprietorship

2. Limited partnership

3. General partnership

4. Joint venture

The correct answer is: Limited partnership

A limited partnership is characterized by the presence of general partners and limited partners. In this arrangement, the limited partners are individuals who invest capital in the business but do not participate in its day-to-day operations. They enjoy liability protection, meaning their financial risk is limited to the amount they invested, and they do not have a say in management decisions. This structure allows individuals to invest while minimizing their involvement in the business's operational aspects, making it appealing for those who want to invest but prefer not to manage a business. The general partners, on the other hand, handle the daily operations and assume full personal liability for the partnership's debts. This distinction clearly sets limited partnerships apart from sole proprietorships, general partnerships, and joint ventures, where either full control or shared management is typically expected from all participants.