What differentiates a Limited Partnership from a General Partnership?

A Limited Partnership is distinct from a General Partnership primarily due to the structure of the partners' liability. In a Limited Partnership, there are two types of partners: general partners and limited partners. The general partners manage the day-to-day operations of the partnership and are fully liable for the partnership's debts, hence they have unlimited liability. Conversely, limited partners typically invest capital into the partnership but do not participate in the management and possess limited liability, which protects their personal assets beyond their investment in the partnership.

This distinction in liability is fundamental to how these partnerships function and influence the involvement of each partner type. Limited partners benefit from reduced risk since they are only financially responsible for their own contributions to the partnership, making it an attractive option for individuals looking to invest without exposing themselves to the risks associated with running the business.

The other choices do not accurately characterize the differences between these partnership types: all partners in a Limited Partnership are not required to be involved in management, general partners do not solely claim all profits as this would depend on the partnership agreement, and there is no minimum or maximum participant requirement that makes Limited Partnerships inherently require fewer participants than General Partnerships.