Limited partnership: how it works and when to choose one

Choosing the right business structure is a crucial step when launching a company. One less common but strategically useful option is the limited partnership, or sociedad comanditaria. This type of business offers unique characteristics suited to specific entrepreneurial needs. In this article, we’ll explore what it is, the types that exist, how it functions, and its key pros and cons.

Summary

1. What is a limited partnership?
2. Types of limited partnership
3. How a limited partnership works
4. Advantages of a limited partnership
5. Disadvantages of a limited partnership
6. When to choose a limited partnership
7. Next steps

What is a limited partnership?

A limited partnership is a business structure in which two types of partners coexist, each with distinct responsibilities and roles:

• General partners: actively manage the business and have unlimited personal liability for the company’s debts.
• Limited partners: contribute capital without taking part in day-to-day management, and their liability is limited to their investment.

It’s considered a hybrid model — combining aspects of both personal and capital-based companies — ideal for pairing hands-on operators with passive investors.

Curious how limited partnerships compare to other popular business structures in Spain? Explore our Complete guide to understanding the types of companies in Spain for a comprehensive overview.

Types of limited partnership

There are two main types, each with specific legal and structural requirements:

Simple limited partnership. Governed by the Commercial Code, this is a more informal structure. It has no minimum capital requirement, and there’s no obligation to file audited accounts with the Companies Register. General partners manage the business, while limited partners fund it, with liability restricted to their contributions.

Partnership limited by shares. Regulated under the Capital Companies Act, this version requires a minimum capital of €60,000, divided into shares. Limited partners do not manage the business but may attend the general shareholders’ meeting.

Wondering whether a General partnership might suit your situation better? Discover features, legal requirements and benefits in General partnership: features, legal requirements and advantages.

How does a limited partnership work?

Operations vary depending on the type, but some aspects are shared.

Formation: The partnership is created through a public deed and registered with the Companies Register. The deed must include the names of all partners, their contributions, the company name, and rules for decision-making.

Roles and obligations of partners:

• General partners - manage the business and are jointly and severally liable for its debts. Their voting rights are proportional to their ownership share.
• Limited partners - contribute capital but do not participate in management. Their rights include reviewing annual accounts and sharing in profits.

Special considerations: In partnerships limited by shares, general partners must also act as directors, and management follows a more corporate governance structure.

Advantages of a limited partnership

Access to capital: Attracts investors without giving up management control.

Limited liability for investors: Limited partners only risk the capital they contribute.

Flexible structure: Suits family businesses or growing projects by clearly separating roles.

No minimum capital (in the simple form): Reduces barriers to starting the business.

Disadvantages of a limited partnership

Unlimited liability for general partners: This poses a major financial risk to those managing the business.

Potential conflicts: Divided roles can lead to tension between managing and passive partners.

Greater administrative complexity (if limited by shares): Legal and reporting obligations are comparable to those of a public limited company.

Risk of minority suppression: General partners retain full control, which may be a concern for limited partners.

When to choose a limited partnership

This structure is well suited to situations where you want to combine external funding with centralised control. For example:

Family businesses. Perfect for involving family members as limited partners without requiring them to manage daily operations.

Capital-intensive projects. Ideal for ventures that need significant investment while maintaining decision-making control.

Personalised ventures. Great for small teams or individual-led businesses that want clear lines of responsibility.

Looking for a flexible and collaborative structure for small businesses? Learn more about the Communal partnership: a flexible choice for small businesses.

Example: how a limited partnership might work

Imagine Estela and Lucas decide to launch an artisan bakery.

• Estela becomes a general partner, managing operations and assuming full liability.
• Lucas provides capital for equipment but takes no part in management. He becomes a limited partner, liable only for his investment.

Together, they form a business model where roles and contributions are clearly defined, enhancing operational clarity and financial efficiency.

Next steps

If you believe a limited partnership is suitable for your business, it’s important to carefully assess the legal and financial aspects. Clearly define partner roles and responsibilities, understand applicable laws, and prepare a detailed partnership agreement. Ensure all registration formalities are completed.

Evaluate capital requirements, tax obligations, and accounting systems. It’s advisable to consult professionals—lawyers and accountants—to secure full legal and financial support.

Establish effective management, include conflict resolution mechanisms, and develop exit and succession plans. This approach will help build a legally stable and financially sound business.