What is a Delaware limited partnership?

Delaware’s limited partnership statute, chapter 17 of title 6 of the Delaware Code, lets the partnership agreement set most terms and fills gaps. A limited partner is not liable for the partnership’s obligations unless it is also a general partner or takes part in control of the business, and even then only to those who deal with the partnership reasonably believing it is a general partner. The statute lists activities, such as voting on certain matters, that do not count as control.

Say an LP commits $25 million to a fund formed as a Delaware limited partnership and takes no part in running it. If the fund cannot pay a creditor, the LP is generally not liable beyond its $25 million commitment and any distribution it must return. Simple example. Terms vary by fund.

The statute fills any gaps in a Delaware fund’s LPA, and its limit on LP liability is what lets investors commit large sums to a fund.