Does a limited partner lose their limited liability protection if they start taking part in managing the business?

The bargain the shield rests on

A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business. The protection exists because of what a limited partner gives up. Article 1843 provides that limited partners as such are not bound by the obligations of the partnership, and Article 1845 allows their contributions to be cash or property but not services. Capital without labour and without command is the trade. Take back the command and the article withdraws the protection that was its price.

What counts as control

The wording is careful, and the words in addition to the exercise of his rights and powers as a limited partner are the safe harbour. Exercising the rights the certificate and the Code give him is not what forfeits anything; the risk lies in acts of direction beyond them. Instructing staff, deciding which contracts the firm takes, signing for the partnership, or being presented to customers and lenders as someone who runs the business all move in that direction. Asking questions, receiving accounts and voting on matters the certificate reserves to him do not.

Two other ways the protection leaks

Control is not the only exposure. Article 1846 keeps a limited partner's surname out of the partnership name unless it is also a general partner's surname or the business was already carried on under that name before he became a limited partner; where it appears contrary to that rule, he is liable as a general partner to creditors who extended credit without actual knowledge that he is not one. Article 1847 adds that a false statement in the certificate can be relied on, exposing any party who knew it was false to those who suffer loss.

How to keep influence without losing the shield

Influence belongs in the documents, not in daily practice. Article 1850 already withholds from general partners the authority to do certain things without the written consent or ratification of all the limited partners, including acts contravening the certificate, admitting a new general partner, and confessing judgment against the partnership. Consent rights of that kind, written into the certificate, are the route to a say in what matters. Read the certificate and the partnership agreement together, and if the day-to-day pattern has already drifted from them, that gap is what needs advice.

Related provisions

• Civil Code, Article 1848 — When a Limited Partner Becomes Liable as General
• Civil Code, Article 1843 — Limited Partnership Defined
• Civil Code, Article 1846 — Surname of a Limited Partner
• Civil Code, Article 1850 — Powers of a General Partner