Direct Participation Programs (DPPs): General Partner vs. Limited Partner Roles
In a real estate direct participation limited partnership (DPP), what are the legal liabilities and management authorities of the General Partner (GP) compared to a Limited Partner (LP)?
General Partners have UNLIMITED personal liability and active management control. Limited Partners have LIMITED liability (capital contributed) and must remain strictly passive.
Complete Analysis & Legal Rationale
In a limited partnership: (1) The General Partner (GP) has unlimited liability for all partnership debts, makes all day-to-day management decisions, buys/sells property, and acts as a fiduciary; (2) The Limited Partner (LP) is a passive investor whose financial liability is strictly limited to their invested capital (plus any agreed recourse debt). If an LP participates in the day-to-day control or management of the business, the LP legally forfeits limited liability status and becomes treated as a general partner.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
General Partners have UNLIMITED personal liability and active management control. Limited Partners have LIMITED liability (capital contributed) and must remain strictly passive.
Fails to adhere to packaged product rules for B.
Fails to adhere to packaged product rules for C.
Fails to adhere to packaged product rules for D.
Official Standard: In a limited partnership: (1) The General Partner (GP) has unlimited liability for all partnership debts, makes all day-to-day management decisions, b