The difference between a general partnership and a limited partnership is simply as the name implies. It contains one or more partners who are not liable for partnership obligations. There has to be at least one general partner and at least one limited partner.
A general partner may be an individual, a corporation, or any other legal domestic or foreign entity. A general partner may also be a limited partner, but does not need to be. The general partner(s) is generally liable for all of the partnership's obligations and debts.
A limited partner is not responsible for the partnership's debts (unless he/she is also a general partner). To fully qualify as a limited partner, that partner must not participate in the control of the business. This type of partner is usually just an investor which expects a return on their investment.
Limited partnerships may carry on any profit or no-profit business except in the fields of insurance and banking.
Since limited partnerships are governed by state statute, a partnership agreement should be agreed upon and then the partners need to file with the state in which the limited partnership is to be organized. Once filed, state limited partnership laws only comes into play if a matter has to be decided and it is not spelled out in the limited partnership agreement. Courts generally defer to the limited partnership agreement first and state law second.
Limited partnerships do not pay taxes. Instead they compute the income, expenses, and credits annually and report this to the IRS on Form 1065. Each individual partner is sent a Schedule K-1 (1065) and they report their share of any income or losses on their personal income tax returns.
It should be noted that the passive-income laws do not allow limited partners to deduct partnership losses on their personal returns. The loss must be carried over each year until such time that it can be deducted against partnership profits.