partnership consisting of one or more limited partners and one or more general partners that is structured to find, extract, and market commercial quantities of oil and natural gas. The limited partners, who assume no liability beyond the funds they contribute, buy units in the partnership, typically for at least $5,000 a unit, from a broker registered to sell that partnership. All the limited partners' money then goes to the general partner, the partner with unlimited liability, who either searches for oil and gas (an exploratory or wildcat well), drills for oil and gas in a proven oil field (a developmental drilling program), or pumps petroleum and gas from an existing well (a completion program). The riskier the chance of finding oil and gas, the higher the potential reward or loss to the limited partner. Conservative investors who mainly want to collect income from the sale of proven oil and gas reserves are safest with a developmental or completion program.

Subject to passive income rules, limited partners also receive tax breaks, such as depreciation deductions for equipment used for drilling and oil depletion allowances for the value of oil extracted from the fields. If the partnership borrows money for increased drilling, limited partners also can get deductions for the interest cost of the loans.

income or loss from activities in which a taxpayer does not materially participate, such as limited partnership, as distinguished from (1) income from wages and active trade or business or (2) investment (or portfolio) income, such as dividends and interest. Starting with the tax reform act of 1986, and after modification by the revenue reconciliation act of 1993, losses and credits from passive activities are deductible only against income and tax from passive activities, although one passive activity can offset another and unused passive losses can be carried forward until the earlier of (1) your realization of passive income to offset such losses; or (2) your sale of your entire interest in the activity, at which time suspended losses from that activity can be used without limitation. Under the 1986 Act, real estate rental activities were considered passive regardless of material participation. The 1993 Act liberalized that provision for tax years after 1993 by making an exception for professionals spending at least half their time or at least 750 hours involved in real property trade or services or for anyone, apparently including a landlord, meeting the same tests of material participation. Regular corporations (as opposed to S corporations) are exempt from passive activity rules unless they are closely held.

public limited partnership composed of corporate assets spun off (roll out) or private limited partnerships (roll up) with income, capital gains, and/or tax shelter orientations. Interests are represented by depositary receipts traded in secondary market. Investors thus enjoy liquidity. Flow-through tax benefits, previously possible within passive income restrictions, were limited by tax legislation passed in 1987 that would treat most MLPs as corporations after a grandfather clause expired in 1998.

real estate, oil and gas, or equipment leasing limited partnership whose aim is high income, much of which may be taxable. Such a partnership may be designed for tax-sheltered accounts like Individual Retirement Accounts, Keogh plan accounts, or pension plans.

plan whose investors put up money to finance new product Research and Development. In return, the investors get a percentage of the product's profits, if any, together with such benefits as depreciation of equipment. R&D partnerships may be offered publicly or privately, usually through brokerage firms. Those that are offered to the public must be registered with the Securities and Exchange Commission.

limited partnership whose use of borrowed funds to finance the acquisition of properties is 50% or less of the purchase price. In contrast, a leveraged program borrows 50% or more. Investors seeking to maximize income tend to favor unleveraged partnerships, where interest expense and other deductions from income are at a minimum. Investors looking for tax shelters might favor leveraged programs despite the higher risk because of the greater amount of property acquired with the borrowed money and the greater amount of tax deductible interest but the longer depreciation periods required by tax legislation have substantially reduced the tax benefits from real estate.

a limited partnership whose interests are owned by members of the same family. By this arrangement, gift and estate taxes may be reduced. However, owners will not enjoy the freedom of complete ownership or free transferability of interest provided by other ownership vehicles.

1. member of a partnership who is jointly and severally liable for all debts incurred by the partnership-that is, a partner who does not have limited liability.
2. managing partner of a limited partnership who is in charge of its operations. A general partner has unlimited liability. See also limited partner.

form of business organization created by an agreement between two or more persons who contribute capital and/or their services to the organization. Advantages are: (1) it is easily established with minimal organizational effort and costs; and (2) it is free from special government regulation. Disadvantages are: (1) it carries unlimited liability for the individual partners (firms organized as co-partnerships do not dissolve with the death or withdrawal of a partner); (2) it is dissolved upon the withdrawal or death of any of the partners; and (3) its ability to raise large amounts of capital is limited. general partner are those who are responsible for the day-to-day operations of the partnership and who are responsible for the partnership's total liabilities, while limited partner are those who contribute only money, who are not involved in management decisions, and whose liability is limited to their investment.