It is better to never be a general partner if you can avoid it. But if you are going to be a general partner of a limited partnership that is either conducting any substantial business or taking investors, then you need to protect your assets first.
Personal asset protection is a major motivator behind creating a business entity to conduct business activities. For certain entities that means the protection of a corporate veil, but others are less safe.
On that note, a recent Forbes article “Miske: The Innocent General Partner Tagged With Liability For Losses Due To Misdeeds Of Another General Partner,” provides a word of caution when it comes limited partnerships via the case of Miske v. Bisno. In that particular case, one general partner in a limited partnership engaged in unwholesome activities, including embezzlement. Naturally, the embezzlement was discovered and led to a loss.
A limited partner then sued an entirely different general partner for the losses. The innocent general partner protested, arguing that he knew he was liable to third parties (which is bad enough), but not to limited partners in the same way. Unfortunately, the court didn’t agree, ruling that it doesn’t matter whether the suit is third-party or internal since a general partner is liable for the entity of which he or she is a general partner. As stated in the original article, “general partner” is just another way of saying “generally liable.”
Reference: Forbes (May 25, 2012) “Miske: The Innocent General Partner Tagged With Liability For Losses Due To Misdeeds Of Another General Partner”