What must occur for a limited partner to become liable to creditors?

A limited partner in a partnership enjoys limited liability, which means their financial responsibility for the partnership's debts is limited to their investment in the business. However, certain actions can alter this status. When a limited partner's name is included in the partnership's name, it can lead to personal liability. This is because including their name can imply that the limited partner is taking on an active role in the business rather than remaining a passive investor.

Incorporating their name in the partnership may lead creditors to assume the limited partner has the same level of involvement as a general partner, who is personally liable for the debts of the partnership. As a result, the limited partner becomes liable to creditors beyond the scope of their initial investment. This is a critical legal distinction that protects limited partners from the full obligations of the business when they maintain their role as passive investors.