What is a Limited Partner (LP)?
A limited partner is a passive investor in a limited partnership.
The LP contributes capital, receives a share of distributions and proceeds, and benefits from limited liability, meaning their loss is capped at what they invested. In tokenized real estate, token holders take the LP role when the SPV is structured as a partnership.
What an LP Receives
LPs receive a pro-rata share of the partnership’s distributable cash flow, paid on a defined schedule from rental income net of expenses, debt service, and reserves. They also receive their share of disposal proceeds when the property is sold or refinanced, after the GP’s promote and any preferred return waterfall.
LPs also receive information rights, including access to financial statements, tax documents, and periodic reports the GP delivers. Tax forms such as the K-1 flow through the partnership to LPs, who report their share of income, deductions, and credits on their personal returns.
Why Limited Liability Matters
An LP’s maximum loss is the amount they invested. If the partnership defaults on its mortgage, faces a liability claim, or cannot meet its obligations, creditors can pursue the partnership’s assets but cannot reach the LP’s personal assets. The investor risks committed capital, nothing beyond.
This protection depends on the LP staying out of management. Limited partnership statutes condition limited liability on the LP not participating in day-to-day control. An LP who crosses into active management can lose the protection, which is why governance rights are deliberately constrained to a defined set of major decisions.
What LPs Do Not Do
LPs do not run the property. They do not negotiate leases, hire vendors, decide on capital expenditures, or manage lender relationships. Operational decisions sit with the GP under the partnership agreement, and the LP’s involvement is limited to matters the agreement explicitly reserves for holder approval.
Reserved matters typically include sale of the property, refinancing, dissolution, removal of the GP for cause, and amendment of the agreement. Routine operations stay with the GP, while structural decisions trigger an LP vote at a defined threshold, often a simple or supermajority depending on the matter.
LPs in Tokenized Structures
When the SPV is a limited partnership, each token represents an LP interest. The on-chain register of holders is the partnership’s LP register, and the smart contract enforces transfer restrictions and distribution mechanics directly. When the SPV is an LLC, the equivalent role is the member, with rights defined under LLC law.
In either form, the LP economics are the same. Token holders pay capital, receive distributions, vote on reserved matters, and recover their share at exit. Tokenization improves the mechanics around recording holdings and paying distributions, but the legal and economic position of the holder mirrors a traditional LP.
Limited Partners at Node Proptech
Where a Node Proptech offering uses a partnership structure, token holders take the LP role with limited liability capped at the amount invested, distribution rights paid through the smart contract, and voting rights on reserved matters defined in the partnership agreement. The on-chain register serves as the partnership’s LP register, and operating documents disclose every right and obligation attached to the LP position before subscription.