Under what circumstances can a limited partner lose their limited liability?

A limited partner can lose their limited liability if they participate in managing the partnership. Limited partners are typically investors who have limited involvement in the daily operations and management of the partnership. Their liability is restricted to the amount of their investment in the partnership. However, if a limited partner becomes actively involved in managing the business, they may be reclassified as a general partner. This reclassification exposes them to unlimited personal liability for the debts and obligations of the partnership, defeating the very purpose of being a limited partner.

The other options do not affect the limited liability of a limited partner in the same direct manner. For instance, investing in a second business does not impact their status in the original partnership. Similarly, withdrawing from the partnership may lead to the loss of status and rights as a partner, but it does not inherently cause liability for debts incurred when they were still an active partner. Changing an investment strategy is also an internal decision and does not correlate to managing the partnership, thereby maintaining the limited partner's liability protections.