California Real Estate Practice Exam

What is the liability status of a general partner in a limited partnership?

1. Has limited liability

2. Has no limit to liability

3. Liability is restricted to the amount invested

4. No liability

The correct answer is: Has limited liability

The correct answer is that a general partner in a limited partnership has no limit to liability. In a limited partnership, there are two types of partners: general partners and limited partners. General partners actively manage the business and make decisions for the partnership, and they are personally liable for the debts and obligations of the partnership without limit. This means that they can be held accountable not only for the partnership's financial commitments but also for any potential losses, putting their personal assets at risk. In contrast, limited partners usually invest capital and have limited liability, meaning they are only liable for debts up to their investment in the partnership. This structure is designed to protect limited partners from personal liability beyond their investment while allowing general partners to control the business operations. Therefore, the differentiation in liability between general and limited partners is a critical aspect of limited partnerships, emphasizing the extensive legal responsibilities that general partners hold.