In a general partnership, what is each partner's liability for business debts?
Correct Answer
C) Unlimited personal liability
In a general partnership, each partner has unlimited personal liability for all business debts and obligations. This means personal assets can be used to satisfy business debts.
Why This Is the Correct Answer
In a general partnership, each partner has unlimited personal liability for all business debts and obligations. This fundamental characteristic means that if the partnership cannot pay its debts, creditors can pursue each partner's personal assets including homes, cars, and bank accounts. This unlimited liability extends to debts incurred by any partner acting within the scope of the partnership business. It's one of the key disadvantages of the general partnership structure compared to corporations or limited liability companies.
Why the Other Options Are Wrong
Option A: Limited to their capital contribution
This describes limited partnerships or limited liability partnerships where some partners may have liability limited to their investment, but not general partnerships where all partners face unlimited liability.
Option B: Limited to a predetermined amount
General partnerships do not allow partners to predetermine or cap their liability exposure - the liability is unlimited regardless of any agreements between partners.
Option D: No personal liability
This would describe shareholders in a corporation, not partners in a general partnership who are personally liable for business debts.
Memory Technique
Think 'GP = Generally in Peril' - General Partners are Generally in Peril of losing personal assets due to unlimited liability.
Reference Hint
Florida Business Organizations Code, Chapter 620 - Partnership Law, or Business Law section covering partnership structures
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