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, regardless of which partner incurred them.
Why This Is the Correct Answer
In a general partnership, each partner has unlimited personal liability for all business debts and obligations. This means that if the business cannot pay its debts, creditors can pursue each partner's personal assets including homes, cars, and bank accounts. The liability extends to debts incurred by any partner in the course of business, making all partners jointly and severally liable. This unlimited liability is one of the major disadvantages of the general partnership business structure.
Why the Other Options Are Wrong
Option A: Limited to their investment amount
This describes limited liability, which applies to corporations or limited partnerships for limited partners, not general partnerships where liability extends beyond the initial investment.
Option B: Limited to 50% of total debt
There is no 50% limitation on liability in general partnerships - each partner can be held responsible for 100% of business debts if other partners cannot pay.
Option D: No personal liability
This would describe a corporation or LLC structure where owners have protection from personal liability, which is the opposite of a general partnership.
Memory Technique
Think 'GP = Generally Poor' - General Partners can lose everything (unlimited liability) vs 'LP = Limited Problems' - Limited Partners lose only their investment
Reference Hint
Business Law chapter covering Partnership structures and liability, typically found in the legal aspects section of contractor exam materials
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