Certified Residential Appraiser Practice Exam

In terms of risk, what is characteristic of a general partnership?

1. Limited liability for partners

2. No liability for debts incurred

3. Personal and unlimited responsibility for all liabilities

4. Partnership is limited to real estate investments

The correct answer is: Personal and unlimited responsibility for all liabilities

A general partnership is characterized by personal and unlimited responsibility for all partners regarding the debts and obligations of the partnership. This means that each partner can be held liable for the partnership's debts, and creditors can pursue personal assets of the partners to satisfy business obligations. This trait underscores the risks involved in a general partnership, as all partners share the burden of financial liability. In contrast, limited liability is a characteristic found in limited partnerships or corporations, where certain partners or shareholders may not be held personally liable for the entity's debts beyond their investment. A general partnership also doesn’t exempt any partner from liability for debts incurred on behalf of the partnership—each partner is equally responsible regardless of their role or level of participation. Additionally, a general partnership is not limited to real estate investments; it can operate in various industries and sectors, thus broadening its scope beyond a single field.