Certified Residential Appraiser Practice Exam

What defines a Limited Partnership (LP)?

1. All partners have equal liability

2. Only general partners are liable

3. A partnership with no liability

4. A partnership with both general and limited partners

The correct answer is: A partnership with both general and limited partners

A Limited Partnership (LP) is defined by the presence of both general and limited partners. In this structure, general partners manage the day-to-day operations of the partnership and hold personal liability for the debts and obligations of the partnership. Conversely, limited partners contribute capital and share in profits but do not participate in management and have limited liability, meaning they are only liable up to the amount of their investment in the partnership. This dual structure allows for a blend of investment and management capabilities, providing a mechanism for investors to contribute financially without risking their personal assets beyond their investment. The distinction between general and limited partners is crucial to the functioning of an LP, as it clearly delineates responsibilities and liabilities within the partnership. The other options do not accurately represent the structure or nature of Limited Partnerships: in an LP, not all partners share equal liability (as general partners have additional responsibilities), and a limited partnership is not a partnership with no liability; rather, it has a defined liability for general and limited partners.